PROFESSIONAL ETHICS AND CODE OF CONDUCT

Introduction
Like the members of many other professional bodies, auditors have a set of multiple ethical
responsibilities. They are required to act ethically towards and in the best interests of the following
three groups:
 their clients;
 the accounting professional and
 the public at large

Professional ethics are the various moral issues that arise because of the specialist knowledge that
professionals attain, and the use of such knowledge is governed by Professional Bodies throughout
the entire life of rendering services to the public. Therefore, in order for us to understand the
meaning and importance of the phrase; professional ethics and code of conduct, we need first to
understand the terms profession, professional ethics, and the code of conduct.

Profession
Is the occupation which one (the professional) professes to be skilled in and to follow. It refers to
a vocation which a professed knowledge of some discipline of leaning or science is used in its
application to the affairs of others, or in the practice of an act founded upon it. It is an occupation
that requires considerable education and specialized training.

A body of practitioners providing one or more related services does not automatically become a
profession merely by attaching that label of the profession itself. Rather professional standing is
achieved as a matter of public acceptance in the case of those groups that have demonstrated that
they are worth of such recognition.

Characteristics of Profession:
A profession is distinguished by certain characteristics including:
i. Mastery of particular intellectual skill, require by training and education.
ii. Adherence of its members to a common code of values and conduct established by its
administration body including maintaining an outlook which is essentially objective
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 iii. Acceptance of duty to society as a whole (usually in return for restriction in use of title in
the granting of a qualification).

Members’ duty to their profession and to society may at times seem to conflict with their
immediate self interests, or their duty of loyalty to their employers.

Attributes of Profession
Professionals have specific attributes, which are common to groups that are generally recognized
as having achieved professional standing as follows:-

i. Provision of services in a field, which the general public is untrained. Professional for
example are registered groups of person rendering services in fields of specialties for which
the public is untrained and least informed:- Accountants, Economists, Doctors, Lawyers
and Engineers etc.
ii. Provision of service that is essentially intellectual and requires mastery of a substantial
body of specialized knowledge by means of a formal education process.
iii. Presence of underlying service motive that transcends (exceeds) the desire for monetary
gain. (i.e. beyond the range or domain or grasp of human experience).
iv. Evidence of the public interest in the provision of qualified services in the form of laws
restricting admission to practice of those who are not properly qualified. E.g. Professional
provide qualified services in the form of laws both statutory and in-laws so as to restrict
unqualified parties to practice the profession.
v. Recognition of practitioners that peer valuation may be based on other factors more
important than financial success.
vi. Existence of a strong organization dedicated to the advancement of the profession, devoted
to improvement of the services that the profession renders.
vii. Freedom from uninhibited competition so that practice may be carried on in an
atmosphere of dignity and self-respect, with adequate opportunity for concentration on
improvement of services.
viii. Active support of a code of ethical conduct through which the public may judge the
professional stature of those in practice.

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These attributes are applicable to any profession worth its name and one who rightfully believes
to possess these attributes can rightfully proclaim himself/herself to be a professional. Thus is the
performance of any duty/services, a professional would have to think not only of the interests that
he/she is serving, but also the general interests he/she is expected to serve in his/her relation to
society.

Objectives
Professional ethics and code of conduct recognizes that the objectives of accountancy profession
are to work to the highest standards of professionalism, to attain the highest levels of
performance, and generally to meet the public interest requirements for credibility,
professionalism. Quality services and public confidence. The public comprise of clients, credit
grantors, governments, employers, employees, investors, the business and financial community,
and others who rely on the objectivity and integrity of professional accountants to maintain the
orderly functioning of commerce.

Professional accountants have an important role in the society due to the fact that the public at
large do rely heavily on professional accountants for sound financial accounting and reporting,
effective financial management and competent advice on a variety of business and tax matters.
IFAC, 2005 Edition, says these objectives require four basic needs to be met:

 Credibility: in the whole society there is a need for credibility in information and
information systems.

