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Code of Ethics B section 200-230

This part of the Code describes how the conceptual framework contained in General Application applies in certain situations to professional accountants in public practice.

Effective from 1st January 2011. 

Except as noted below, this Code has been derived from the International Ethics Standards Board of Accountants' (IESBA) Code of Ethics issued in July 2009 by the International Federation of Accountants. Accordingly, compliance with the remainder of this Code will ensure compliance with the principles of the IESBA Code. Paragraph numbering in the rest of this Code replicates that used in the IESBA Code of Ethics, except in respect of Sections 221, 241 and Part D which have no direct equivalent in the IESBA Code of Ethics.

Wording replicates the IESBA Code of Ethics.

Text framed in grey is where ICAEW's Council considers additional discussion and/or requirements to be useful or necessary.

The fact that wording is or is not framed in grey does not indicate any difference in the degree of importance that should be attached to it.

200 Introduction

200.1 This Part of the Code describes how the conceptual framework contained in Part A applies in certain situations to professional accountants in public practice. This Part does not describe all of the circumstances and relationships that could be encountered by a professional accountant in public practice that create or may create threats to compliance with the fundamental principles. Therefore, the professional accountant in public practice is encouraged to be alert for such circumstances and relationships.
200.2 A professional accountant in public practice shall not knowingly engage in any business, occupation, or activity that impairs or might impair integrity, objectivity or the good reputation of the profession and as a result would be incompatible with the fundamental principles.

Fundamental principles

200.2a A professional accountant shall comply with the following fundamental principles:
  • Integrity - to be straightforward and honest in all professional and business relationships
  • Objectivity - to not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
  • Professional Competence and Due Care - to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional services based on current developments in practice, legislation and techniques and act diligently and in accordance with applicable technical and professional standards.
  • Confidentiality - to respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, 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, nor use the information for the personal advantage of the professional accountant or third parties.
  • Professional behaviour - to comply with relevant laws and regulations and avoid any action that discredits the profession.

Threats and safeguards

200.3 Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances and relationships. The nature and significance of the threats may differ depending on whether they arise in relation to the provision of services to an audit client and whether the audit client is a public interest entity, to an assurance client that is not an audit client, or to a non-assurance client. Threats fall into one or more of the following categories:
  • Self-interest;
  • Self-review;
  • Advocacy;
  • Familiarity; and;
  • Intimidation.
These threats are discussed further in Part A of this Code.

The paragraphs below set out examples of the circumstances that may result in threat and the types of safeguards that may be applicable, depending on the particular circumstances. They are not an exhaustive list nor do they imply that such circumstances will always create a significant threat. Regard should be had to the specific requirements in sections 210 to 291, when the circumstances are the same as, or analogous to, those addressed by them.

200.4 Examples of circumstances that create self-interest threats for a professional accountant in public practice include:
200.5 Examples of circumstances that create self-review threats for a professional accountant in public practice include:
  • A firm issuing an assurance report on the effectiveness of the operation of financial systems after designing or implementing the systems.
  • A firm having prepared the original data used to generate records that are the subject matter of the assurance engagement.
  • A member of the assurance team being, or having recently been, a director or officer of the client.
  • A member of the assurance team being, or having recently been, employed by the client in a position to exert significant influence over the subject matter of the engagement.
  • The firm performing a service for an assurance client that directly affects the subject matter information of the assurance engagement.
200.6 Examples of circumstances that create advocacy threats for a professional accountant in public practice include:
200.7 Examples of circumstances that create familiarity threats for a professional accountant in public practice include:
200.8 Examples of circumstances that create intimidation threats for a professional accountant in public practice include:
  • A firm being threatened with dismissal from a client engagement.
  • An audit client indicating that it will not award a planned non-assurance contract to the firm if the firm continues to disagree with the client's accounting treatment for a particular transaction.
  • A firm being threatened with litigation by the client.
  • A firm being pressured to reduce inappropriately the extent of work performed in order to reduce fees.
  • A professional accountant feeling pressured to agree with the judgment of a client employee because the employee has more expertise on the matter in question.
  • A professional accountant being informed by a partner of the firm that a planned promotion will not occur unless the accountant agrees with an audit client's inappropriate accounting treatment.
200.9 Safeguards that may eliminate or reduce threats to an acceptable level fall into two broad categories:
  • Safeguards created by the profession, legislation or regulation; and
  • Safeguards in the work environment.
Examples of safeguards created by the profession, legislation or regulation are described in paragraph 100.14 of Part A of this Code.
200.10 A professional accountant in public practice shall exercise judgment to determine how best to deal with threats that are not at an acceptable level, whether by applying safeguards to eliminate the threat or reduce it to an acceptable level or by terminating or declining the relevant engagement. In exercising this judgment, a professional accountant in public practice shall consider whether a reasonable and informed third party, weighing all the specific facts and circumstances available to the professional accountant at that time, would be likely to conclude that the threats would be eliminated or reduced to an acceptable level by the application of safeguards, such that compliance with the fundamental principles is not compromised. This consideration will be affected by matters such as the significance of the threat, the nature of the engagement and the structure of the firm.
200.11 In the work environment, the relevant safeguards will vary depending on the circumstances. Work environment safeguards comprise firm-wide safeguards and engagement-specific safeguards.
200.12 Examples of firm-wide safeguards in the work environment include:
  • Leadership of the firm that stresses the importance of compliance with the fundamental principles.
  • Leadership of the firm that establishes the expectation that members of an assurance team will act in the public interest.
  • Policies and procedures to implement and monitor quality control of engagements.
  • Documented policies regarding the need to identify threats to compliance with the fundamental principles, evaluate the significance of those threats, and apply safeguards to eliminate or reduce the threats to an acceptable level or, when appropriate safeguards are not available or cannot be applied, terminate or decline the relevant engagement.
  • Documented internal policies and procedures requiring compliance with the fundamental principles.
  • Policies and procedures that will enable the identification of interests or relationships between the firm or members of engagement teams and clients.
  • Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from a single client.
  • Using different partners and engagement teams with separate reporting lines for the provision of non-assurance services to an assurance client.
  • Policies and procedures to prohibit individuals who are not members of an engagement team from inappropriately influencing the outcome of the engagement.
  • Timely communication of a firm's policies and procedures, including any changes to them, to all partners and professional staff, and appropriate training and education on such policies and procedures.
  • Designating a member of senior management to be responsible for overseeing the adequate functioning of the firm's quality control system.
  • Advising partners and professional staff of assurance clients and related entities from which independence is required.
  • A disciplinary mechanism to promote compliance with policies and procedures.
  • Published policies and procedures to encourage and empower staff to communicate to senior levels within the firm any issue relating to compliance with the fundamental principles that concerns them.
200.13 Examples of engagement-specific safeguards in the work environment include:
200.14 Depending on the nature of the engagement, a professional accountant in public practice may also be able to rely on safeguards that the client has implemented. However it is not possible to rely solely on such safeguards to reduce threats to an acceptable level.
200.15 Examples of safeguards within the client's systems and procedures include:
  • The client requires persons other than management to ratify or approve the appointment of a firm to perform an engagement.
  • The client has competent employees with experience and seniority to make managerial decisions.
  • The client has implemented internal procedures that ensure objective choices in commissioning non-assurance engagements.
  • The client has a corporate governance structure that provides appropriate oversight and communications regarding the firm's services.
200.16 Professional accountants who are in doubt as to their ethical position may seek advice from the ICAEW's Technical Advisory Services by email: ethics@icaew.com or phone +44 (0)1908 248 250. Further information on guidance is available in section 1, paragraphs 1.19 to 1.22.

