• Foreword
• 100 General
• 200 Standards of Conduct Affecting the Public Interest
• 300 Relations with Fellow Members and with Non-members Engaged in Public Accounting
• 400 Organization and Conduct of a Professional Practice

• Application of the Rules of Professional Conduct
• Interpretation
• Guide to Key Definitions

Foreword

The Foreword to the rules of professional conduct (or, rules) sets out the philosophy that underlies the
rules governing the chartered accountant's responsibilities to those to whom professional services are
provided, to the public and to colleagues, in respect of

• characteristics of a profession;
• fundamental principles governing conduct;
• ethical conflict resolution;
• fiduciary duty;
• personal character and ethical conduct;
• application of the rules; and
• interpretation of the rules.
  

The rules of professional conduct, comprehensive in their scope, practical in application and addressing
high ethical standards, serve not only as a guide to the profession itself but as a source of assurance of
the profession's concern for the public it serves. It is a hallmark of a profession that there is a voluntary
assumption, by those who comprise it -- the members -- of ethical principles which are aimed, first and
foremost, at protection of the public and, second, at achieving orderly and courteous conduct within the
profession. It is to these purposes that the Institute's rules are directed.

* * *

Characteristics of a profession
The rules of professional conduct presume the existence of a profession. Since the word "profession" has
lost some of its earlier precision, through widespread application, it is worthwhile reviewing the
characteristics which mark a calling as professional in the traditional sense. Much has been written on the
subject and court cases have revolved around it. The weight of the authorities, however, identifies the
following distinguishing elements:

• there is mastery by the practitioners of a particular intellectual skill, acquired by lengthy training and
  education;
• the traditional foundation of the calling rests in public practice -- the application of the acquired skill to
  the affairs of others for a fee;
• the calling centres on the provision of personal services rather than entrepreneurial dealing in goods;
• there is an outlook, in the practice of the calling, which is essentially objective;
• there is acceptance by the practitioners of a responsibility to subordinate personal interests to those of
  the public good;
• there exists a developed and independent society or institute, comprising the members of the calling,
  which sets and maintains standards of qualification, attests to the competence of the individual
  practitioner and safeguards and develops the skills and standards of the calling;
• there is a specialized code of ethical conduct, laid down and enforced by that society or institute,
  designed principally for the protection of the public;
• there is a belief, on the part of those engaged in the calling, in the virtue of interchange of views, and
  in a duty to contribute to the development of their calling, adding to its knowledge and sharing
  advances in knowledge and technique with their fellow members.

By these criteria chartered accountancy is a profession. It is essential to recognize that a profession does
not cease to be a profession because a proportion of its members enter salaried private employment.
These members continue to belong to the profession and to be subject to the rules of professional
conduct. It should also be recognized that some members of the profession might acquire the required
skills outside of public practice.

Fundamental principles governing conduct

The rules of professional conduct, as a whole, flow from the special obligations embraced by the chartered
accountant. The reliance of the public, generally, and the business community, in particular, on sound and
fair financial reporting and competent advice on business affairs - and the economic importance of that
reporting and advice - impose these special obligations on the profession. They also establish, firmly, the
profession’s social usefulness.

To protect the public and to maintain the reputation of the profession, the rules apply, as appropriate, to
members of the profession and its students.

The rules of professional conduct are derived from five fundamental principles of ethics - statements of
accepted conduct whose soundness is, for the most part, self-evident and are as follows:

Professional Behaviour

Members conduct themselves at all times in a manner which will maintain the good reputation of the
profession and its ability to serve the public interest.

In doing so, members are expected to avoid any action that would discredit the profession.

While there are business considerations involved in the creation and development of a professional
practice, a member’s practice should be based primarily upon a reputation for professional excellence. A
member is expected to act in relation to other professional colleagues with the courtesy and consideration
he or she would expect to be accorded by them.

Integrity and Due Care

Members perform professional services with integrity and due care.