 Professionalism: this is the need for individuals who can be clearly identified by
clients, employers and other interested parties as professional persons in the
accountancy field.

 Quality of services: this is the need for assurance that all services obtained from
professional accountants are carried out to the highest standards of performance.

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  Confidence: users of services of professional accountants should be able to feel
confident that there exists a framework of professional ethics which governs the
provisions of those services.

Ethics
Ethics can be defined as a set of moral principles or values, or rules of conduct. Ethics relate to
morals i.e. concerned with character or with the distinction between right and wrong. Moral sense
is the power of distinguishing between right and wrong. It is in the same spirit professions set
what I right and wrong for its members to abide to.

Meaning of Code of Ethical Conduct

In its normal usage, a code is a systematic collection of laws/statutes. It is a body of laws so
arranged to avoid inconsistency and overlapping. It is a set of rules on any subject.
A code of professional ethics is a voluntary assumption of self discipline providing above and
beyond the law. Its purpose is to notify the pubic that the code has the protection of the
professional. It also serves to curtail tendencies of corrupt practices.

Need for Professional Ethics

Ethics behaviour is necessary for a society to function in an orderly manner. They lay down the
essential requisites, which need to be observed by members in their course of daily professional
life.

Professional ethics exist because of the need for public confidence in the quantity of the services
rendered by the profession regardless of the individual providing it. For instance for an Auditor, it
is essential that the client and other Financial Statement users have confidence in the quality of
the audits and the audit reports and hence the need for the code of conduct to guide members of
the profession.

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Importance of Professional Ethics
Professional ethics are very important to achieve the following ends.
a) Acceptance of the Profession by Society
A distinguishing make of any profession it’s the acceptance of it is responsibility to the
public. The public comprise various store holders in the business, commercial and Industry.
They all sell on the objectivity and integrity of professionals to maintain their orderly
functioning.

b) Serving public interest

A professional Account’s responsibility is to satisfy the interests of the general public who
rely on the credibility rendered by the profession.

For example:
 Independent Auditor help to maintain the integrity and efficiency of the Financial
Statements presented to financial institutions in support for loans and stockholder for
obtaining loans.
 Financial Executives serve in various Financial Management capacities in organization
and contribute to the efficient and effective use of the organization resource.
 Internal Auditor provides assurance on internal controls and operational efficiency.

FUNDAMENTAL PRINCIPLES
In order to achieve professional objectives, members to the profession must observe a number of
perquisites, or specific fundamental principles as follows:
1. Integrity:
The term integrity implies honesty, fair dealing and trustfulness. All professional accountants as a
mater pf principle must be fir, intellectually honest and free from conflicts of interest. Integrity is
defined as the wholeness, soundness, uprightness, and honesty.

2. Objectivity:
A professional accountant should be fair and should not allow prejudice or bias, conflict of interest
or influence of others to override objectivity. Objectivity here means the combination of
impartiality, intellectual honesty and freedom from conflict of interests. It is the ability to free
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oneself from person prejudice. Impartiality is that aspect of being fair or unprejudiced.
Objectivity refers to the carefully protected procedures and tests to arrive at conclusions such that
a similar independent test by another professional accountant would give the same results and
conclusions.

3. Professional Competence and Due Care:

It is a professional requirement for a professional accountant to perform professional services
with due care, competence, and diligence and have a continuing duty to maintain professional
knowledge and skills at a level required to ensure that a client or employer receives advantage of
competent professional service based on up-to-date developments in practice, legislations, and
techniques.

4. Confidentiality:
This is a fundamental principle of all accountants to perform professional services with due care,
competence, and diligence and have a continuing duty to maintain professional knowledge and
skills at a level required to ensure that a client or employer receives advantage of competent
professional service based on up-to-date developments in practice, legislations, and techniques.

5. Professional Behaviour:
A professional accountant should act in a manner consistent with the good reputation of the
profession and retrain from any conduct which might bring discredit to the profession.

