By MIA’s Capital Market and Assurance
The Revised By-Laws (On Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants [Revised By-Laws of MIA] which came into effect on 15 June 2019 made the provision on inducements far more robust.
A professional accountant shall not offer/accept, or encourage others to offer/accept, any inducement that is made, or which the accountant considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behaviour of the recipient or of another individual. Furthermore, a professional accountant shall remain alert to potential threats to the accountant’s compliance with the fundamental principles (FPs) where an inducement is being offered to or made by an immediate or close family member. The professional accountant shall also advise the immediate or close family member not to offer or accept the said inducement in the event there is intent to improperly influence the behaviour of the accountant or of the counterparty or the accountant considers a reasonable and informed third party would be likely to conclude such intent exists.
The determination of whether there is actual or perceived intent to improperly influence behaviour requires the exercise of professional judgement. Relevant factors to consider might include:
- The nature, frequency, value and cumulative effect of the inducement.
- Timing of when the inducement is offered relative to any action or decision that it might influence.
- Whether the inducement is a customary or cultural practice in the circumstances, for example, offering a gift on the occasion of a religious holiday or wedding.
- Whether the inducement is an ancillary part of a professional service, for example, offering or accepting lunch in connection with a business meeting.
- Whether the offer of the inducement is limited to an individual recipient or available to a broader group. The broader group might be internal or external to the firm, such as other suppliers to the client.
- The roles and positions of the individuals at the firm or the client offering or being offered the inducement.
- Whether the professional accountant knows, or has reason to believe, that accepting the inducement would breach the policies and procedures of the client.
- The degree of transparency with which the inducement is offered.
- Whether the inducement was required or requested by the recipient.
- The known previous behaviour or reputation of the offeror.
Examples of actions that may be safeguards to address threats created by offering or accepting such an inducement include:
- Being transparent with senior management of the firm or of the client about offering or accepting an inducement.
- Registering the inducement in a log monitored by senior management of the firm or another individual responsible for the firm’s ethics compliance or maintained by the client.
- Having an appropriate reviewer, who is not otherwise involved in providing the professional service, review any work performed or decisions made by the professional accountant with respect to the client from which the accountant accepted the inducement.
- Donating the inducement to charity after receipt and appropriately disclosing the donation, for example, to a member of senior management of the firm or the individual who offered the inducement.
- Reimbursing the cost of the inducement, such as hospitality, received.
- As soon as possible, returning the inducement, such as a gift, after it was initially accepted.
In a nutshell, the key revisions to the ethics code relating to inducements afford a proper framework to guide the behaviour and actions of all professional accountants in situations involving inducements. They provide more examples of “what are inducements”. It also provides application material to help the professional accountants to understand what could assist them in applying the conceptual framework in relation to the offering and accepting of inducements when performing professional activities/services.
Below are three flowcharts that have been developed by the International Ethics Standards Board for Accountants (IESBA) to facilitate and explain the thought process and logical steps that could be taken by a professional accountant in dealing with the ethical issues that may arise from offering or accepting an inducement. These flowcharts are extracted from Appendix 1 to 3 of the Basis for Conclusions: Revisions to the Code Pertaining to the Offering and Accepting of Inducements which is downloadable from the IESBA’s website with references to the respective paragraphs in the MIA By-Laws on Professional Ethics.