210 Professional Appointment

210.0

Clients have the right to choose their accountants, whether as auditors or professional advisers, and to change their accountants if they so desire. Professional accountants have the right to choose for whom they act.

Client Acceptance

210.1 Before accepting a new client relationship, a professional accountant in public practice shall determine whether acceptance would create any threats to compliance with the fundamental principles. Potential threats to integrity or professional behaviour may be created from, for example, questionable issues associated with the client (its owners, management or activities).
210.2 Client issues that, if known, could threaten compliance with the fundamental principles include, for example, client involvement in illegal activities (such as money laundering), dishonesty or questionable financial reporting practices.

Further information relating to money laundering legislation and guidance is included in paragraph 210.13.

210.3 A professional accountant in public practice shall evaluate the significance of any threats and apply safeguards when necessary to eliminate them or reduce them to an acceptable level. Examples of such safeguards include:
  • Obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance and business activities; or
  • Securing the client's commitment to improve corporate governance practices or internal controls.
210.4 Where it is not possible to reduce the threats to an acceptable level, the professional accountant in public practice shall decline to enter into the client relationship.
210.5 It is recommended that a professional accountant in public practice periodically review acceptance decisions for recurring client engagements.

Engagement Acceptance

210.6 The fundamental principle of professional competence and due care imposes an obligation on a professional accountant in public practice to provide only those services that the professional accountant in public practice is competent to perform. Before accepting a specific client engagement, a professional accountant in public practice shall determine whether acceptance would create any threats to compliance with the fundamental principles. For example, a self-interest threat to professional competence and due care is created if the engagement team does not possess, or cannot acquire, the competencies necessary to properly carry out the engagement.
210.7 A professional accountant in public practice shall evaluate the significance of threats and apply safeguards, when necessary, to eliminate them or reduce them to an acceptable level. Examples of such safeguards include:
  • Acquiring an appropriate understanding of the nature of the client's business, the complexity of its operations, the specific requirements of the engagement and the purpose, nature and scope of the work to be performed.
  • Acquiring knowledge of relevant industries or subject matters.
  • Possessing or obtaining experience with relevant regulatory or reporting requirements.
  • Assigning sufficient staff with the necessary competencies.
  • Using experts where necessary.
  • Agreeing on a realistic time frame for the performance of the engagement.
  • Complying with quality control policies and procedures designed to provide reasonable assurance that specific engagements are accepted only when they can be performed competently.
210.8 When a professional accountant in public practice intends to rely on the advice or work of an expert, the professional accountant in public practice shall determine whether such reliance is warranted. Factors to consider include: reputation, expertise, resources available and applicable professional and ethical standards. Such information may be gained from prior association with the expert or from consulting others.

Changes in a Professional appointment

210.9 A professional accountant in public practice who is asked to replace another professional accountant in public practice, or who is considering tendering for an engagement currently held by another professional accountant in public practice, shall determine whether there are any reasons, professional or otherwise, for not accepting the engagement, such as circumstances that create threats to compliance with the fundamental principles that cannot be eliminated or reduced to an acceptable level by the application of safeguards. For example, there may be a threat to professional competence and due care if a professional accountant in public practice accepts the engagement before knowing all the pertinent facts.

Upon being asked to accept an appointment, professional accountants shall undertake the same procedures with all accountants, irrespective of whether the accountant works in public practice or not

210.10 A professional accountant in public practice shall evaluate the significance of any threats. Depending on the nature of the engagement, this may require direct communication with the existing accountant to establish the facts and circumstances regarding the proposed change so that the professional accountant in public practice can decide whether it would be appropriate to accept the engagement. For example, the apparent reasons for the change in appointment may not fully reflect the facts and may indicate disagreements with the existing accountant that may influence the decision to accept the appointment.

Having been asked to accept an appointment, the professional accountant in public practice shall at least seek to contact the existing accountant. The appropriate procedures are considered further in the Appendix to this Section.

210.11 Safeguards shall be applied when necessary to eliminate any threats or reduce them to an acceptable level. Examples of such safeguards include:
  • When replying to requests to submit tenders, stating in the tender that, before accepting the engagement, contact with the existing accountant will be requested so that inquiries may be made as to whether there are any professional or other reasons why the appointment shall not be accepted;
  • Asking the existing accountant to provide known information on any facts or circumstances that, in the existing accountant's opinion, the proposed accountant needs to be aware of before deciding whether to accept the engagement; or
  • Obtaining necessary information from other sources.
When the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a professional accountant in public practice shall, unless there is satisfaction as to necessary facts by other means, decline the engagement.

Counsel has advised that as far as UK law is concerned, an existing accountant who communicates to a prospective accountant matters damaging to the client or to any individuals concerned with the client's business will have a strong measure of protection were any action for defamation to be brought against the existing accountant in that the communication will be protected by qualified privilege. This means that the existing accountant shall not be liable to pay damages for defamatory statements even if they turn out to be untrue, provided that they are made without malice. There is little likelihood of an existing accountant being held to have acted maliciously provided that:

  • Only what is sincerely believed to be true is stated; and
  • Reckless imputations are not made against a client or connected individuals for which there can be no reason to believe they are true.
210.12 A professional accountant in public practice may be asked to undertake work that is complementary or additional to the work of the existing accountant. Such circumstances may create threats to professional competence and due care resulting from, for example, a lack of or incomplete information. The significance of any threats shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. An example of such a safeguard is notifying the existing accountant of the proposed work, which would give the existing accountant the opportunity to provide any relevant information needed for the proper conduct of the work.

In circumstances where the professional accountant is asked to undertake work which is relevant to the work of the existing accountant, the professional accountant shall notify the existing accountant of the proposed work, unless the client provides acceptable reasons why the existing accountant cannot be informed. The professional accountant ought to be aware of the risks of undertaking such work without the advantage of communicating with the other accountant. Further guidance on providing second opinions is available in section 230 of this Code.

