5.1 ICAB & IFAC Five Fundamental Ethical Principles

ICAB & IFAC Five Fundamental Ethical Principles

1. Statutory & Governance Context of Accounting Ethics in Bangladesh

Professional ethics form the bedrock of the accountancy and auditing profession worldwide. In Bangladesh, the Institute of Chartered Accountants of Bangladesh (ICAB), established under the Bangladesh Chartered Accountants Order, 1973 (President's Order No. 2 of 1973) and governed by the ICAB Bye-Laws 2004, regulates the professional conduct of all chartered accountants and CA firms. As a full member body of the International Federation of Accountants (IFAC), ICAB has fully adopted the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA).

Furthermore, the enactment of the Financial Reporting Act, 2015 (FRA) created the Financial Reporting Council (FRC), an independent executive oversight body. The FRC enforces compliance with ethical, accounting, and auditing standards among auditors of Public Interest Entities (PIEs). In Bangladesh, ethical standards carry both professional regulatory force (through ICAB disciplinary proceedings) and statutory enforcement weight (through FRC sanctions and provisions under the Companies Act, 1994).

The Conceptual Framework vs. Rule-Based Approach

The ICAB/IESBA Code of Ethics operates on a conceptual framework approach rather than a rigid, purely rule-based system. A rule-based approach attempts to list every single permitted or prohibited activity, which can lead to technical compliance that circumvents the spirit of the law. In contrast, the conceptual framework requires professional accountants to:

1. Identify threats to compliance with the fundamental principles.
2. Evaluate the significance of the identified threats.
3. Address the threats by eliminating them or reducing them to an acceptable level by applying appropriate safeguards.

This framework applies to all professional activities, whether a chartered accountant is in public practice (auditing, consulting, tax advisory) or in business (employed as CFOs, financial controllers, or internal auditors).

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2. Deep-Dive into the Five Fundamental Principles

The IESBA Code sets out five fundamental principles that every professional accountant must strictly observe. A breach of any of these principles threatens the credibility of the entire profession and undermines public trust in financial reporting.

Get the section numbers right. ICAB publishes the restructured International Code of Ethics for Professional Accountants (2018 edition onwards) on its own website. In that Code the principles sit together in Section 110 — The Fundamental Principles, with one subsection each: 111 Integrity, 112 Objectivity, 113 Professional Competence and Due Care, 114 Confidentiality and 115 Professional Behaviour. Pre-2018 textbooks number the same five principles 110, 120, 130, 140 and 150. Those numbers are superseded — use the current ones, which are also the numbering that sits consistently alongside the NOCLAR sections (260 and 360) you will meet later in this chapter.

Principle 1: Integrity (ICAB/IESBA Code, Subsection 111)

Integrity requires a professional accountant to be straightforward, honest, and truthful in all professional and business relationships. Integrity implies fair dealing and truthfulness.

Under Subsection 111 of the Code, a professional accountant must not knowingly be associated with reports, returns, communications, or other information where the accountant believes that the information:

• Contains a materially false or misleading statement;
• Contains statements or information furnished recklessly; or
• Omits or obscures information required to be included where such omission or obscurity would be misleading.

Practical Bangladesh Context: If an audit assistant discovers during the statutory audit of a manufacturing company in Gazipur that management has deliberately included unrecorded fictitious revenue to inflate profits for a bank loan application, the auditor cannot sign off on or remain associated with those financial statements. If management refuses to correct the records, the auditor must modify the audit opinion or resign from the engagement to uphold integrity.

Principle 2: Objectivity (ICAB/IESBA Code, Subsection 112)

Objectivity obligates a professional accountant not to compromise professional or business judgment because of bias, conflict of interest, or undue influence of others.

Objectivity requires an accountant to evaluate audit evidence and financial disclosures impartially. An auditor must maintain independence of mind and independence in appearance to ensure that professional judgments are free from external pressures, personal relationships, or financial self-interest.

