Ethics forms the foundation of the accounting profession. To maintain public trust, accountants must uphold objectivity, integrity, and professional behaviour in all aspects of their work. However, various ethical threats can compromise judgment and create situations where an accountant’s independence—or the perception of independence—may be at risk. Recognising these threats and applying appropriate safeguards is essential to protect both the profession and the public interest.
Ethical Threats
1. Self-Interest Threat
A self-interest threat arises when an accountant’s personal interests conflict with their professional duties. Financial gain, career pressure, or relationships may influence judgment.
Example: An accountant manipulating figures to secure a bonus or favour a friend.
2. Self-Review Threat
A self-review threat occurs when an accountant evaluates their own previous work or the work of their team. This can compromise objectivity because individuals may be reluctant to highlight their own mistakes.
Example: Preparing financial statements and then auditing them.
3. Advocacy Threat
An advocacy threat occurs when an accountant promotes or defends a client’s position so strongly that their objectivity becomes compromised.
Example: Acting as a spokesperson for a client during a legal dispute while also preparing their financial statements.
4. Familiarity Threat
A familiarity threat arises when a close or long-standing relationship with a client, colleague, or employer creates excessive trust or sympathy.
Example: Overlooking errors in the accounts of a long-term client due to personal friendship.
5. Intimidation Threat
An intimidation threat occurs when an accountant faces pressure, coercion, or undue influence from clients, employers, or others. This pressure may cause them to act unethically or compromise their judgment.
Example: Being threatened with dismissal unless certain financial results are reported.
Safeguards to Reduce Ethical Threats
Safeguards are actions or controls put in place to eliminate or mitigate ethical threats to an acceptable level. These may come from legislation, professional bodies, or internal organisational policies.
1. Safeguards Against Self-Interest Threats
- Avoiding or disclosing conflicts of interest
- Rotating staff in key roles
- Introducing independent reviews or external oversight
- Ensuring compensation structures do not reward unethical behaviour
2. Safeguards Against Self-Review Threats
- Assigning independent teams to conduct reviews
- Implementing strict segregation of duties
- Adhering to professional standards and quality-control procedures
3. Safeguards Against Advocacy Threats
- Limiting involvement in roles that require promoting a client's position
- Ensuring separate teams handle advocacy and assurance tasks
- Following objectivity and independence guidelines established by professional bodies
4. Safeguards Against Familiarity Threats
- Regularly rotating personnel working with long-term clients
- Requiring disclosure of personal relationships
- Employing external reviewers who have no connection to the client
5. Safeguards Against Intimidation Threats
- Seeking guidance from professional bodies or ethical committees
- Escalating concerns to higher management or governance bodies
- Using whistleblowing procedures when faced with undue pressure
- Documenting all interactions to create a clear audit trail
The Importance of Ethical Awareness
Accountants must remain alert to situations where ethical threats may arise and take proactive steps to address them. Strong organisational policies, continuous professional training, and a culture that promotes ethical behaviour all help safeguard independence and uphold the credibility of the profession. By identifying risks early and applying appropriate safeguards, accountants protect both their professional integrity and the trust placed in them by clients, employers, regulators, and society as a whole.