210.13

An existing accountant is bound by confidentiality. Whether that professional accountant is permitted or required to discuss the affairs of a client with a proposed accountant will depend on the nature of the engagement and on:

  • Whether the client's permission to do so has been obtained; or
  • The legal or ethical requirements relating to such communications and disclosure, which may vary by jurisdiction.

Circumstances where the professional accountant is or may be required to disclose confidential information or where such disclosure may otherwise be appropriate are set out in section 140 of Part A of this Code.

However, care must be taken when communicating all relevant facts to a professional accountant in situations where the existing accountant knows or suspects that their client is involved in money laundering or a terrorist activity. Under the UK Money Laundering regulations 2007, the Terrorism Act 2000 and the Terrorism Act 2006, it is a criminal offence to 'tip off' a money launderer or terrorist. Accordingly:

  • The prospective accountant shall not specifically enquire whether the existing accountant has reported suspicions of money laundering or terrorism. Such questions place the existing accountant in a difficult position and are likely not to be answered. In addition, the prospective accountant shall not ask the existing accountant whether client identification or 'knowing your client' procedures have been carried out under anti-money laundering legislation. The prospective accountant has responsibility for obtaining information for client identification and 'knowing your client' and this cannot be delegated to the existing accountant.
  • Disclosure of money laundering or terrorist suspicion reporting by the existing accountant to the potential successor shall be avoided because this information may be discussed with the client or former client.

For further discussion, please refer to the money laundering legislation and guidance and the ICAEW's Ethics Advisory helpsheet on 'changes in professional appointments'.

210.14

A professional accountant in public practice will generally need to obtain the client's permission, preferably in writing, to initiate discussion with an existing accountant. Once that permission is obtained, the existing accountant shall comply with relevant legal and other regulations governing such requests. Where the existing accountant provides information, it shall be provided honestly and unambiguously. If the proposed accountant is unable to communicate with the existing accountant, the proposed accountant shall take reasonable steps to obtain information about any possible threats by other means, such as through inquiries of third parties or background investigations of senior management or those charged with governance of the client.

If the client fails or refuses to grant the existing accountant permission to discuss the client's affairs with the proposed successor, the existing accountant shall report this fact to the prospective accountant who shall consider carefully the reason for such failure or refusal when determining whether or not to accept nomination/appointment.

210.15 Guidance on appropriate procedures to be adopted by professional accountants relating to changes in professional appointments is included as an Appendix to this Section.

Transfer of Records

210.16

An existing accountant shall deal promptly with any reasonable request for the transfer of records and may have the right of particular lien if there are unpaid fees (see section 240 of this Code and 'Documents and records: ownership, lien and right of access' at (icaew.com/regulations). The courts have held that no lien can exist over books or documents of a registered company which, either by statute or by articles of association of the company, have to be available for public inspection (see 'Documents and records: ownership, lien and rights of access' at (icaew.com/regulations). It may be necessary for professional accountants to obtain legal advice prior to the exercise of a lien.

If the existing accountant has fees outstanding from a client they are entitled to mention this to the potential successor. However, if this is as a result of genuine reservations by the client, this may not be a reason to withhold cooperation with a successor. It may be useful to consider the section on fee disputes in 'Duty on firms to investigate complaints - guidance on how to handle or avoid them' at (icaew.com/regulations).

210.17

The prospective accountant often asks the existing accountant for information as to the client's affairs. If the client is unable to provide the information and lack thereof might prejudice the client's interests, such information shall be promptly given. In such circumstances, no charge shall normally be made unless there is good reason to the contrary. An example of such a reason would be that a significant amount of work is involved. Where a charge is made, the arrangements shall comply with section 240 of this Code.

210.18

Attention is drawn to Chapter 3 of the Audit regulations and Guidance relating to access to all relevant information held by the existing accountant in respect of the last audit report and Technical Release AAF 01/08 Access to Information by Successor Auditors.

Appendix to Section 210 - Changes in Professional Appointments Procedures

Prospective Accountants

1.

In the majority of cases, the appropriate procedures for any professional accountant who is invited to act in succession to another, whether the changeover is at the insistence of the client or of the existing accountant, is to:

  • Explain to the prospective client that there is a professional duty to communicate with the existing accountant; and
  • Request the client (i) to confirm the proposed change in accountant to the existing accountant and (ii) to authorise the existing accountant to co-operate with the prospective accountant; and
  • Write to the existing accountant regarding the prospective involvement with the client and request disclosure of any issue or circumstance which might be relevant to the successor's decision to accept or decline the appointment (making oral enquiry if no written reply is forthcoming).
2.

When these procedural steps have been taken, the prospective accountant shall consider, in light of the information received from the existing accountant, or any other factors, including conclusions reached following discussion with the client, whether:

  • To accept the engagement, or
  • Accept it only after having addressed any factors arising from the information received from the existing accountant (this may include imposing conditions on acceptance), or
  • Decline it.
3.

The prospective accountant shall ordinarily treat in confidence any information provided by the existing accountant, unless it is needed to be disclosed to perform the role required (such as making investigations into matters which need the perspective of the client's officers or senior employees).

4.

In circumstances where the enquiries referred to above are not answered, the prospective accountant shall write to the existing accountant by recorded delivery service stating an intention to accept the engagement in the absence of a reply within a specific and reasonable period. The prospective accountant is entitled to assume that the existing accountant's silence implies there was no adverse comment to be made, although this does not obviate the requirement in 210.9 to consider all appropriate circumstances.

5.

A professional accountant who is nominated as a joint auditor shall communicate with all existing auditors and be guided by similar principles to those set out in relation to nomination as an auditor. Where it is proposed that a joint audit appointment becomes a sole appointment, the surviving auditor shall communicate formally with the other joint auditor as though for a new appointment.

6.

A professional accountant invited to accept nomination on the death of a sole practitioner shall endeavour to obtain such information as may be needed from the latter's alternate (where appropriate), the administrators of the estate, or other source.

7.

If the prospective accountant accepts the engagement, the prospective accountant shall comply with the relevant legal and regulatory requirements as indicated in paragraph 13.

Existing accountants

8.

The appropriate procedure for any professional accountant who receives any communication in terms of the above paragraphs, whether or not the professional accountant is still in office, is to:

  • Answer promptly any communication from the potential successor about the client's affairs; and
  • Confirm whether there are any matters about those affairs which the prospective accountant ought to know, explaining them meaningfully, or confirm there are no such matters.
9.

