Login to MIA Account

More FAQs

Ask Us!

Any other general enquiries?
Call us or drop us an email.

+603 2722 9000
+603 2722 9100

Email Us

Ethics May 2011

The International Ethics Standards Board for Accountants (IESBA) of the International Federation of Accountants (IFAC) has issued a Questions and Answers (Q&A) publication produced by the IESBA staff to assist member bodies and others as they adopt and implement The Code of Professional Ethics for Professional Accountants (the Code) issued by the IESBA in July 2009. The Code has been adopted with some modification by the Ethics Standards Board (ESB) of Malaysian Institute of Accountants (MIA or the Institute) and finalised as the MIA By-Laws on Professional Ethics for Accountants issued in December 2010 (the By-Law). Click this link to view the differences between the By-Law and the Code. The ESB of the Institute has reviewed the Q&A publication produced by the IESBA staff and finds it helpful to assist members in implementing the By-Law and have accustomed the Q&A that are applicable and relevant in the Malaysian context for members’ reference. This publication does not amend or override the By-Law, the text of which alone is authoritative. Reading this Q&A is not a substitute for reading the By-Law. This Q&A is not meant to be exhaustive and reference to the By Law itself should always be made. This publication does not constitute an authoritative or official pronouncement of the MIA. Background The MIA By-Law became effective on January 1, 2011, subject to some specific transitional provisions. The IESBA staff has developed materials to support the implementation of the Code which is also relevant in the implementation of the By-Law. IESBA staff received some questions from member bodies and others as they went through their adoption and implementation processes. This document contains some of those questions and answers.

May 2011

The International Ethics Standards Board for Accountants (IESBA) of the International Federation of Accountants (IFAC) has issued a Questions and Answers (Q&A) publication produced by the IESBA staff to assist member bodies and others as they adopt and implement The Code of Professional Ethics for Professional Accountants (the Code) issued by the IESBA in July 2009.

The Code has been adopted with some modification by the Ethics Standards Board (ESB) of Malaysian Institute of Accountants (MIA or the Institute) and finalised as the MIA By-Laws on Professional Ethics for Accountants issued in December 2010 (the By-Law). Click this link to view the differences between the By-Law and the Code.

The ESB of the Institute has reviewed the Q&A publication produced by the IESBA staff and finds it helpful to assist members in implementing the By-Law and have accustomed the Q&A that are applicable and relevant in the Malaysian context for members’ reference.

This publication does not amend or override the By-Law, the text of which alone is authoritative. Reading this Q&A is not a substitute for reading the By-Law. This Q&A is not meant to be exhaustive and reference to the By Law itself should always be made. This publication does not constitute an authoritative or official pronouncement of the MIA.

Background

The MIA By-Law became effective on January 1, 2011, subject to some specific transitional provisions. The IESBA staff has developed materials to support the implementation of the Code which is also relevant in the implementation of the By-Law. IESBA staff received some questions from member bodies and others as they went through their adoption and implementation processes. This document contains some of those questions and answers.

No. The prohibitions in the By-Law are derived from the application of the conceptual framework. Therefore, when an interest or relationship is prohibited, the IESBA has already considered whether safeguards can be effective in eliminating the related threat or reducing it to an acceptable level. Accordingly, the professional accountant may not apply safeguards, regardless of how rigorous they may be thought to be, to overcome the requirement to comply with a prohibition in the By-Law.

A1 No. The prohibitions in the By-Law are derived from the application of the conceptual framework. Therefore, when an interest or relationship is prohibited, the IESBA has already considered whether safeguards can be effective in eliminating the related threat or reducing it to an acceptable level. Accordingly, the professional accountant may not apply safeguards, regardless of how rigorous they may be thought to be, to overcome the requirement to comply with a prohibition in the By-Law.

The answer to both questions is no. Refer to the answer to Question 1 above. The significance of a threat does not differ just because an audit firm is a small firm. While the Board is sensitive to the issues faced by small firms, it concluded that other than the exception to partner rotation in paragraph 290.155, the requirements in the By-Law should not differ based on the size of a firm.

No. Under the conceptual framework approach in the By-Law, the interest or relationship must be evaluated to determine whether it creates any threats to independence. If any threats created are not at an acceptable level, safeguards must be applied to eliminate the threats or reduce them to an acceptable level. Only then would the interest or relationship be permitted.

Yes. The conceptual framework approach requires a rigorous analysis of the threats that may be created by the interest or relationship and an assessment of whether safeguards are available and can be applied to eliminate the threats or reduce them to an acceptable level. If that cannot be achieved, the interest or relationship should not be entered into. Accordingly, while the conceptual framework approach helps the professional accountant to determine how best to meet the objectives of the fundamental principles set out in the By-Law, it can also demonstrate that an interest or relationship should not be entered into because the threat that would be created would be such that no safeguards could reduce it to an acceptable level.

