Exposure draft: Proposed revisions to the code to promote the role and mindset expected of professional accountants

ISA 200 Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing defines professional scepticism as ‘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 recent years there have been a number of calls for the professional accountancy Standard-setting Boards to review the way in which their existing guidance addresses ‘professional scepticism’ with a view to strengthening the concept and requiring all professional accountants to exercise it, rather than solely audit and assurance practitioners.

As a result, the IESBA issued an exposure draft entitled Proposed Revisions to the Code to Promote the Role and Mindset Expected of Professional Accountants (the Exposure Draft). The Exposure Draft proposes revisions to the International Code of Ethics for Professional Accountants (the Code) which promote the role and mindset expected of professional accountants. These proposals include the following:

  • Highlighting the wide-ranging role in society of professional accountants and the relationship which exists between compliance with the Code and a professional accountant’s responsibility to act in the public interest.

  • Changes to the definitions of the fundamental principles of objectivity and professional behaviour.

  • The addition of new application material in respect of the fundamental principle of integrity to include a determination to act appropriately.

  • Strengthening the Code through requiring professional accountants to have an inquiring mind when applying the conceptual framework and exercising professional judgement.

  • Emphasising the importance of being aware of the dangers of bias when carrying out professional work and of professional firms having a positive, internal organisational culture.

The purpose of this article is to review and provide a summary of the key proposals contained within the Exposure Draft.

Role and responsibility

The proposed revisions to the Code explain that compliance with the Code enables accountants to meet their responsibilities to act in the public interest. In its explanatory memorandum, however, the IESBA concedes that compliance with the Code, in itself, does not necessarily mean that professional accountants discharge this responsibility in full. The revisions also highlight the fact that professional accountants are involved in a wide range of roles and acknowledge that organisations involve professional accountants in these activities because they recognise the skills and values that they bring to the activities they undertake.

Objectivity and professional behaviour

The proposed revisions include enhancements to the descriptions of the fundamental principles of objectivity and professional behaviour. The Exposure Draft proposes to revise the definition of "objectivity" in order to express the principle in positive rather than negative terms. The proposed new definition moves away from defining objectivity negatively, in terms of not compromising professional or business judgements to a more positive emphasis on the actual exercise of professional or business judgements, without these being compromised by factors such as bias, conflicts of interest or any form of undue influence by, or undue reliance on other parties.

In developing the Exposure Draft, the IESBA also considered the potential impact of technological developments such as artificial intelligence and big data on the ethical behaviour of professional accountants. As a result of these concerns, the revised description of ‘objectivity’ highlights the risks of technology impairing a professional accountant’s objectivity. In this respect it is also significant that the IESBA has included ‘automation bias’ in its proposed list of examples of bias under Section 120 of the Code (this is considered more fully below). The inclusion of references to technology in the Fundamental Principles and Conceptual Framework is aimed at recognising the transformations in accounting, assurance and finance as a result of technology developments and their potential impact on compliance with the Code and the professional accountant’s ability to comply with the principle of objectivity.

The Exposure Draft also proposes to strengthen the fundamental principle of "professional behaviour" by including a requirement that professional accountants must behave in a manner that is consistent with the profession’s responsibility to act in the public interest, rather than just being focussed internally on the profession itself. This proposed revision is therefore aimed at reinforcing the relationship between compliance with the five fundamental principles and a professional accountant’s responsibility to act in the public interest.


The Exposure Draft also proposes to add new application material to the Code in relation to the fundamental principle of ‘integrity’. The new application material states that integrity includes having the determination to act appropriately when confronted with dilemmas or difficult situations, providing the following examples of what this might involve:

  • standing one’s ground when facing pressure to do otherwise during the course of performing professional activities, or
  • challenging others when appropriate, even when doing so creates potential adverse personal or organisational consequences.

During the development of the Exposure Draft, the IESBA considered incorporating the term ‘moral courage’ in its Code of Ethics and whether to include a statement that the courage to act morally is an underpinning qualitative characteristic required of a professional accountant. The IESBA was, however, concerned that the term "moral" in an international (as opposed to say a national) code of ethics could be construed inconsistently in different jurisdictions and cultures given the subjective and culturally dependent nature of ethics and morality. The IESBA also considered the use of the term ‘resolve’ in its revised definition of the fundamental principle of integrity in the sense of ‘having the firm determination to do something’, but concluded that such a term might also be problematic in an international code of ethics in that it may cause significant translation issues.

Therefore the Exposure Draft’s inclusion of the concept of determination to act appropriately in difficult situations and its position within the principle of integrity emphasises the need to do the right thing regardless of the challenges faced by a professional accountant. At a time when the accountancy profession is under enormous pressure and scrutiny, it seems the focus of the change is to ensure that the revisions to the Code convey that it is one thing for an accountant to know something is wrong, but actually having the courage to speak up will be vital to compliance.

Application of the conceptual framework: having an enquiring mind

Following its Consultation Paper Professional Scepticism – Meeting Public Expectations in May 2018, the IESBA states that following the extensive feedback received during their consultation work, it is broadly accepted that professional accountants should have a mindset that encapsulates the following characteristics:

  • The ability to obtain and understand information relevant for making reliable judgements based in facts and circumstances which are known to the professional accountant
  • The capability to make informed challenges of the views developed by others
  • Sensitivity to the integrity of information, including the source of the information and the appropriateness of its presentation, and
  • Be able to withhold judgement until careful consideration can be given to all known and relevant available information.