If the existing accountant has made one or more suspicious activity reports relating to money laundering or terrorism, the existing accountant shall not disclose that fact to the prospective accountant, or make other disclosures that could amount to tipping off. However, the existing accountant's legal and professional obligations remain. In order to meet these obligations, the existing accountant can undertake one or more of the following actions:

  • Contact the relevant investigating authority, for example, the Serious Organised Crime Agency (SOCA), to ascertain if appropriate wording can be agreed in a communication;
  • Include a factual reference to the irregularities; (further discussion is included in the ICAEW's Ethics Advisory Services Helpsheet on Changes in Professional Appointments);
  • Consider seeking legal advice.
Guidance on money laundering reporting requirements in privileged circumstances is included in Technical Release 02/06.
10.

The above actions are also relevant when the existing accountant is preparing the required statement of circumstances in accordance with Section 519 of the UK Companies Act 2006, or other similar statutory provisions, of matters connected with ceasing to hold office which, the auditor believes, shall be brought to the notice of the professional accountants, shareholders or creditors of the client or under the relevant professional and other regulatory bodies. Further guidance can be found in Chapter 3 of the 2008 Audit regulations and Guidance.

11.

It is best practice for the prospective accountant and the existing accountant to record in writing such discussions as are referred to in the paragraphs above.

12.

Where the professional accountant decides to accept nomination/appointment having been given notice of any matters which are the subject of contention between the existing accountant and the client, the professional accountant shall be prepared, if requested to do so, to demonstrate to the professional and regulatory investigating authorities that proper consideration has been given to those matters and the relevant legal, regulatory and ethical requirements have been met.

Further Information

13.

Professional accountants' attention is drawn to additional guidance as follows:

  • Chapter 3 of the 2008 Audit regulations and Guidance, in particular technical standards relating to changes in professional appointments and access to relevant information relating to the signed audit report.
  • ISQC (UK & Ireland) - quality control for firms that perform audits and reviews of historical financial information, and other assurance and related services engagements (frc.org.uk/apb/publications).
  • Statement of Auditing Standards frc.org.uk/apb/publications:
    • ISA 240 (UK and Ireland) - The auditor's responsibility to consider fraud in an audit of financial statements;
    • ISA 250 (UK and Ireland) - Consideration of laws and regulations in an audit of financial statements;
    • ISA 510 (UK and Ireland) Initial engagements - opening balances and continuing engagements - opening balances.
    • Practice Note 12 (Revised) 'Money laundering' frc.org.uk/apb/publications.
    • Anti-money laundering for the Accountancy Sector at icaew.com/regulations.
    • Technical Release 02/06 - 'Guidance on changes to the money laundering reporting requirements: the exemption from reporting knowledge or suspicion of money laundering formed in privileged circumstances' (icaew.com/technical).
    • Practice Helpsheet - Changes in a professional appointment (icaew.com/ethicsadvice).

    220 Conflicts of Interest

    220.1 A professional accountant in public practice shall take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may create threats to compliance with the fundamental principles. For example, a threat to objectivity may be created when a professional accountant in public practice competes directly with a client or has a joint venture or similar arrangement with a major competitor of a client. A threat to objectivity or confidentiality may also be created when a professional accountant in public practice performs services for clients whose interests are in conflict or the clients are in dispute with each other in relation to the matter or transaction in question.

    Subject to the specific provisions, there is, however, nothing improper in a professional accountant in public practice having two clients whose interests are in conflict.

    220.2. A professional accountant in public practice shall evaluate the significance of any threats and apply safeguards when necessary to eliminate the threats or reduce them to an acceptable level. Before accepting or continuing a client relationship or specific engagement, the professional accountant in public practice shall evaluate the significance of any threats created by business interests or relationships with the client or a third party.

    A test is whether a reasonable and informed observer would perceive that the objectivity of professional accountants or their firms is likely to be impaired. The professional accountants or their firms shall be able to satisfy themselves and the client that any conflict can be managed with available safeguards. Attention is also drawn to the ethical conflict resolution process in Part A.

    220.3 Depending upon the circumstances giving rise to the conflict, application of one of the following safeguards is generally necessary:
    • Notifying the client of the firm's business interest or activities that may represent a conflict of interest and obtaining their consent to act in such circumstances; or
    • Notifying all known relevant parties that the professional accountant in public practice is acting for two or more parties in respect of a matter where their respective interests are in conflict and obtaining their consent to so act; or
    • Notifying the client that the professional accountant in public practice does not act exclusively for any one client in the provision of proposed services (for example, in a particular market sector or with respect to a specific service) and obtaining their consent to so act.

    Professional accountants' attention is drawn to section 240 Fees and other types of remuneration and section 241 Agencies and referrals which provide additional guidance on the ethical and legal considerations relating to these areas, including fiduciary relationships and accounting for commission and other benefits.

    220.4 The professional accountant shall also determine whether to apply one or more of the following additional safeguards:
    • The use of separate engagement teams;
    • Procedures to prevent access to information (e.g., strict physical separation of such teams, confidential and secure data filing);
    • Clear guidelines for members of the engagement team on issues of security and confidentiality;
    • The use of confidentiality agreements signed by employees and partners of the firm; and
    • regular review of the application of safeguards by a senior individual not involved with relevant client engagements.
    220.4a

    Where a conflict of interest arises, the preservation of confidentiality, and the perception thereof will be of paramount importance. Therefore firms shall deploy safeguards, which generally will take the form of information barriers. These information barriers may include the following features:

    • Ensuring that there is, and continues to be, no overlap between the teams servicing the relevant clients and that each has separate internal reporting lines;
    • Physically separating, and restricting access to, departments providing different professional services, or creating such divisions within departments if necessary, so that confidential information about one client is not accessible by anyone providing services to another client where their interests conflict;
    • Setting strict and carefully defined procedures for dealing with any apparent need to disseminate information beyond a barrier and for maintaining proper records where this occurs.

    The professional accountant shall ensure that the adequacy and effectiveness of the barriers are closely and independently monitored and that appropriate disciplinary sanctions are applied for breaches of them. The overall arrangements shall regularly be reviewed by a designated senior partner.

    Professional accountants shall note that it has been suggested by the courts that in some circumstances information barriers must be constructed as part of the organisational structure of the firm to be effective, rather than on an ad hoc basis.

    220.4b

    If client service issues render it impracticable to put in place such safeguards or suitable alternatives, it is important that relevant parties, who have conflicts of interest which may result in threats to preservation of confidentiality, are made aware of and agree to the professional accountant continuing to act for them.

