Important changes to note in accountant ethics code update

In this article we consider the anticipated updates to the accountant's Code of Ethics and explore the ripple effects on insurance policies.

We analyse how the changes could affect claims in the professional indemnity space and address potential challenges for firms and insurers.

Update

March 2025 will see the Institute of Chartered Accounts in England and Wales (ICAEW) introduce updates to its Code of Ethics to reflect recent changes from the International Ethics Standards Board for Accountants (IESBA). The IESBA sets international ethics standards with their aim being to instil public trust and to facilitate proper functioning of economies and markets.

The ICAEW is a member of the International Federation of Accountants and therefore must implement changes made to the IESBA's Code of Conduct (the Code). The 2025 changes are anticipated to be significant given the ethics focused work that has taken place by IESBA since 2020 when the Code was first introduced. 

In summary the new Code of Ethics raises standards for accountant professionals which arguably brings increased risks.

The significant changes are in relation to:

• The role and mindset of professional accountants
• The use of technology
• New provisions relating to the independence of accountants and firms in group audits
• Professional behaviour

Role and mindset

One significant update to the Code of Ethics focuses on the role and mindset of accountants, stressing the importance of acting in the public interest, maintaining an inquiring mindset and recognising bias. In light of the prevalent rising threat of insolvencies, directors and officers (D&O) must be careful about trading, or being seen to trade, when a company is insolvent i.e. wrongful trading.  With 83 of FTSE100 companies having an ICAEW chartered accountant on their board, the changes have a particular impact on those directors who may well be subject to additional scrutiny given their qualifications.

It is important for all D&Os to remain mindful of the duties owed to creditors and consider whether a company is able to continue as a going concern. The increased regulations on ICAEW members may mean that in house accountants are mindful of how aggressively a company is run. We could therefore see increased scepticism from ICAEW members sat on director boards, but the wider board is also likely to see the impact of this change given it will also apply via the audit.

The use of technology

Another major change to the Code of Ethics addresses the impact of technology, specifically the potential risks from innovative technologies and the requirement for competence, due care and confidentiality alongside the use of technology. AI cannot replicate the professional scepticism that auditors in particular are required to adopt.

These changes highlight the risks posed by new tools and provide clearer guidance on independence, confidentiality, and professional competence when handling technology-related services. Those in the profession will need to strike a balance between staying ahead of the curve and at the same time not becoming too reliant on technology. The accountancy sector has been one of the largest adopters of Artificial Intelligence (AI) and those in the industry need to ensure that they exercise professional judgement when making commercial decisions and do not over rely on these technologies. ICAEW members on the board of directors could find themselves exposed if they become too reliant on technology where they could be said to fall short of their fiduciary duties to when promoting the success of a company.

Independence in audits

The updates to the Code of Ethics will also strengthen independence requirements for group audits with new rules on communication between group and component auditors and clearer processes required for addressing independence breaches. Definition of "Audit Team" and "Engagement Team" will also be revised to bring greater clarity.

The starting point for auditors is a requirement to exercise professional scepticism in line with required ethical considerations and objectiveness, auditors must apply and demonstrate sceptical mindsets when undertaking their work¹. ACCA are of the view that an audit performed without professional scepticism would not be high quality and it is important that those in the industry engage professional judgement as a key component of quality auditing. 

The Financial Reporting Council released a publication in 2024² which noted that the audit market had become increasingly consolidated, with an acknowledged decrease in the number of registered audit firms. Costs in this area have also gone up by 27% suggesting a lack of competition and there is a desire to try and break this up. Smaller audit firms will need to remain mindful of ensuring that the work they undertake is within their capabilities, so as not to open themselves up to potential claims (especially given that auditors are often in the frame when companies enter insolvency).

Professional behaviour

The current wording of the Code of Ethics requires accountants to act with courtesy and consideration. There is a debate as to whether this wording sufficiently captures the behaviours that the ICAEW intends it to. Whilst the scope already covered an overarching provision that members should not act in a way which discredits the profession, the anticipated Code of Ethics' new wording will now incorporate specifics for society's expected standards of professional accountants. Sophie Wales, Director of Regulatory Policy at the ICAEW, has commented that the wording is more contemporary.

The Code of Ethics wording around behaviour highlights that accountants' professional lives are not just within the workplace, but emphasises that the profession is being represented outside of the working world. Social media has been tricky to navigate and the ICAEW has seen complaints in this area. In a podcast³ discussing the new Code of Ethics, Sophie Wales has emphasised that those identifying themselves as chartered accountants online or at events will be held to the same standards as those who identify under this title in person. It is acknowledged that this could be taken to be intrusive, however. The ICAEW is seeking to strike a balance between free speech and accountants' private lives whilst also maintaining the high standards expected of those in the profession.

It is hoped that the clearer and more specific wording will help those who wish to report conduct if it seems to fall below standards expected. The ICAEW will continue to review whether behaviours are serious enough to require sanctions, with the conduct department reviewing complaints via diligent investigations. It is hoped that the new Code of Ethics will facilitate this department.

In light of more onerous requirements, firms and individuals will need to ensure that they have appropriate cover for regulatory investigation costs. We may well see an uptick in regulatory investigations, as has been seen with regulatory bodies like the Solicitors Regulation Authority. With a focus on workplace culture, employment liability policies may also be triggered in circumstances of bullying claims where there are allegations that the Code of Ethics has been breached.

Other amendments

Other amendments include guidance to support objectivity in engagement quality reviews as well as guidance on the alignment with the International Standard on Assurance Engagements (UK) 3000 (a mandatory standard for assurance engagements). Guidance will also be provided in respect of self-review threats in non-assurance services (those which fall outside of audit engagement).

What next?

In bringing about these changes the ICAEW has reviewed codes of conduct across various sectors. FCA and SRA regulated entities have felt the full force of regulatory intervention in recent years, as well as other regulatory bodies continuing to broaden their oversight. The new Code of Ethics seems to now be catching up to this approach. Given the increased standards expected, we may well see more regulatory complaints submitted to the ICAEW which could result in fines and regulatory costs for members.

To help members prepare for the changes to the Code of Ethics, the ICAEW will be providing resources, including a series of articles setting out major changes, a webinar for members in April 2025 and updated Continuing Professional Development materials. Further changes are also anticipated to the Code following the implementation of further updates to the IESBA code.

All companies and professional firms that have D&Os, Partners or employees that are ICAEW chartered accountants should be mindful of the updated Code of Ethics and consider their insurance arrangements in order to ensure that sufficient cover is in place.

This article was originally published in Law360.