In the 2007 By-Law, the term ”clearly insignificant” was used to establish the starting point for determining which threats (i.e., threats that were not clearly insignificant) might require the application of safeguards. Under both the 2007 By-Law and Revised By-Law, a threat that is not at an acceptable level requires the application of safeguards to eliminate the threat or reduce it to an acceptable level before the interest or relationship that creates the threat can be deemed acceptable. Accordingly, the change simplified the application of the conceptual framework approach, without changing the requirement that threats that are not at an acceptable level be eliminated or reduced to an acceptable level by the application of safeguards.

Where the list of safeguards is preceded by wording such as “examples of such safeguards include,” the list is not all inclusive but merely contains examples of safeguards that the IESBA believes could be effective in the specific circumstance. Other safeguards might also be effective. Judgment would be required to determine the effectiveness of any safeguards in each circumstance. However, where the safeguards are prescribed, those safeguards must be applied.

Professional accountants in public practice who are partners or employees of firms may face circumstances that are similar to those that professional accountants in business might face when working for their employers. Some examples include (a) receiving an offer of inducement in an attempt to unduly influence the actions or decisions of the professional accountant in public practice, (b) being eligible for a bonus, the value of which could be affected by decisions made by the professional accountant in public practice, (c) being provided with insufficient time to properly perform relevant duties, and (d) being pressured to be associated with financial information that materially misrepresents the facts.

Yes

Generally, no. A tax partner is not an audit partner and, therefore, would typically not meet the definition of a key audit partner. However, judgment should be applied in determining whether a tax partner on the audit team functions in substance as an audit partner. If so, the tax partner would meet the definition of a key audit partner and be subject to the provisions in the By-Law that apply to key audit partners.

All interests and relationships with the related entity should be considered once the audit team has concluded that the related entity is relevant to its evaluation of the firm’s independence from the client.

No. The board believes that partner rotation strikes the right balance between the objective of bringing a fresh set of eyes to the engagement and the objective of retaining a firm’s institutional knowledge of the client to promote audit quality. The board concluded that other possible safeguards would not be effective in achieving the first objective.

The Board revisited the guidance on taxation services and concluded that the 2007 By-Law did not adequately address the range of tax services that clients request or the threats that such services may create. The Board believes that the statement in the 2007 By-Law that tax services “are generally not seen to create threats to independence” is appropriate when the service is tax return preparation, provided management takes responsibility for the returns and any significant judgments made in their preparation. However, the Board concluded that this is not always the case for other tax services and decided to expand the guidance in the By-Law to convey this to assist professional accountants in meeting the objectives of the fundamental principles.

Situations will vary depending on the taxing jurisdiction and judgment will be required. One example might be where the effectiveness of tax advice to deduct lease payments depends on the lease being treated as an operating lease for financial reporting purposes. In that case, the audit team will need to conclude without reasonable doubt that the operating lease treatment is appropriate for accounting purposes.

No. The fact that the service is not prohibited doesn’t automatically make it permitted. (Refer to the answer to Question 3.)

No. The IESBA believes that the statement continues to hold true. However, it is no longer necessary given the revised By-Law’s description of certain internal audit activities, which does not include performing extended procedures as part of a financial statement audit, and its expanded guidance on management responsibilities, both in the section dealing with internal audit services and in a new section dealing with management responsibilities.

No, an evaluation of any threats that may be created is still required. Paragraph 290.206 is a prohibitive provision. Just because a service is not prohibited under that paragraph doesn’t mean it is automatically permitted. (Refer to the answer to Question 3.)

Yes. Section 110, and therefore paragraph 110.3, applies to all professional accountants, including professional accountants in business. Accordingly, if a professional accountant in business can utilize a form of reporting that in substance accomplishes the same thing as a modified report issued by a professional accountant in public practice, 110.3 would apply.

A self-review threat is the threat that the professional accountant will not appropriately evaluate the results of the previous service and, for example, find any errors. However, once an error has been discovered, the professional accountant would need to address the error. The threat, therefore, is that the professional accountant might not do that because it is not in the accountant’s self-interest (or the firm or employing organization’s interest) to do so. Thus, upon discovery of the error, the threat that is created is a self-interest threat.

The requirement to dispose immediately reflects the urgency of reducing or eliminating the selfinterest threat created by such an interest so that the audit is not being conducted by those who have a financial stake in the outcome of the audit. Accordingly, if a member of the audit team or their immediate family member cannot dispose of the interest immediately, the individual should be removed from the audit team.

The By-Law, in paragraph 290.27, states that when the audit client is a listed entity, references in the By-Law to audit client include related entities of the client unless otherwise stated. The term “financial statements on which the firm will express an opinion” is used to make it clear which financial statements should be used to make the materiality determination. In the case of the audit of a consolidated group, it is the consolidated financial statements of that group. In the case of a single entity, it is the financial statements of that single entity.

Paragraph 290.3 states that the term “firm” includes network firm unless otherwise stated. The term “firm expressing the opinion on the financial statements” is used to make it clear that, in a group audit situation, materiality should be measured against the firm itself, and not the network firms. Paragraph 290.226(b) addresses network firms.

Section 291 applies equally with respect to non-audit assurance clients that are public interest entities and those that are not public interest entities. There is no distinction in that section between the two types of non-audit assurance clients. If the client is one for which the firm also provides an audit or review service, the provisions of Section 290 would also apply.