    220.5 Where a conflict of interest creates a threat to one or more of the fundamental principles, including objectivity, confidentiality, or professional behaviour, that cannot be eliminated or reduced to an acceptable level through the application of safeguards, the professional accountant in public practice shall not accept a specific engagement or shall resign from one or more conflicting engagements.
    220.6

    Where a professional accountant in public practice has requested consent from a client to act for another party (which may or may not be an existing client) in respect of a matter where the respective interests are in conflict and that consent has been refused by the client, the professional accountant in public practice shall not continue to act for one of the parties in the matter giving rise to the conflict of interest.

    Professional accountants' attention is drawn to section 221, Corporate Finance Advice, section 290, Independence Audit and review engagements, section 400, Code of Ethics for Insolvency Practitioners, for guidance on issues arising from certain corporate finance activities, reporting assignments, and insolvency appointments.

    221 Corporate Finance Advice

    (Updated as regards to changes in legislation as at 1 April 2010)

    Introduction

    221.0

    The nature of corporate finance activities is wide ranging. Therefore, the threats to a professional accountant's objectivity, integrity and independence will depend on the nature of the corporate finance activities being provided and the particular circumstances and relationships involved.

    Categories of Corporate Finance Activity

    221.1

    Categories of activity covered by this section are as follows:

    • general corporate finance advice;
    • acting as adviser in relation to takeovers and mergers;
    • underwriting and marketing or placing securities on behalf of a client; and
    • acting as sponsor, nominated adviser or corporate adviser under the Listing Rules, the AIM Rules and the ISDX Rules respectively.
    221.2

    Professional accountants shall note that the guidance given in relation to general corporate finance advice is applicable to all categories of activity.

    General Principles applicable to all Professional accountants

    Statutory and other regulatory requirements

    221.3

    Professional accountants must be aware of and comply with legislative and regulatory measures and professional guidance governing corporate finance assignments. As a guide, a list of legislative and regulatory measures current at 1 April 2010 is given in Appendix 1 to this section but professional accountants shall ensure that they are aware of the most up-to-date legislative and regulatory requirements.

    221.4

    Professional accountants are required to comply with the City Code on Takeovers and Mergers ('the City Code') (see Appendix 2 to this Section) in respect of all relevant takeover transactions involving companies governed by the City Code and shall treat the general principles of the City Code as best practice guidance in respect of other takeover transactions.

    221.5

    Professional accountants proposing to provide corporate finance advice to a client or his employer shall at the outset draw attention to the legislative and regulatory responsibilities which will apply to the client or his employer. The professional accountant shall make clear to the client or his employer that, where necessary, legal advice shall be taken. The professional accountant shall also draw attention to his own responsibilities outlined in this Code and if appropriate, the Auditing Practices Board's Ethical Standards for Auditors and the Auditing Practices Board's Ethical Standards for Reporting Accountants.

    Acquisition searches

    221.6

    It may be appropriate for a professional accountant to conduct an acquisition search which could identify another client or his employer as a target provided the search is based solely on information which is not confidential to that client.

    Interests of Shareholders and Owners

    221.7

    Professional accountants shall remain aware when giving advice that they shall have regard to the interests of all shareholders and owners unless they are specifically acting for a single or defined group thereof. This is particularly so when advising on a proposal which is stated to be agreed by directors and/or majority shareholders or owners.

    Preparation of documents

    221.8

    Any document shall be prepared in accordance with normal professional standards of integrity and objectivity and with a proper degree of care. All statements or observations therein must be capable, taken individually or as a whole, of being justified on an objective examination of the available facts.

    221.9

    In order to differentiate the roles and responsibilities of the various advisers, professional accountants shall ensure that these roles and responsibilities are clearly described in all public documents and circulars and that each adviser is named.

    221.10

    Professional accountants intending to comment on published audited accounts shall act in accordance with paragraphs 221.20-22 below.

    Overseas transactions

    221.11

    This section has been drafted with regard to the situation in the UK and the Republic of Ireland. Professional accountants shall apply the spirit of the guidance, subject to local legislation and regulation, to overseas transactions of a similar nature.

    General corporate finance advice applicable to professional accountants in public practice

    221.12

    The nature of corporate finance activities is so wide ranging that all the threats to the fundamental principles identified in section 100 and section 200, can arise when professional accountants in public practice provide corporate finance advice to both assurance clients and non-assurance clients: the self-interest threat, the self-review threat, the advocacy threat, the familiarity threat and the intimidation threat.

    When advising a non-assurance client there can be no objection to a professional accountant in public practice accepting an engagement which is designed primarily with a view to advancing that client's case, though the professional accountant in public practice shall be aware that the self-interest threat could arise. Where a non-assurance client has received advice over a period of time on a series of related or unrelated transactions it is likely that, additionally, the familiarity threat may exist. But where a professional accountant in public practice advises an assurance client which is subject to a takeover bid or where a professional accountant in public practice acts as sponsor nominated adviser or corporate adviser to an assurance client involved in the issue of securities, the self-interest threat will become more acute and the advocacy threat will arise.

    Some corporate finance activities such as marketing or underwriting of securities contain so strong an element of advocacy as to be incompatible with the objectivity required for the reporting roles of an auditor or reporting accountant. Even where the activities of an auditor or reporting accountant are restricted to ensuring their clients' compliance with the Listing Rules, the AIM Rules or the ISDX Rules it is likely that a self-review threat could arise.

    221.13

    It may be in the best interests of a company for corporate finance advice to be provided by its auditor and there is nothing improper in the professional accountant in public practice supporting an assurance client in this way.

    221.14

    A professional accountant in public practice's objectivity may be seriously threatened if their role involves undertaking the management responsibilities of an assurance client. Co-ordination tasks, such as initiating and organising meetings, issuing timetables and reporting progress, are unlikely to threaten reporting objectivity. When involved in negotiations on behalf of an assurance client, the professional accountant in public practice shall ensure that he does not assume the role of taking decisions for a client which would prejudice reporting objectivity. Accordingly, the professional accountant in public practice shall ensure that the client takes full responsibility for the final decisions arising from any such negotiations.

    Conflict of Interest

    221.15

    Professional accountants in public practice shall be aware of the danger of a conflict of interest arising. All reasonable steps shall be taken to ascertain whether a conflict of interest exists or is likely to arise in the future between a professional accountant in public practice and his clients, both with regard to new clients and to the changing circumstances of existing clients, and including any implications arising from the possession of confidential information.

    221.16

    The attention of professional accountants in public practice is directed to section 220, 'Conflicts of interest' and to the safeguards indicated in paragraphs 220.3 and 220.4 of that section. Where there appears to be a conflict of interest between clients but after careful consideration the professional accountant in public practice believes that either the conflict is not material or is unlikely seriously to prejudice the interests of any of those clients and that its safeguards are sufficient, the professional accountant in public practice may accept or continue the engagement. Unless client confidentiality considerations dictate otherwise it would be advisable, if appropriate, to seek the clients' consent. Considerations that lead to a conclusion to accept or continue the engagement shall be explicitly recorded.