6. Technical Standards:
A professional accountant should carry out professional services in accordance with the most
Up-to-date, relevant technical and professional accountants to apply the most current practices
when rendering services to their clients.

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 Diagram 1: Fundamental Principles of Professional code of ethics

Being straight forward & honest in conduct of all

Integrity
professional services

Objectivity Being unbiased & impartial in the conduct of his

business

Professional Competence Maintaining professional knowledge & skill & providing

and Due Care professional services conscientiously

Maintaining confidentiality of information received as a

Confidentiality result of professional/business relationship

Adhering to applicable laws & regulations & avoiding

Professional Behaviour
those acts which may discredit the profession

Ethical Dilemma
An ethical dilemma is a situation a professional faces in which decision must be made about the
appropriate behaviour.
For instance, an Auditor:
 Dealing with a client who threatens to seek, a new Auditor unless an unqualified
opinion is issued, presents a serious ethical dilemma if an unqualified opinion is
inappropriate.
 Deciding to whether confront a Supervisor who has materially overstated department
revenues, as a means of receiving large bonuses is a difficult ethical dilemma.
 Continuing to be a part of the management of a company that harasses and mistreats
employees, or treats customers dishonestly is a moral dilemma, especially is a person
has a family to support and the job market is tight.

Ethical dilemma thus is live challenging situations normally faced by professionals in their
ordinary course of rendering professional services to the public.

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Specifically, they are faced with a difficult situation of deciding to say yes and betray their person
and/or professional morals, or say no and loose revenue necessary for their survival as
professionals or as professional firms.

This is the essence for existence of professional ethics and the voluntary assumptions of self-
discipline above and beyond the laws of the land in a society.

Professionals are strictly required to say no when they are faced with situations requiring them to
act contrary to professional ethics. This is the reason for Auditors taking new appointments to
communicate and obtain consent of the outgoing Auditor or refrain from accepting the
appointment if prohibited from communicating or when consent from outing Auditor is obtained
clearly specifying the reasons for quitting as having to do with the non-fulfillment of professional
ethics.

RATIONALISING UNETHICAL BEHAVIOUR

We have seen the impact of Ethical Dilemma in making professional decisions, and how the same
can derail Professionals from their track of rendering quality services to the public. In some cases
Professionals act contrary to professional morals knowingly, and that amounts to rationalizing
unethical behaviours. There many ways in which professionals tend to rationalize unacceptable
behaviours as follows:

Every body does it.

Professionals from often find themselves involved in unethical deals simply because others are
doing it. The argument that it is accept that it is acceptable behaviour for example to falsify tax
returns, cheat on exams or sell defective products in commonly based on rationalization that every
one else is doing it and therefore it is acceptable. As a professional, don’t just do simply because
others are doing.

If it is legal is ethical
We have noted that professional codes of conduct are moral rules set by the profession for its
members to abide to. The impact of the codes of professional conduct is that, if it is legal, it is
ethical; similarly, if it is proved illegal, it will prove unethical in the eyes of the law. Using the
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argument that all legal behaviours are ethical relies heavily on the law professional. Under this
philosophy, one would have no obligation to return a lost object unless the other person proves
that it was his or hers. So any thing legal is ethical and anything legal is unethical.

Likelihood of discovery and consequences.

This is philosophy relies on evaluating the likelihood that some one else will discover the
behaviour. Typically the person assesses the magnitude of the penalty (consequences) if there is
discovery. For example, deciding whether to correct an unintentional over billing to a customer
has already paid the full bill. If the seller believes that the customer will detect the error and
respond by not buying in the future, the seller will inform the customer now, otherwise he will
wait to see if the customer complains. It is ethical to inform that error were made customer and
compensation will be made from future bills.