The IESBA concluded that there was general agreement that the term 'professional scepticism' should be reserved for use only in an audit or assurance context. The Exposure Draft is therefore proposing to revise the sections of the Code which are applicable to all professional accountants to include a new element that they should ‘have an inquiring mind’ when applying the conceptual framework. In this regard, the IESBA preferred to use the word ‘mind’ rather than ‘mindset’ on the basis that the former term denotes a way of thinking whereas the latter term relates to a set of attitudes.

As a result, the proposals contained within the Exposure Draft are aimed at promoting the need for professional accountants to be inquisitive and curious about the information available and to conduct the necessary assessment or investigation of the integrity, relevance and sufficiency of that information to reach an informed decision. The IESBA has therefore proposed to include new application material which defines ‘having an inquiring mind’ as:

i. being open and alert for situations and information (or the lack thereof) that might require further investigation; and

ii. considering whether there is a need to critically evaluate the information obtained where the need for, extent and nature of, any investigation, including critical evaluation, will depend on the nature, scope and outputs of the professional activity being undertaken.

The Exposure Draft also seeks to clarify that the relevant information for further investigation or critical evaluation is the information which has already been obtained by the professional accountant, in order to avoid the perception that a professional accountant must consider any information available to the accountant or any other persons.

While it might be maintained that the existing requirements of the Code already require all professional accountants to consider or remain alert to whether facts and circumstances have changed and therefore already oblige them to exercise an inquiring mind in the judgements they reach, making this more explicit is likely to be helpful to users of the Code. Overall, the concepts of professional scepticism and having an inquiring mind appear to be well aligned and complementary as the exercise of scepticism is a vital quality for all professional accountants.

Application of the conceptual framework: bias

As a result of its consultation process on professional scepticism, the IESBA concluded that it is important to heighten awareness of the risks arising from bias. The Exposure Draft therefore proposes to emphasise awareness of any professional accountant’s individual bias in order to help to reduce its risk and impact, particularly on the exercise of professional judgment, and therefore to contribute towards effective application of the conceptual framework. In order to complement this addition, the Exposure Draft is also proposing to include an illustrative list of common forms of bias in the Code. These are as follows:

  • Anchoring bias: a tendency to use an initial piece of information as an anchor against which subsequent information is adequately assessed

  • Automation bias: a tendency to favour output generated from automated systems, even when human reasoning or contradictory information raises questions as to whether such output is reliable or fit for purpose

  • Availability bias: a tendency to place more weight on events or experiences that immediately come to mind or are readily available than on those that are not

  • Confirmation bias: a tendency to place more weight on information that corroborates an existing belief than information that contradicts or casts doubt on that belief

  • Groupthink: a tendency to think or make decisions as a group that discourages creativity or individual responsibility

  • Overconfidence bias: a tendency to overestimate one’s own ability to make accurate assessments of risk and other judgements or decisions

  • Representation bias: a tendency to base an understanding on a pattern of experiences, events or beliefs that is considered to be representative

  • Selective perception: a tendency for a person’s expectations to influence how the person views a particular matter or person

These suggested changes to the Code are aimed at allowing the professional accountant to recognise the role of bias, pressure and other impediments which may influence behaviour. Perhaps more importantly, that by raising awareness in relation to potential bias, the professional accountant can reduce the risk and impact of its effect, particularly on the ability to exercise professional judgement. By recognising the risk of bias and considering the possible sources of bias using the examples above, the professional accountant will be able to identify and mitigate for the subsequent threats created. The Exposure Draft suggests that through consulting others or seeking advice from experts, additional input or appropriate challenge can be achieved and enhance the evaluation process.

Application of the conceptual framework: importance of organisational culture

The IESBA also believes that the internal culture of an employer, whether it is an audit firm of professional accountants or another type of organisation, can have a significant impact on whether or not professional accountants comply with the Code and act ethically. The Exposure Draft therefore proposes to emphasise the importance of a positive internal organisational culture to the effective application of the conceptual framework by introducing new application material within the Code itself. In particular it explains that ethical culture is most effective when:

(a) Leaders and those in managerial roles hold themselves and others accountable for demonstrating the ethical values of the organisation

(b) Appropriate education and training programs, management processes, and performance evaluation criteria that promote that ethical culture are in place: and

(c) Ethical values are adhered to in dealings with third parties.

These proposed changes are complimentary to the work being carried out by the IAASB in relation to Proposed International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, which sets out requirements and application material in the relation to the firm’s responsibility to design and implement an effective system of quality management.


The proposals contained within the Exposure Draft serve as an important reminder to professional accountants of the significance of their role in society and the importance of compliance with the Code towards fulfilling their responsibility to act in the public interest. The proposals also highlight the need to strengthen the fundamental principles and enhance the application of the conceptual framework through the introduction of new concepts such as the importance of having an inquiring mind.

Written by a member of the AAA examination team