    221.17

    Where a professional accountant in public practice acts or continues to act for two or more clients having obtained consent, if appropriate, in accordance with the previous paragraphs, safeguards will need to be implemented to manage any conflict which arises. The safeguards may include:

    • the use of different partners and teams for different clients, each having separate internal reporting lines;
    • all necessary steps being taken to prevent the leakage of confidential information between different teams and sections within the firm;
    • regular review of the situation by a senior partner or compliance officer not personally involved with either client; and
    • advising the clients to seek additional independent advice, where it is appropriate.

    Any decision on the part of a sole practitioner shall take account of the fact that the safeguards at (a) to (c) of the above paragraph will not be available to him or her. Similar considerations apply to small firms where the number of partners is insufficient to spread the work as indicated above.

    221.18

    Where a conflict of interest is so fundamental that it cannot be managed effectively by the implementation of appropriate safeguards and is likely seriously to prejudice the interests of a client, the engagement shall not be accepted or continued even if all relevant clients consent to the engagement.

    221.19

    Where a professional accountant in public practice is required for any reason to disengage from an existing client, the professional accountant in public practice shall do so as speedily as practicable having regard to the interest of the client.

    Documents for client and public use

    221.20

    In the case of a document prepared solely for the client and its professional advisers, it shall be a condition of the engagement that the document shall not be disclosed to any third party without the firm's prior written consent.

    221.21

    A professional accountant in public practice is, in the absence of any indication to the contrary, entitled to assume that a company's published financial information that has been reported on by a professional accountant in public practice has been prepared properly and in accordance with all relevant Accounting Standards. If a professional accountant in public practice is commenting in a public document on such financial information and where scope for alternative accounting treatment exists, and the accuracy of the comment or observation is dependent on an assumption as to the actual accounting treatment chosen, that assumption must be stated, together with any other assumptions material to the commentary. Where the professional accountant in public practice is not in possession of sufficient information to warrant a clear opinion this shall be declared in the document.

    221.22

    A professional accountant in public practice must take responsibility for anything published under his name, provided he consented to such publication, and the published document shall make clear the client for whom the professional accountant in public practice is acting. To prevent misleading or out-of-context quotations, it shall be a condition of the engagement that, if anything less than the foll document is to be published, the text and its context shall be expressly agreed with the professional accountant in public practice.

    Takeovers and Mergers

    City code transactions

    221.23 Professional accountants in public practice are reminded that, if in doubt as to the propriety of any aspect of a City Code transaction with which they are involved, they shall consult the Panel on Takeovers and Mergers ('the Takeover Panel'). (See Appendix 2 of this section).
    221.24

    Where a professional accountant in public practice finds itself acting as auditor or reporting accountant for two or more parties involved in a transaction subject to the City Code, a perceived conflict of interest may arise. In such circumstances (subject to paragraph 221.26 below) a professional accountant in public practice may act for more than one party, including both offeror and offeree companies as auditor, as reporting accountants, and in the provision of incidental advice consistent with these roles but must implement adequate safeguards (see paragraph 221.17 above).

    Lead advisers in city code transactions

    221.25

    For the purposes of this Section, a 'lead adviser' is the professional accountant in public practice primarily responsible for advising on, organising and presenting an offer or the response to an offer. This definition would include an 'independent financial adviser' required under Role 3 of the City Code.

    221.26

    In no circumstances shall a professional accountant in public practice be a lead adviser to more than one party involved in a transaction subject to the City Code. Where a professional accountant in public practice finds itself acting in an auditor or reporting accountant role for any party involved in a transaction subject to the City Code, the professional accountant in public practice shall not act as lead adviser for any party involved, save in the circumstances set out below in paragraphs 221.27-221.29.

    221.27

    A professional accountant in public practice who is auditor to a target company may be requested to act as lead adviser to a bidder on an offer subject to the City Code. Where the bid is hostile, it is likely that the professional accountant in public practice's objectivity will be perceived to be prejudiced by its possession of material confidential information on the target and it will not therefore be able to advise on the offer. However, if the bid is agreed, the professional accountant in public practice may be able to act or continue to act as lead adviser to the bidder with the agreement of the target and subject to the prior approval of the Takeover Panel. The professional accountant in public practice shall obtain confirmation from its clients that their interests would not be prejudiced if the professional accountant in public practice were to act or continue to act in both capacities.

    221.28

    Where a professional accountant in public practice is acting as lead adviser to a company which is involved in a bid subject to the City Code, conflicts of interest for the professional accountant in public practice may arise due to an existing relationship with a second or subsequent bidder. Providing that the relationship with the second or subsequent bidder is confined to that of auditor or reporting accountant, and subject to the prior approval of the Takeover Panel, the professional accountant in public practice may continue to act as lead adviser, providing that it is satisfied that the implementation of safeguards (see paragraph 221.27 above) provides the necessary level of protection to each of the clients involved.

    221.29

    Where a professional accountant in public practice is requested to act as lead adviser to a target company in relation to a bid which is subject to the City Code from a company which is an existing assurance client, they may act as lead adviser to the target company only with the prior approval of the Takeover Panel.

    The ethical guidance for professional accountants in public practice seeking to act for more than one party in a takeover transaction subject to the City Code is summarised in Appendix 3 to this section. Appendix 3 has been prepared only as a useful reference and is not intended to form part of this section.

    Transactions not subject to the city code

    221.30

    Where a takeover is not subject to the City Code, and there is no substantial public interest involved, a professional accountant in public practice may, subject to the implementation of appropriate safeguards (see paragraphs 221.16 and 221.17 above), provide financial advice to both sides or to competing bidders. However, the professional accountant in public practice shall not act as lead adviser to both the target and a bidder in respect of such a transaction. The professional accountant in public practice shall be alive to the possibility of conflicts of interest arising in relation to minority interests and shall ensure that any such conflicts are addressed. Where appropriate, the advisory client and minority interests shall be advised as to the desirability of the minority interests appointing a wholly independent adviser.

    Underwriting and marketing of shares

    221.31

    A professional accountant in public practice who is an auditor or reporting accountant shall not deal in, underwrite or promote shares for their client (see also APB's Ethical Standard 5 and APB's Ethical Standard for Reporting Accountants) .Involvement of this kind would give rise to an advocacy threat, self-review threat and self-interest threat such that the professional accountant in public practice's objectivity and independence would be threatened.

    221.32

    It may be appropriate:

    • for an auditor or reporting accountant otherwise to assist a client in raising capital; or
    • for an auditor or reporting accountant otherwise to provide independent advice to a client, or its professional advisers, in connection with the issue or sale of shares or securities to the public; or
    • for an auditor or reporting accountant otherwise to provide advice as sponsor, as an AIM nominated adviser or as a PLUS corporate adviser to a company as set out below.