Practical Bangladesh Context: A senior audit partner whose close relative serves as the Finance Director of a listed commercial bank in Dhaka cannot participate in the statutory audit of that bank. Even if the partner believes they can remain unbiased, a reasonable third party would perceive a severe compromise of objectivity.

Principle 3: Professional Competence and Due Care (ICAB/IESBA Code, Subsection 113)

Professional Competence and Due Care requires a professional accountant to:

• Maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current technical and professional standards and relevant legislation; and
• Act diligently in accordance with applicable technical and professional standards.

This principle encompasses two operational dimensions:

1. Attainment of Professional Competence: Requires passing professional examinations (such as the ICAB CA qualification) and completing mandatory practical articleship training.
2. Maintenance of Professional Competence: Requires ongoing awareness and understanding of relevant technical, professional, and business developments. ICAB enforces this through mandatory Continuous Professional Development (CPD) credit hours for all practicing members.

Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly, and on a timely basis. Furthermore, professional accountants must ensure that those working under their authority in a professional capacity have appropriate training and supervision.

Principle 4: Confidentiality (ICAB/IESBA Code, Subsection 114)

Confidentiality requires a professional accountant to respect the confidentiality of information acquired as a result of professional and business relationships.

Under Subsection 114, an accountant must:

• Be alert to the possibility of inadvertent disclosure, including in a social environment and particularly to a close business associate or immediate family member;
• Maintain confidentiality of information within the firm or employing organization;
• Maintain confidentiality of information disclosed by a prospective client or employer; and
• Not use confidential information acquired as a result of professional and business relationships for personal advantage or for the advantage of third parties.

The duty of confidentiality continues even after the end of the relationship between the accountant and the client or employer.

Principle 5: Professional Behavior (ICAB/IESBA Code, Subsection 115)

Professional Behavior obligates a professional accountant to comply with relevant laws and regulations and avoid any conduct that the accountant knows or should know might discredit the profession.

This includes refraining from actions that a reasonable and informed third party, weighing all the specific facts and circumstances available to the accountant at the time, would likely conclude negatively affects the good reputation of the profession. When marketing and promoting themselves and their work, professional accountants must not bring the profession into disrepute. Accountants must be honest and truthful and must not:

• Make exaggerated claims for the services they are able to offer, the qualifications they possess, or experience they have gained; or
• Make disparaging references or unsubstantiated comparisons to the work of others.

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3. Comparative Summary Table of the Five Fundamental Principles

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4. The Conceptual Framework Approach in Detail

The conceptual framework specifies a three-stage process that auditors must apply when dealing with ethical dilemmas:

[ Stage 1: Identify Threats ]
              │
              ▼
[ Stage 2: Evaluate Significance ] ──(Acceptable Level?)──> YES ──> Proceed with Engagement
              │                                  
              NO                                 
              ▼                                  
[ Stage 3: Address Threats ] ──(Apply Safeguards or Eliminate Threat)
              │
              ▼
If Safeguards Insufficient ──> Decline / Resign from Engagement

1. Identifying Threats: The practitioner must evaluate whether any facts or circumstances create threats to one or more of the five fundamental principles.
2. Evaluating Threats: If threats are identified, the practitioner must evaluate whether they are at an acceptable level. An acceptable level is defined as a level at which a reasonable and informed third party would likely conclude that the professional accountant complies with the fundamental principles.
3. Addressing Threats: If identified threats are not at an acceptable level, the practitioner must address them by:
   • Eliminating the circumstances, including interests or relationships, that are creating the threats;
   • Applying safeguards to reduce the threats to an acceptable level; or
   • Declining or ending the specific professional activity or engagement.

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5. Professional Skepticism & Judgment in Ethical Evaluation

Applying the conceptual framework requires exercising professional judgment and maintaining professional skepticism. Professional skepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

In Bangladesh, auditors operate under complex economic environments featuring family-dominated corporate governance, high non-performing loan (NPL) ratios in banking, and changing statutory tax directives from the National Board of Revenue (NBR). Maintaining professional skepticism ensures that an auditor does not accept management explanations at face value when ethical principles or statutory compliance are compromised.