Resolving Ethical Dilemma

We have observed that ethical dilemma is complex and difficult situations that are always met by
professionals in their ordinary course of rendering professional services. When they act immorally
and knowingly, they are said to rationalize unethical behaviours. There many alternative ways of
resolving ethical dilemma, but care must always be taken to avoid those methods that are
rationalization of unethical behaviours.
The following 6 steps approach is a relatively simple approach to solving complex ethical dilemma.
i. Obtain the relevant fact i.e. collect all relevant and only necessary facts.
ii. Identify the ethical issue from the facts
iii. Determine who is affected by the outcome of the dilemma, and how each person or group is
affected.
iv. Identify the alternative available to the person who must resolve the dilemma.
v. Identify the likely consequence of each alternative
vi. Decide the appropriate action.

Special need for ethical conduct in professions

The society attaches a special meaning to the term professional. A professional is expected to
conduct himself/herself at higher levels than other members of the society.

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Example: When the press reports that a clergyperson, for example the recent case of sodomy by
an RC Pastor, or raping. If such crime is committed by a Doctor, or a CPA (T) holder, most people
feel more disappointed than when the same thing happens to any other ordinary people who are
not labeled as professionals.

The term professional thus means a responsibility for conduct that extends beyond satisfying the
person’s responsibilities to himself/herself, and beyond the requirements of our society’s laws
and regulations.

THE ETHICS CODE OF CONDUCT FOR AUDITORS IN TANZANIA.

In Tanzania, the ethical code of conduct for Auditors covers mostly, the same characteristic
requirements, and specific fundamental principles, most of which are recognized world – wide as
follows: -
 Be fair, intellectually honest, and free from conflict of interest
 Protect the integrity of his professional services and maintain objectivity in his
judgment.
 Neither accepts nor offer gifts or entertainments which may reasonably be believed to
have improper influence.

Objectivity:
Professional objectivity on the other hand refers to the careful protected procedures and tests to
arrive at conclusion such that a similar independent test of another professional would give the
same conclusion.

Ethical Conflicts.
A professional accountant shall be conscious of, and be alert to conflicts of interest includes the
following relationships.

i. Confidentiality:
The Auditor needs to observe and maintain confidentiality with regard to client’s affairs. The
relationship should be that of the Doctor and the patient, and that all dealings should be treated

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with great confidence. Thus a member in public practice shall not disclose any confidential client
information without the specific consent of the client expect for specific situation.

ii. Competence and Technical Standards:

An auditor must be qualified, that is, must have undergone the professional training and must be
recognized as a Certified Public Account, and or Certified Public Accountant in Public practice. An
Auditor must posses adequate professional experience. The NBAA require a minimum of 3 year of
working experience after qualification before one becomes eligible to be registered as a CPA – PP.
 An Auditor must strictly observe the profession’s technical standards and other
statutory legislations.
 Auditor must be striving to continually improve his / her competence and quality of
audit services through quality review schemes and participation in CPE.

iii. Obtaining Professional Work:

 A member of profession should not at any time seek or obtain professional work for
himself/herself, or of others in an unprofessional manner.
 The auditor should certainly not be after any financial or other incentives to third
parties to procure work on his/her behalf.
 On new engagements, members are requires to communicate with the former
incumbent auditor(s) before accepting nominations.

iv. Independence:
It is a requirement that an Auditor should have an ability to form his/her opinion and report the
facts without any bias. It is further implies that the Auditor should maintain integrity and
objectivity while undertaking the audit engagement and be independent of those parties he/she is
serving. The auditor should thus be both independence in an appearance and in fact.
Independence in appearance is the auditor’s ability to maintain an unbiased viewpoint in the eyes
of others. Independence in fact on the other hand is the auditor’s ability to take an unbiased view
point in the performance of professional services.

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Compliance with the Code of Conduct
The professional code of conduct for Accountants in Tanzania was assented as a by Law in 1999
vide Government Notice No. 213 of 30 th 1999. The by Law was made under the Auditors and
Accountants (Registration) Act. These requirements by professional accountants are in line with
the International Federation of Accounts (IFAC) codes of ethics set the Fundamental Principles to
be observed by all professional accounts in order to achieve the objectives of the accountancy
profession as mentioned above.

