An updated code of ethics has this week been published by the International Federation of Accountants after ‘two long years’.
The new code comes as the eyes of businessmen and financial regulators across the world have focused on audit standards in the wake of the collapse of US energy giant Enron and the role of its auditors Andersen.
Designed to be a basic guide for IFAC’s 156 member bodies, the code has largely concentrated on auditor independence. Completion of the long-awaited work has been greatly welcomed by the UK profession.
Graham Ward, UK board member of IFAC, said: ‘The IFAC code states the fundamental principles that should be observed by professional accountants to meet their responsibility to protect the public interest.
‘A universal, internationally set code makes it easier for firms to comply and ensures users of financial statements, wherever they are based, know what standards have been applied.’
More significant for the UK is that IFAC has chosen a conceptual approach to auditor independence over the US rule-book method, which has come under heavy scrutiny since Enron’s $80bn failure.
John Collier, secretary general of the ICAEW, said: ‘We’re proud and pleased that the global code is consistent with UK standards.’
Many argue that the code could not have been more timely given the ongoing Enron saga, investigations into Andersen’s auditing processes and the reopened debate on auditor independence.
‘Its thinking is current. And because it deals in principles it should be sensitive enough to accommodate some of the things being talked about now,’ said Collier.
Ward agreed. ‘We’ve got something that’s flexible enough to deal with changes. The ethics committee can respond quickly.’
Perhaps most noteworthy about the revamped IFAC code is that it was adopted unanimously by an ethics board whose chairwoman is Marilyn Pendergast, a US accountant and partner in a medium-sized firm in America.
Ward said: ‘It shows that she believes this approach is right.’
Whether Pendergast and IFAC can persuade the US Securities and Exchange Commission of its benefits remains to be seen. Enron has however started the balling rolling.
‘We’re seeing a re-examination by the SEC and people in the States of accounting, auditing and ethical principles. And they should give very serious consideration to a principles-based approach.
‘It is better for the world’s financial markets if we all follow common standards,’ said Ward.
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