    In these situations the professional accountant in public practice shall adopt steps similar to those described in paragraph 220.3 and 220.4 of section 220 and, additionally, set up procedures to review and identify any potential conflicts of interest which could compromise the professional accountant in public practice's objectivity.

    Sponsors, nominated advisers and corporate advisers

    221.33

    The attention of professional accountants in public practice is drawn to:

    • the UK Listing Authority's Listing Rules when a firm accepts the responsibilities of a sponsor;
    • the London Stock Exchange's Alternative Investment Market ('AIM') Rules and, AIM Rules for Nominated Advisers (which include the Eligibility Criteria for Nominated Advisers.) AIM's requirement is that for AIM companies to maintain their trading facility they shall have a nominated adviser at all times. In this context professional accountants in public practice shall have in place procedures to enable them to identify whether any conflicts exist or are likely to arise in the future before acting as a nominated adviser. Professional accountants in public practice shall note the policy of the London Stock Exchange that it will not normally allow a nominated adviser to be the reporting accountant to the issuer unless appropriate safeguards are in place as set out in paragraph 221.17 above. Furthermore, professional accountants in public practice shall note that the London Stock Exchange does not permit a nominated adviser to act for any other party to a transaction or takeover other than its AIM client company. In cases of doubt, professional accountants in public practice shall consult the London Stock Exchange.
    • the ISDX (formerly PLUS) Rules and in particular the ISDX Corporate Advisers Handbook when acting as a Corporate Adviser defined by the ISDX Rules. ISDX's requirement is that for ISDX companies to maintain their trading facility they shall have a corporate adviser at all times. In this context professional accountants in public practice shall have in place procedures to enable them to identify whether any conflicts exist or are likely to arise in the future before acting as a corporate adviser. Professional accountants in public practice shall note that ISDX does not permit a corporate adviser to act for any other party to a transaction or takeover other than its ISDX client company. In cases of doubt, professional accountants in public practice shall consult ISDX.
    221.34

    Considerable care needs to be taken if a professional accountant in public practice is also to act as sponsor, nominated adviser or corporate adviser to an assurance client. A threat to the objectivity of the auditor or reporting accountant can arise as the duties of a sponsor, nominated adviser or corporate adviser are different from those of an auditor or reporting accountant and are owed to a different party. Although it is quite possible that no conflict will arise between the two roles, professional accountants in public practice need to recognise the possibility of conflicts arising, particularly if the role of sponsor, nominated adviser or corporate adviser is to include any advocacy of the directors' views or if the transaction is to involve any issue of securities. To comply with the requirements of paragraph 221.31 above, where there is an issue of securities associated with such a transaction, a separate broker shall be appointed to take responsibility for any underwriting or marketing of the company's shares.

    Appendix 1 to Section 221 - Corporate finance advice

    Information on statutory and other regulatory and professional requirements

    For the assistance of professional accountants a list of the relevant legislative and regulatory measures and professional guidance is set out below. This reflects the position as at1 April 2010. Professional accountants shall be aware that this list may be subject to variation in the future and when undertaking corporate finance assignments professional accountants shall ensure they are aware of the current status of the list.

    1.

    The Financial Services and Markets Act 2000, the Companies Act 1985 as amended, the Companies Act 2006, Part V of the Criminal Justice Act 1993 and, where applicable, the requirements of the Financial Services Authority's Handbook (fsa.gov.uk/Pages/handbook) or the ICAEW's Designated Professional Body Handbook (icaew.com/dpb).

    2.

    The City Code on Takeovers and Mergers (the 'City Code').

    3.

    The Financial Services Authority Handbook which includes:

    • the Listing Rules;
    • the Prospectus Rules;
    • the Disclosure and Transparency Rules; and
    • the London Stock Exchange's AIM Rules and AIM Rules for Nominated Advisers (which include the Eligibility Criteria for Nominated Advisers)
    4.

    The ISDX Market Corporate Adviser Handbook.

    5. The Admission and Disclosure Standards of the London Stock Exchange.
    6.

    The Auditing Practices Board's Ethical Standards, in particular ES 5 Non-Audit Services Provided to Audit clients and the Ethical Standard for Reporting Accountants (frc.org.uk/apb/publications).

    And in the Republic of Ireland:

    7.

    Investment Intermediaries Act, 1995 as amended by the Investor Compensation Act, 1998 and the Insurance Act, 2000 ('IIA'), and where applicable the requirements of the Central Bank of Ireland's Role Book or the ICAEW's Investment Business regulations and Guidance.

    8.

    Irish Takeover Panel Act, 1997.

    9.

    The Listing Rules of the Irish Stock Exchange: the IEX Roles.

    10.

    Code of Conduct issued by the Central Bank of Ireland under Section 37 of the IIA, as amended by S. 30 of the Insurance Act 2000.

    11. European Communities (Takeover Bids (Directive 2004/25/EC) regulations 2006 (RoI).
    12.

    Investment Funds, Companies and Miscellaneous Provisions Act, 2005 (RoI).

    13.

    Market Abuse (Directive 2003/6/EC) regulations 2005 (RoI).

    14.

    Prospectus (Directive 2003/71/EC) regulations 2005.

    Appendix 2 to Section 221 - Corporate finance advice

    1.

    A professional accountant in public practice who provides takeover services for clients is required to comply with the City Code and with all rulings made and guidance issued under it by the Panel on Takeovers and Mergers ('the Takeover Panel').

    2.

    Accordingly a professional accountant in public practice proposing to provide takeover services to a client shall at the outset:

    Specimen clause for engagement letters

    3.

    The client agrees and acknowledges that where the services provided by the professional accountant in public practice relate to a transaction within the scope of the City Code, the client and the professional accountant in public practice will comply with the provisions of the City Code and will observe the terms of the guidance published by the Institutes of Chartered Accountants relevant to such services or transactions. In particular, the client acknowledges that:

    Scope of takeover services

    4.

    Takeover services' means any professional services provided by a professional accountant in public practice to a client in connection with a transaction to which the City Code applies.

    5. The kinds of activities most commonly relevant for this purpose include:
    • acting as financial adviser to one of the parties (for example, as 'Role 3 adviser' to the offeree company);
    • reporting on profit forecasts and/or valuations for the purposes of takeover documents;
    • conducting acquisition searches for clients, and introducing clients to other parties with a view to effecting transactions;
    • advising in relation to acquisitions and disposals of securities of companies which are subject to City Code.
    • acting as a reporting accountant where both the City Code and the Listing Rules or Take Over Roles apply.
    6. Whilst the City Code does not define precisely the range of activities and transactions within its scope, paragraph 3 of the Introduction to the City Code describes the companies and transactions which are subject to the City Code. In practice, those engaged in providing takeover services rarely experience difficulty in determining whether the City Code is or may be relevant to the activities proposed to be undertaken for any particular client. In cases of any doubt the Takeover Panel shall be consulted.