The Tanzania codes of conduct are thus part of the Federation of Accountants (IFAC) codes of
ethics applicable throughout the world. Generally the professional Accountant codes of conduct
and ethics by – laws deal with the following key issues.

The Specific Professional Ethics for Accounts in Tanzania

Part 11 of the NBAAs code professional ethics for Professional Accountants are as follows:

1. Professional Accountant
Means a Certificated Public Accountant or a Certificated Public Accountant in public either
registered or unregistered with the Board.

2. Integrity and Objective

Every professional accountant defined above shall
 be fair, intellectually honest and free of conflicts of interests.
 Protect the integrity of these professional services and maintain objectivity in his
judgment.
 Neither accept nor offer gifts or entertainments which may reasonably be believed to
have significant and improper influence on the professional judgments of those with
whom he deals.

3. Ethical Conflicts
A professional accountant shall be conscious of and be alert to factors that give rise to conflicts of
interests. Conflicts of interests includes:

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  Relationship or interest that may adversely influence, impair or threaten a professional
accountant’s integrity.
 An act that is contrary to technical professional standard.
 divide loyalty between the professional account’s superior and the required
professional standard of conduct.
 published misleading information which may, or may not benefit the professional
accountant.

4. Professional Competence
 A professional Accountant shall not portray himself/herself as having an expertise that
he/she does not posses.
 Shall adopt a programme designed to ensure quality control in the performance of
professional services in accordance with national and international standard.

5. Confidentiality
A professional accountants shall observe the following:
 Respect the confidentiality of information about a clients or employer’s affairs acquired
in the course of professional services even after the end of the relationship between the
professional course of professional services even after the end of the relationsh9p
between the professional accountant and the client or employer.
 Observe Confidentiality of information unless specific authority is given, or there is
legal, or professional duty to disclose that information.
 Ensure that staff under his control and persons from whom advice and assistance is
obtained respect the principles of confidentiality.

NB: Disclosure of confidential information may be required under the following circumstance:
a) To produce documents or to give evidence in legal proceedings.
b) To disclose to the appropriate public authorities infringements of the law which comes to
light.

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 6. Tax Practices
A professional accountant who renders professional tax services shall observe the following:
 put forward the best position in favour of a client or employer in accountancy with the
law, but not in any way impair integrity and objectivity.
 take necessary steps to ensure that the client or employer is aware of the limitations
attaching to tax advice and services.
 Record the advice or opinion of material consequences given to a client or employer.
 Not be associated with any return or communication in which there is reason to believe
that;
i. It contains a false or misleading statement
ii. It contains information furnished recklessly or without any real knowledge of
whether they are true or false.
iii. Omits or observes information required to be submitted hence misleading the Revenue
authorities.
 May prepare tax returns involving the use of estimates if that use is generally
acceptable.
 May rely on information furnished by client or an employer if appears reasonable.
 Make use of the client/s return for prior years whenever feasible and make inquiry
when information appears to be incorrect.

Material Error or Omission on Tax Returns

Where a professional accountant learns of a material or omission in a tax return of a prevision
year, which he may or may not have been associated, or of a failure to file a required tax return
he/she promptly advise the client or employer of the error or omission and recommend that
disclose be made to revenue Authorities.

7. Cross Boarder Activities

A professional accountant qualifying in one country may reside in another country, or may
temporally visit that country to perform professional services.

In considering the application of ethical codes in cross border activities the following shall be
taken into consideration:
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 i. Whether a professional accountant is a member of the professional accountants in
Tanzania only, or
ii. Whether a professional accountant in the country where the services are performed.

