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TECHNICAL ADVISORY SERVICES HELPSHEET

Ensuring objectivity

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Published: 01 Jan 2020 Reviewed: 01 Jan 2020 Update History

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Technical helpsheet issued to help ICAEW members to consider their objectivity when undertaking a non-assurance engagement, in compliance with the ICAEW code of ethics.

Introduction

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members to consider their objectivity when providing services to their clients.

Members may also wish to refer to the following related helpsheet and guidance:

Requirements for objectivity

Professional accountants must ensure that they comply with the principles of objectivity as set out in paragraph R112.1 of the ICAEW Code of Ethics with respect to all services that they provide.

A professional accountant must therefore determine whether there are threats to compliance with the fundamental principle of objectivity, evaluate the significance of such threats and apply safeguards where necessary to eliminate them or reduce them to an acceptable level. If safeguards cannot eliminate or reduce the threat(s) to an acceptable level, the engagement shall be declined or terminated as appropriate.

Threats to objectivity

Threats to objectivity may result from having interests in, or relationships with, a client or its directors, officers or employees. It is best to consider these matters before undertaking any new work and during the course of an appointment, as threats can arise at any time.

Threats to objectivity may be:

  • Actual - are there relationships that are so significant that they could tilt the member’s judgement away from that which would be the professionally objective, right thing to do?; or
  • Perceived - are the relationships such that a reasonable and informed third party would consider that objectivity would be impaired?

Evaluating the significance of threats

When evaluating the significance of the threats, a professional accountant should consider both the nature of the service provided and the nature of the relationship.

The nature of the service provided

Some services will have little scope for significant application of objective judgement. For example providing payroll services, preparing straightforward tax returns or preparing straightforward sets of financial accounts. For these types of services, it is unlikely that there will be a significant threat to objectivity (whether actual or perceived).

Other services may require more significant professional judgement such as providing business advice, internal accounts work, preparing tax returns with contentious treatments or preparing statutory accounts which include a significant element of judgement.

Nature of the relationship

The relationship with the client may be financial (for example loans or investments) or personal (for example a longstanding close friend or family member).

When considering personal relationships the specific nature of the relationship should be considered as well as its duration.

When considering financial relationships such as loans, their size, duration and terms (e.g. whether they are reasonable and on normal commercial terms, whether they have been formally acknowledged etc.) should be assessed. With investments, consideration should be given as to whether the resultant control is significant.

The practitioner needs to consider what a third party would reasonably conclude on the available facts. If the relationship is, or could appear to be, significant, in terms of perceived threats, two questions can usefully be considered:

  1. Would I be comfortable if the facts were known to a reasonable and informed third party?
  2. Has the output been held out to be produced by an independent chartered accountant or firm of chartered accountants implying the only relationship with the client is a professional one?

Safeguards

Where safeguards are considered necessary, examples might include:

  • Where the firm has staff, changing the personnel on the engagement team (for example using staff who do not have significant personal relationships with the client);
  • Discussing the matter with the board or other affected parties;
  • Disclosure of the relationship to affected parties (for example a firm of chartered accountants’ name is shown on a set of unaudited statutory accounts, the reader is likely to assume that the firm does not have any connection with the client other than a professional relationship. If there is a significant connection that could be perceived to impact on objectivity, ensure the firm of chartered accountants is not shown as being the preparer or disclose the relationship); and
  • Undertaking reviews (internal or external) of the work performed.

If safeguards cannot eliminate or reduce the threat(s) to an acceptable level, the engagement shall be declined or terminated as appropriate.

Documentation

It would be in the best interests of the practitioner to document considerations of threats and, if applicable, safeguards, particularly if there is a risk of challenge in the future.

What about independence?

In addition to ensuring their objectivity, professional accountants providing audit, review or assurance engagements must be independent of the client. Guidance on which independence requirements apply to particular engagements is available in the helpsheet  When conducting audit or assurance engagements which independence requirements apply?

As the requirement for independence only applies to audit, review or assurance engagements, a professional accountant is not required to be independent of their client where they only provide other services such as bookkeeping, accounts preparation or routine tax compliance.

If in doubt seek advice

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Ethics Advisory Service on +44 (0)1908 248 250 or via webchat.

Terms and conditions

© ICAEW 2024  All rights reserved.

ICAEW cannot accept responsibility for any person acting or refraining to act as a result of any material contained in this helpsheet. This helpsheet is designed to alert members to an important issue of general application. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point.

ICAEW members have permission to use and reproduce this helpsheet on the following conditions:

  • This permission is strictly limited to ICAEW members only who are using the helpsheet for guidance only.
  • The helpsheet is to be reproduced for personal, non-commercial use only and is not for re-distribution.

For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. For further details visit icaew.com/tas.

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  • Update History
    01 Apr 2013 (12: 00 AM BST)
    First published
    14 Dec 2023 (12: 00 AM GMT)
    Changelog created. Converted to new template. Links updated. Helpsheet has not had a full review
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