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Codes of Ethics can be described as either principles based and high level or rules based and detailed.
ICAEW's Code of Ethics is based on the International Federation of Accountants' Code of Ethics, which
itself has adopted the principles-based approach pioneered by the Institute.
Proponents of the principles based argue that this approach is robust and flexible because it:
provides guidance that can be applied to the infinite variations in circumstances that arise in
practice
can cope with rapid changes of the modern business environment
prevents the development of a mechanistic, "box-ticking" approach to decision-making and the
use of legalistic loopholes to avoid compliance with guidance
focuses on the spirit of the guidance and encourage responsibility and the exercise of
professional judgement, which are key elements of professions
On the other hand, supporters of a rules-based approach argue that compliance with such guidance is
easier since the requirements are prescriptive and leave little room for misunderstanding.
Furthermore, rules-based approaches are easier to enforce.
In practice, Codes of Ethics are a mixture of principles and rules. The rules should support the underlying
principles of the Code. Whether a Code is described as principles or rules-based will be dependent on
whether the principles are built into the foundations of the Code and the extent of the rules.
The key issue is striking an appropriate balance which encourages the spirit of the guidance to be
complied with and does not undermine the exercise of judgement and the role of the profession. A
more detailed discussion of the principles based approach can be downloaded as follows:
Several discussion papers prepared by the Federation of European Accountants (FEE) with significant
input from ICAEW:
1. The conceptual approach to protecting auditor independence - paper 2001 (PDF 53KB/7 pages
2. A conceptual approach to safeguarding integrity, objectivity and independence throughout the
financial reporting chain - 2003 (PDF 96KB/17 pages)
3. Audit quality fundamentals - principles-based auditing standards - 2006 (PDF 241KB/29 pages)
Policy briefing