Fundamental Principles Members of the ACCA must comply with the fundamental principles set out in the Code

of ethic and conduct. Professional accountants are required to abide by the following five fundamental principles: The first principle is integrity. A professional accountant should be straightforward and honest in all professional and business relationships. The second principle is objectivity. A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments. The third principle is professional competence and due care. A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. The forth principle is confidentiality. A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. The final principle is professional behavior. A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession. Threats to independence and objectivity Compliance with the fundamental principles of professional ethics may potentially be threatened by a wide range of different circumstances. These generally fall to five categories. The first treat is self- interest threat. A self- interest treat arises when auditors have financial or other interests which might cause them to be reluctant to take actions that would be adverse to the interests of the audit firm or any individual in a position to influence the conduct or outcome of the audit. For example, where they have an investment in the client, are seeking to provide additional services to the client or need to recover long outstanding fees from the client. The second treat is self- review threat. A self- review treat arises when the results of a non- audit service performed by the auditors or by others within the audit firm are reflected in the amount included or disclosed in the financial statements (for example, where the audit firm has been involved in maintaining the accounting records, or

undertaking valuation that are incorporated in the financial statements). In the course of the audit, the auditors may need to reevaluate the work performed in the non- audit service because the audit firm may be unable to take an impartial view on those services. The third treat is intimidation threat. An intimidation threat arises when the auditors conduct is influenced by fear or threats (for example, where they encounter an aggressive and dominating individual). However, certain circumstances may give rise to more than one type of threat. For example, where an audit firm wishes to retain the fee income from a large audit client, but encounters an aggressive and dominating individual, there may be a self- interest threat as well as an intimidation threat. The forth treat is advocacy threat. Advocacy threats arise in those situations where the assurance firm promotes a position or opinion to the point that subsequent objectivity is compromised. Examples include commenting publicly on future events in particular circumstances, having made assertions without detailing the assumptions, or acting as a legal advocate for the client in litigation. Advocacy threats might also arise if the firm promoted shares in a listed audit client. The fifth threat is familiarity threat. A familiarity (or trust) threat arises when the auditors are predisposed to accept or are insufficiently questioning of the clients point of view. These include situations where they are family and personal relationships between the client and firm, long association with a client, employment with a client and recent service with a client. Ways to reduce the threats The way to reduce the threats is establishing a strong code of conduct that is reinforced by the firms senior personnel and with appropriate actions when the code is violated. It also should require a quality review of each audit during the audit and before issuing the audit opinion and also should require an external quality review of the firms accounting and auditing policies and procedures by outside professionals. Furthermore, can disclose to the audit committee the nature and extent of the litigation and remove specific affected individuals from the engagement team. Moreover, using different departments to carry out the work and making disclosures to the audit committee. Remember, the ultimate option is always to withdraw from an engagement if the risk to independent is too high. Besides that, the ways to reduce threats also can separate the audit function from the consulting function within the firm; and not providing those services which could impair independent to audit clients.