Accounting, Edición 56

Regulations and Code of Ethics in Accounting Practice, an Inseparable Pair

By: María Candelas
ITAM

Since the beginning of the 21st century, globalization has had a major impact on financial information regulations worldwide. There were profound changes in the issuing bodies, from their name to their form of organization and their processes for issuing standards to develop objective, reliable and transparent financial reporting.


The codes of ethics have also changed, both in the international area, issued by the International Federation of Accountants (IFAC), as in that applicable to Mexico, issued by the Instituto Mexicano de Contadores Públicos, IMCP (Mexican Institute of Public Accountants).

The issuing body of the International Accounting Standards – the International Accounting Standards Committee (IASC) – was transformed into what is now the International Accounting Standards Board (IASB), and the regulations that it issued, the International Accounting Standards (IAS), became part of the International Financial Reporting Standards (IFRS).

In Mexico, the previous issuer of standards, the Instituto Mexicano de Contadores Públicos, IMCP (Mexican Institute of Public Accountants), is currently part of the Consejo Mexicano de Normas de Información Financiera, CINIF (Mexican Board of Financial Reporting Standards), along with other founding organizations that belong to the regulatory sector, such as the Comisión Nacional Bancaria y de Valores, CNBV (National Banking and Securities Commission), the education sector, such as the Asociación Nacional de Facultades y Escuelas de Contaduría y Administración, ANFECA (National Association of Colleges and Schools of Accounting and Administration), and other sectors, such as the Asociación de Bancos de México (Association of Banks of Mexico), among others. The CINIF is responsible for carrying out the convergence of local standards with international standards and issues what is now called the Mexican Financial Reporting Standards (Normas de Información Financiera, NIF), in which reports prepared by the IMCP that remain valid are included. The Mexican Financial Reporting Standards have been in force since January 1, 2006. The following diagrams illustrate the transformations of the issuing bodies of standards internationally and in Mexico, as well as the standards that they issue.

In addition, the International Standards on Auditing issued by the International Auditing and Assurance Standards Board, which is also part of the IFAC, were adopted for all audit work beginning on or after January 1, 2012.

In a few years, one of the most significant changes in the accounting profession has been carried out. However, the changes cannot be stopped, and regulations adapt to the ever-changing economic environment. The CINIF continues its task of convergence to reduce more and more the differences between the NIF and the IFRS.

Mexico has taken another convergence process: the transformation of the code of ethics, which in its ninth edition aligns its content to the international code of ethics issued by the IFAC. This ninth edition has been in force since October 1, 2012. As in the issuance of the Normas de Información Financiera (NIF) (Mexican Financial Reporting Standards), adapted in accordance with the business environment of our country, the non-applicable or uncommon provisions in the accounting profession were eliminated and some of the provisions of the eighth edition that were not in the international code of ethics were added.

With the accounting profession acting in the public interest, it must have a strong code of ethics, which all members of the accounting profession should know and apply, regardless of the sector in which their activities are performed. To promote awareness of the code, since 2015 and in accordance with the newly transformed Norma de Desarrollo Profesional Continuo (Standard of Continuing Professional Development), all active partners of the federated associations to IMCP must complete five or more hours of ethics and professional responsibilities to receive annual updating and maintain professional knowledge certification, in order to ensure the quality of service to society and to obtain the endorsement of the certification. One of the options for complying with these required points is to take courses on the code of professional ethics.

The new code of ethics is divided into five parts:

Part A: General application of the code

Part B: Public accountants in independent practice

Part C: Public accountants in public and private sectors

Part D: Public accountants in teaching

Part E: Sanctions

Part A provides a conceptual framework that establishes and describes the characteristics of the five fundamental principles: integrity, objectivity, diligence and professional competence, confidentiality and professional behavior. It indicates that in the face of the threats to compliance with these fundamental principles, safeguards can be applied that eliminate or reduce them. These can be of personal interest, self-review, intercession by the client, familiarity and intimidation. Safeguards are divided into two main categories: those created by the profession, legislation or regulation, and those of the working environment. The first are, for example, corporate governance rules and professional standards; safeguards of the working environment depend on whether the activity is developed in independent practice or in the public and private sectors, which will be discussed in greater depth in Parts B and C, which also clarifies that it is impossible to describe all the circumstances and relationships that may create threats to compliance with the fundamental principles. Thus, it is recommended that those who perform their activities in independent practice and in the public and private sectors be alert to the circumstances and relationships.

Part B, “Public accountants in independent practice,” occupies 143 of the 195 pages of the code, more than 73% of the total. This part addresses the themes of professional designation, conflicts of interest, second opinions, fees and other types of remuneration, marketing of professional services, gifts and invitations, custody and management of customer assets, objectivity of all services and independence in the audit work and revision and in assurance engagements.

It is noteworthy that in the section of marketing professional services in Part B, it was previously forbidden to advertise and only client recommendations were accepted. Now, this code allows marketing if the independent public accountant issues announcements or other forms of marketing that do not bring discredit to the profession, that do not make exaggerated claims about the services offered or about the qualifications or experience of the professional, and that does not make disparaging references or unsubstantiated comparisons with the work of others. Furthermore, the final section of the code defines the word “advertisement” in the following way: “Communication of information to the public on the services provided by Public Accountants and their capabilities in independent practice, in order to obtain professional business.”

Part C, “Public accountants in the public and private sectors,” establishes guidelines concerning potential conflicts, preparation and reporting information, performance with sufficient expertise, financial interests and incentives. It states that accountants, who are responsible for the preparation and reporting of information that can be trusted both by the entities for which they work and the third parties involved, must promote a culture based on ethics.

Part D describes in a single page the obligations of public accountants in teaching: to guide students to act in accordance with the standards of professional ethics, to keep up to date in the areas of their practice, to treat their students in a decent and respectful manner, encouraging them to better themselves; to refrain from exposing real cases with information that identifies individuals, companies or institutions, unless the information is in the public domain; to refrain from making comments that harm the reputation of persons or the profession and, in general, to respect the prescribed discipline.

Part E indicates, also in a single page, the sanctions. It specifies that penalties will be imposed by the affiliated association to which the accountant belongs or by the Mexican Institute of Public Accountants. Depending on the severity of the act committed for the prestige and stability of the profession, the penalty may be: private reprimand, public reprimand, temporary suspension of the rights as a partner, expulsion, or complaint to the authorities.

A section with definitions of terms used immediately follows at the end.

Conclusion
The provisions of the code of ethics will be subject to constant review and, as with the Mexican Financial Reporting Standards, adaptations may be needed in accordance with changes in the environment. It will also be required that those who perform the various activities covered by the profession are kept constantly updated, that they know the changes that arise over time and that they transmit high ethical values that serve as an example to those who are starting out in the field.

References

IMCP (2012). Código de ética profesional, 9a. ed., México, IMCP.

Norma de Desarrollo Profesional Continuo. Consultado el 5 de diciembre de 2015. Disponible en: <http://imcp.org.mx/normatividad/norma-de-desarrollo-profesional-continuo#.VmdP9U-FPIW>.

CINIF–IMCP (2015). Normas de Información Financiera (NIF), 10a. ed., México, IMCP.

Code of Ethics for Professional Accountants. Consultado el 7 de diciembre de 2015. Disponible en: <http://www.ethicsboard.org/iesba-code>

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