Ethics Guidance: Revisions to ethics guidance

The ICAEW's council has recently approved three revisions to the Guide to Professional Ethics and brought in auditor independence best practice provisions, additional to those included in Statement 1.201. All of these provisions will come into effect from 1 October this year.

Tony Bromell
Corporate finance, Conflict & Confidentiality, Fees and Auditor Independence

The three statements being revised are 1.203: Corporate Finance Advice, 1.205: Conflicts of Interest & Confidential Information (which also replaces 1.204), and 1.210: Fees. As with the revisions introduced in 2001, the revisions do not significantly change the substance of the existing guidance in the areas covered, but do give additional clarification.

The full text of the three statements will appear in next month's issue of Accountancy and, as with other components of the GPE, can be accessed from the institute website, Select Professional Standards, then Guide to Professional Ethics. In case of difficulty, copies of the revised statements can be obtained from the institute on request to

As a consequence of the changes, some revisions have also been made to the definitions used in the revised statements within the GPE. These are now contained in statement 1.221.

A summary of the key changes is indicated below.

1.203: Corporate Finance Advice

The statement applies to members in practice who give corporate finance advice. This would include: general corporate finance advice; acting as adviser in relation to take-overs and mergers; underwriting and marketing or placing securities on behalf of a client; and acting as sponsor or nominated adviser under the Listing Rules and the AIM Rules respectively.

There are no changes to the underlying principles of the existing statement but additional guidance is given. In particular, provision is made for take-over situations requiring the approval of the Takeover Panel.

1.205: Conflicts of Interest & Confidential Information The revised statement combines the existing statements 1.204 and 1.205. It applies principally to members in practice, thought the core principles apply to all members. As with 1.203, there are no significant changes to the fundamental guidance in these areas, but additional analysis and examples are provided. For example, the revised statement clarifies that the duty of confidentiality includes taking steps to preserve that confidentiality, and there is additional guidance on dealing with conflicts between the interests of different clients.

Other changes include an additional section on whistleblowing and strengthened requirements to record safeguards in place on practice engagements.


This statement provides advice to members in practice on ethical issues relating to the charging of fees. In comparison with the existing statement, the revision includes three changes of note: emphasis is given to the danger of threats to objectivity through over-reliance on a single client in respect of assurance engagements; provisions relating to low-balling are consolidated and clarified; and there is additional guidance on factors to be taken into account in determining fees.

Auditor Independence

The ICAEW is working, together with the other main accountancy bodies in the United Kingdom and the Republic of Ireland, on a common revision to the current guidance on auditor independence. This revision will take into account the guidance on independence in assurance engagements revised by the International Federation of Accountants at the end of last year, and the recently released European Commission Recommendation on statutory auditors' independence.

It is anticipated that this revision will be implemented in 2003. However, in the meantime the council of the institute has agreed that audit firms registered with the ICAEW should regard the proposals in the EC Recommendation, to the extent that they cover circumstances not specifically addressed in Statement 1.201, as best practice from 1 October 2002.

In essence, the principles-based threats and safeguards in Statement 1.201 will continue to be applied, but the analysis of threats and safeguards results in a number of additional specific requirements. These broadly include:

Wider application to individuals in a position to influence the audit, directly or through relationships, and to network affiliates of audit firms;

Further clarification of restrictions on business relationships and the holding of financial interests by indirect means;

For audits of public interest clients, introduction of a two year cooling-off period for key audit partners joining audit clients in key management positions, and an extension of the existing partner rotation requirements;

More specific guidance on what non-audit services may be provided to audit clients and on what safeguards should be adopted when providing such services.

Guidance is currently being written on what this means in practice and it will be published before the implementation date.

Tony Bromell is head of ethics standards policy at the ICAEW

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