Ethics - A guide to the guide

Tony Bromell reviews a first tranche of revisions to The Guide to Professional Ethics

The Chartered Accountants Joint Ethics Committee (CAJEC) has a remit to keep The Guide to Professional Ethics (GPE) under constant review to ensure that it remains relevant and in touch with the needs of the members and the public. To this end, CAJEC has submitted to the ICAEW's Council a number of revisions to the statements comprising the GPE, and will make further submissions over the next few months.

The following revised statements have now been approved by Council for implementation with effect from 1 August 2001:

•   1.200, Guide to Professional Ethics - Introduction and Fundamental Principles

•   1.206, Changes in a Professional Appointment

•   1.212, The Names and Letterheads of Practising Firms

•   1.213, Giving Second Opinions (previously Second and Other Opinions).

In addition, statement 1.208, Agencies, will be implemented on the date the ICAEW becomes a designated professional body under the Financial Services and Markets Act 2000. This date, generally referred to as 'N2' is not precisely known yet, but the government has indicated that it is unlikely to be later than the end of November this year.

No change to the text of the following statements is included in the current revisions:

•   1.202, Insolvency Practice

•   1.209, Associations with Non-Members

•   1.220, Guidance on Ethical Matters for Members in Business.

Only the format of these three statements has been amended to align with the presentation of the new revised statements.

Revisions to the remaining statements will come into place during the remainder of this year and further articles in Accountancy will alert you to these as they arise.

The text of the five revised statements will be included in a future issue of Accountancy, but they can be accessed before that from the members' website,, together with the existing statements in the GPE. Access is through the Services - Legal & Ethical --Standards of Professional Conduct menu options. In case of difficulty with accessing the website, copies of the revised statements can be obtained from the Professional Standards Office on request to

The opportunity has been taken to rewrite the statements to clarify guidance in many instances. In addition, there have been a number of changes of substance to the revised statements referred to above. The principal changes are summarised below.

1.200, Guide to Professional Ethics - Introduction and Fundamental Principles

Where possible, the GPE has been prepared adopting a principles-based framework approach, which seeks to apply guidance through an analysis of threats and safeguards. This approach was pioneered by CAJEC and has now been adopted by a number of international accounting bodies. A new section has been included in this statement, explaining the approach and its application.

The statement notes that prohibitions and absolute requirements are highlighted throughout the revised guidance. However, it should be noted that this is for ease of reference: it is not indicative of a move towards a rule-based, prohibitive approach. In accordance with the framework approach, prohibitions are included only where no suitable safeguards are appropriate.

1.206, Changes in a Professional Appointment

Experience has indicated that the somewhat rigid requirements of the existing guidance have been causing difficulties to members in some circumstances. The requirement for a prospective appointee to consult with his predecessor before accepting appointment and to act in certain ways on the outcome has therefore been reworded, to permit some flexibility.

1.208, Agencies

The new statement removes the embargo on non-authorised practising members becoming an appointed representative of another person authorised to conduct investment business. This is in recognition of competition issues and in expectation of the changes that will be made to the appointed representative requirements in the new Financial Services and Markets Act 2000. These will allow designated professional body firms to become an appointed representative of another authorised firm.

However, in view of the fundamental principles that members must adhere to, nonauthorised firms may only be appointed representatives of persons authorised to conduct investment business who are able to give independent and objective advice.

The new guidance also takes account of the Financial Services Authority's consultation on proposals to liberalise the polarisation regime with respect to product providers and independent firms.

As noted, the new guidance will not take effect until 'N2', when the Act comes into force. The existing guidance reflecting the current Financial Services Act 1986 will continue to apply until then.

1.212, The Names and Letterheads of Practising Firms.

The only significant additional requirement included in these five revised statements, by comparison with the existing guidance, is a new requirement in respect of corporate practices describing themselves as 'chartered accountants'. Where such practices do not list the directors on their letterheads, they should maintain a list of directors, distinguishing chartered accountants from others, and should refer to the availability of that list on the letterheads. A combination of the existing guidance and the provisions of the Business Names Act 1985 already imposes such a requirement on partner-ships using the description 'chartered accountants'. The new requirement has been included to bring greater consistency in the guidance as between corporate practices and partnerships.

1.213, Giving Second Opinions

The statement has been reworded to define more clearly its application, which is in respect of matters that have been, or might be expected to have been, considered by a third party's auditors. It now includes a warning of the dangers of 'opinions expressed informally' and clarifies the need to make enquiries to ensure that opinions are not given in ignorance of all the facts. The statement identifies a clear 'self-interest threat', which should be addressed by appropriate safeguards.


The key definitions used in the revised statements are being collected together and will be included in a new statement, 1.221. This will not be issued in final form until the revised 1.201 on assurance engagements is finalised. To enable the now-approved statements to be issued and used in advance, an interim set of definitions is being issued, including definitions used in those statements.

Tony Bromell is head of professional standards policy at the ICAEW

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