Where ethical differences exists between TZ and the other country:

 The IFAC ethical Code of ethics should be applied or
 That country’s code if it is stricter than IFAC

8. Advertising Professional Services

In marketing and promoting professional services, a professional accountant shall observe the
following:
 Not advertise the professional service in newspapers, catalogues and signboard and any
other means of advertisement. A signboard announcing the location of a registered
office premises or listing of name and address in a public a directory shall not constitute
an advertisement.
 Not use any means that brings the professional into disreputw
 Not make exaggerated claims for services they able to offer, the qualification they posses
or experiences they have gained
 Not denigrate the work of other professional accounts

CASE STUDY ON ETHICAL DILEMA

Bryan Longview has been working for 6 months as a staff for Barton & Co. CPAs. Currently is
assigned to the audit of Reyon, Manuf. Co. under the supervision of Charles Dickson, and
experienced auditor senior.

There are three auditors assigned to the audit including Bryan, Charles and more experienced
assistant, Martha Mills. During lunch on the first day, Charles says, “It will be necessary for us to
work a few extra hours on our time to make sure we come in out budget.” This audit isn’t very
profitable anyway, and we don’t want to hurt our firm by going over budget. We can accomplish
this easily by coming in half an hour early, but taking a short lunch break and working an hour or
so after normal quitting time. We just won’t write that time down on our time report”. Bryan
recalls reading in the firm’s policy manual that working and not charging for them on the time
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report is a violation of Barton & Co’s employment policy. He knows that seniors are paid bonuses.
Later, when discussing the issue with Martha, she says “Charles does this on all his jobs. He is
likely to be our firm’s next under budget. He rewards us by giving us good engagement valuations,
especially under the cooperative attitude category. Several of the audit seniors follows the same
practice.

ANALYSIS
1. Relevant Facts
There are three key facts in this situation that deal with the ethical issue and how the issue will
likely to be resolved.
i. The staff person has been informed that he will work hours without
recording them as hours worked.
ii. Firm policy prohibits this practice.
iii. Another staff person has stated that, it is common in the firm.

2. Ethical Issue
The ethical issue in this situation is not difficult to identify. Is it ethical for Bryan to work hours
and not record them as hours worked in this situation?

3. Who is affected and how is each affected?

There are typical more people affected in this situation in which ethical dilemmas occur than
would normally be expected. The following are key person involved in this situation.

WHO HOW
Bryan - Being asked to violate firm policy.
- Hours of work will be affected.
- Pay will be affected
- Performance valuation may be affected
Martha - Same as Bryan above
Charles - Success on engagement and in firm may be affected
- Hours of work will be affected.
Borton + Co - Stated firm policy is being violated
- May result in under billing clients in the current and future
engagements.
- May affect firm’s ability to realistically budget engagements.

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 - May effect firm’s ability to motivate and retain employers.
Staff assigned to - May Result in unrealistic time budgets
Reyon Manuf. - May result in unfavourable time performance evaluations.
Co.
- May result in pressures to continue practice not charging for
hours worked.
Other Staff in - Following the practice on this engagement motive others to follow
firm: the same practice on other engagements.

4. Bryan’s available alternatives

 Refuse to work the additional hours.
 Perform in the manner requested.
 Inform Charles that he will not work the additional hours or will charge the additional
hours to engagement.
 Talk to a Manager or partner about Charles request.
 Refuse to work on the engagement.
 Quit working for the firm.

Each of these options includes a potential consequence, the worth likely one being termination by
the firm.

5. Consequence of each Alternative

 In deciding the consequence of each alternative, it is essential to evaluate both the short
and long term effects.
 There is a natural tendency to emphasize the short-term consequences because they
will occur quickly, even the long-term ones may be more important.

For example, if Bryan decided to work the additional hours and not report them
 In short-term, he will likely get good evaluations for and perhaps a salary increase.
 In longer term what will be the effects of not reporting the hours this time when other
ethical conflict arise?

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  A supervisor asks Bryan to work 3 unreported hours daily and 15 unreported hours
each week end.
 A supervisor asks Bryan to initial certain audit procedures as having been performed
when they were not.
 Bryan includes that he cannot be promoted to Manager unless he persuades assistant to
work hour that they do not record.

6. Appropriate Action
Only Bryan decides the appropriate option to select in the circumstances after considering his
ethical values and the likely consequence on each option.

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