## Fundamental Principles of Ethics

Ethics refers to moral values that come intrinsically from a Professional Accountant (PA). These are not externally imposed rules but internalised standards of conduct.

### The Five Fundamental Principles

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#### 1. Integrity

PA must be straightforward and truthful in all professional and business dealings.
Requires: Honesty, Fair dealing.
PA must not be associated with any information, reports, or returns that are:
Prepared negligently
Omit or obscure vital information in a misleading way
Contain materially false or misleading information

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#### 2. Professional Competence & Due Care

PA must attain and maintain the required level of professional knowledge and skill.
Ensures that clients/employers receive competent professional services based on:
Current technical standards
Relevant legislation
PA must act diligently — carefully, thoroughly, and on a timely basis as per assignment requirements.
Example of violation: Failing to update a client about a new law or regulation.

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#### 3. Confidentiality

PA must protect the confidentiality of information obtained through professional or business relationships.
Allows free flow of information with assurance of no leakage to third parties.

Circumstances where disclosure IS permitted:

#	Situation
i	Disclosure is mandated by law
ii	Disclosure is permitted by law and authorised by the client/employer
iii	A professional duty to disclose exists, provided not prohibited by law

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#### 4. Objectivity

Professional judgement must not be compromised due to:
Bias
Conflict of interest
Undue influence of others
Examples of threats to objectivity:
Receiving gifts/hospitality from a client
Auditor's sister working as a Director in the client's business

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#### 5. Professional Behaviour

PA must comply with laws and regulations.
Must avoid conduct that brings discredit to the profession.
Must not engage in any activity that:
Impairs integrity or objectivity
Is incompatible with fundamental principles
Harms the reputation of the profession
Examples of violations:
Failure to reply to an ICAI Notice
Incoming auditor ignoring the requirement to obtain NOC from the previous auditor

Worked example

### Example 1

Example – Integrity: An auditor signs off on financial statements knowing the client deliberately omitted a significant contingent liability. This violates Integrity because the statements contain materially misleading information by omission.

### Example 2

Example – Professional Competence & Due Care: A CA fails to inform the client that a new GST amendment affects their tax liability. This is a violation of due care — failing to keep the client informed on a timely basis.

### Example 3

Example – Confidentiality: An auditor casually mentions a client's unpublished revenue figures to a friend in the finance industry. This violates confidentiality even if the friend is not a competitor — information from professional relationships must be protected.

### Example 4

Example – Objectivity (Gift): A client offers the audit team premium event tickets before the audit sign-off. Accepting creates a familiarity/objectivity threat because the auditor's judgement may be influenced in the client's favour.

### Example 5

Example – Professional Behaviour: A CA who is the new auditor of a company starts work without obtaining the NOC (No Objection Certificate) from the outgoing auditor. This is a breach of professional behaviour and professional courtesy norms under ICAI.

⚠️ Common exam mistakes

Confusing Integrity with Objectivity — Integrity is about truthfulness and honesty in dealings; Objectivity is about freedom from bias in professional judgement.
Treating confidentiality as absolute — Students forget the three permitted disclosure exceptions (mandated by law, permitted by law with authorisation, professional duty to disclose).
Missing the 'diligently' requirement under Professional Competence & Due Care — it is not enough to be knowledgeable; the PA must also act timely and thoroughly.
Stating that professional behaviour only means following ICAI rules — it also includes complying with all applicable laws and regulations and not harming the profession's reputation.
Omitting the 'not negligently prepared' aspect of Integrity when describing what a PA must not associate with.

Reference: Section 100 — Fundamental Principles — ICAI Code of Ethics (Volume I) — Based on IESBA Code of Ethics for Professional Accountants

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Fundamental Principles of Ethics for Professional Accountants

Worked example

⚠️ Common exam mistakes