    Special responsibilities

    7.

    A professional accountant in public practice who has provided or is providing takeover services to a client shall:

    • supply to the Takeover Panel any information, books, documents or other records concerning the relevant transaction or arrangement which the Takeover Panel may properly require and which are in the possession or under the control of the professional accountant in public practice; and
    • otherwise render all such assistance as the professional accountant in public practice is reasonably able to give to the Takeover Panel, provided that in each case the relevant information, books, documents or other records were acquired by the professional accountant in public practice in the course of providing the relevant takeover services.
    8.

    Except with the consent of the Takeover Panel, a professional accountant in public practice shall not provide or continue to provide any takeover services to any person if the Takeover Panel has stated that it considers that such a person is not likely to comply with the standards of conduct for the time being expected in the United Kingdom concerning the practices of those involved in takeovers, mergers or substantial acquisitions of shares and the Takeover Panel has not subsequently indicated a change in this view. A person to whom this paragraph applies will normally have been named in a statement published by the Takeover Panel, inter alia, for the purposes of Role 4.3.1 of the Financial Services Authority's Handbook on Market Conduct.

    9.

    If professional accountants in public practice have included in the engagement letter agreed with the client a provision as outlined in paragraph 3 above, they will be able to discharge their responsibilities under paragraph 7 and/or 8 above, without any breach of confidentiality or duty to the client. While professional accountants in public practice shall include such a provision, it is recognised that, on occasion, compliance with such responsibilities may still involve a breach of confidentiality to a third party or a breach of some other duty owed to the client. In such circumstances this Appendix is not applicable.

    The Financial Services and Markets Act 2000

    10. The provision of corporate finance services may require authorisation by the Financial Services Authority or a licence under the Designated Professional Body arrangements. However, this guidance applies to all professional accountants in public practice whether authorised/licensed or not.

    Appendix 3 to Section 221 - Corporate Finance Advice

    Guidance for firms seeking to act for more than one party in a takeover subject to the City Code

    This table is intended for illustrative purposes only and shall be read in conjunction with section 221, Corporate Finance Advice.

    Bid Situation Target Bidder Subsequent Bidder Comments
    A Agreed - relationship with one bidder Ass Ass Permitted - see paragraph 221.24
    B Adv Ass Permitted by agreement with the Takeover Panel - see paragraph 221.29
    C Ass Adv Permitted with conditions - see paragraph 221.27
    D Adv Adv Prohibited - see paragraph 221.26
    E Hostile one bidder Ass Ass Permitted with conditions - see paragraph 221.24
    F Adv Ass Permitted by agreement with the Takeover Panel - see paragraph 221.29
    G Ass Adv Prohibited - see paragraph 221.26 and 221.27
    H Adv Adv Prohibited - see paragraph 221.26
    I Subsequent bidder emerges Ass Ass Ass Permitted - see paragraph 221.24
    J Ass Ass Permitted - see paragraph 221.24
    K Adv Ass Permitted - see paragraph 221.28
    L Ass Adv Prohibited - see paragraph 221.26
    M Adv Adv Prohibited - see paragraph 221.26
    N Acting for rival bidders Ass Ass Permitted - see paragraph 221.24
    O Adv Ass Permitted - see paragraph 221.28
    P Ass Adv Prohibited - see paragraph 221.26
    Q Adv Adv Prohibited - see paragraph 221.26

    In all of the above cases where professional accountants in public practice may be permitted to act for more than one party, the professional accountants in public practice must consider the potential threats and put in place the appropriate safeguards as set out in paragraph 221.33. Furthermore, where stated, permission for the professional accountant in public practice to act for more than one party shall be obtained from the Takeover Panel.

    Key

    Adv Professional accountant in public practice acts as lead adviser (see paragraph 221.17)
    Ass Professional accountant in public practice acts as auditor or reporting accountant.

    As regards the application of this guidance to non-audit assurance engagements, professional accountant in public practice's attention is drawn to the explanatory note contained in the Definitions to Parts A, B and C.

    Notes

    1. This matrix does not address a reverse takeover situation, where the offeror is required by the City Code to appoint advisers.
    2. The matrix does not cover the takeover of private companies, except those which are subject to the City Code. Private companies are subject to the general requirements of this Code.

    230 Second Opinions

    230.0

    Opinions expressed informally by a professional accountant may be acted on, and professional accountants shall bear in mind the potential consequences of those opinions. Oral opinions shall as a matter of good practice, because of legal implications, be confirmed in writing as soon as practicable after giving the opinion. If a professional accountant is asked for a 'general opinion' (one relative to a hypothetical situation not related to specific entities or circumstances), whether written or oral, the professional accountant shall ensure that the recipient of the opinion understands that it has been given in the context of that particular hypothetical situation only.

    230.1 Situations where a professional accountant in public practice is asked to provide a second opinion on the application of accounting, auditing, reporting or other standards or principles to specific circumstances or transactions by or on behalf of a company or an entity that is not an existing client may create threats to compliance with the fundamental principles. For example, there may be a threat to professional competence and due care in circumstances where the second opinion is not based on the same set of facts that were made available to the existing accountant or is based on inadequate evidence. The existence and significance of any threat will depend on the circumstances of the request and all the other available facts and assumptions relevant to the expression of a professional judgment.

    This section does not apply to expert evidence assignments, opinions pursuant to litigation and opinions provided to other firms and their clients jointly.

    230.2

    When asked to provide such an opinion, a professional accountant in public practice shall evaluate the significance of any threats and apply safeguards when necessary to eliminate them or reduce them to an acceptable level. Examples of such safeguards include seeking client permission to contact the existing accountant, describing the limitations surrounding any opinion in communications with the client and providing the existing accountant with a copy of the opinion.

    Professional accountant providing a second opinion will normally need to seek contact with the existing accountant (particularly if the existing accountant is engaged as auditor) and the client in order to:

    • Ascertain the circumstances in which the consultation has been made; and
    • Be apprised of all the facts relevant to the issue at the time the opinion is given.
    230.3 If the company or entity seeking the opinion will not permit communication with the existing accountant, a professional accountant in public practice shall determine whether, taking all the circumstances into account, it is appropriate to provide the opinion sought.

    If the client will not allow the opinion-giver to carry out any of the steps referred to above, the opinion-giver must normally decline to act (particularly if the existing accountant is engaged as auditor).