Members are expected to be straightforward, honest and fair dealing in all professional relationships. They
are also expected to act diligently and in accordance with applicable technical and professional standards
when providing professional services. Diligence includes the responsibility to act, in respect of an
engagement, carefully, thoroughly, and on a timely basis. Members are required to ensure that those
performing professional services under their authority have adequate training and supervision.

Professional Competence

Members maintain their professional skills and competence by keeping informed of, and complying
with, developments in their professional standards.

The public expects the accounting profession to maintain a high level of competence. This underscores
the need for maintaining individual professional skill and competence by keeping abreast of and complying
with developments in the professional standards and pertinent legislation in all functions where a member
practices, or is relied upon because of his or her calling.

Confidentiality

Members have a duty of confidentiality in respect of information acquired as a result of professional,
employment and business relationships and they will not disclose to any third party, without proper and
specific authority, any such information, nor will they exploit such information to their personal
advantage or the advantage of a third party.

The principle of confidentiality includes the need to maintain the confidentiality of information within a
member’s firm or employing organization.

The disclosure of confidential information by a member may be required or appropriate where such
disclosure is:

• Permitted or authorized by the client or employer;
• Required by law; or
• Permitted or required by a professional right or duty, when not prohibited by law.

Objectivity

Members do not allow their professional or business judgment to be compromised by bias, conflict of
interest or the undue influence of others.

The public expects that members will bring objectivity and sound professional judgment to their
professional services. It thus becomes essential that a member will not subordinate professional judgment
to external influences or the will of others.

The public interest in the objectivity of a member engaged to perform an assurance engagement or a
specified auditing procedure, requires that the member be, and be seen to be, free of influences which
would impair the member’s objectivity. Accordingly, the rules specifically require a member who engages
to perform an assurance or specified auditing procedures engagement to be independent. The ethical
standard of independence requires the member to be and remain free of any influence, interest or
relationship, in respect of the client's affairs, which impairs the member's professional judgment or
objectivity or which, in the view of a reasonable observer, would impair the member's professional
judgment or objectivity.

As well, the rules specifically require that a member, before accepting or continuing an engagement,
determine whether there is any restriction, influence, interest or relationship which, in respect of the
proposed engagement, would cause a reasonable observer to conclude that there is or will be a conflict of
interest. If there were to be such a conflict, the member is required to decline or discontinue the particular
engagement unless there are accepted conflict management techniques which, with the informed consent
of the affected client or clients, permit the member to accept or continue the engagement.

With respect to both independence and conflicts of interest, the profession employs the criterion of whether
a reasonable observer would conclude that a specified situation or circumstance posed an unacceptable
threat to a member’s objectivity and professional judgment. Only then can public confidence in the
objectivity and integrity of the member be sustained, and it is upon this public confidence that the
reputation and usefulness of the profession rest. The reasonable observer should be regarded as a
hypothetical individual who has knowledge of the facts which the member knew or ought to have known,
and applies judgment objectively with integrity and due care.

Ethical conflict resolution
Circumstances may arise where a member encounters and is required to resolve a conflict in the
application of the fundamental principles or compliance with the rules derived therefrom.

When initiating a process for the resolution of an ethical conflict, a member should consider, either
individually or together with others, as part of the resolution process, the following:

• Relevant facts;
• Ethical issues involved;
• Fundamental principles and rules applicable to the matter in question;
• Established internal procedures; and
• Alternative courses of action.

Having considered these issues, the member should determine the appropriate course of action that is
consistent with the fundamental principles and rules identified as being pertinent. The member should also
weigh the consequences of each possible course of action. If the matter remains unresolved, the member
should consult with other appropriate persons within the firm or employing organization for help in
obtaining resolution.

Where a matter involves a conflict with, or within, an organization, a member should also consider
consulting with those charged with governance of the organization, such as the board of directors or the
audit committee.

It would be in the best interests of the member to document the substance of the issue and details of any
discussions held or decisions taken, concerning that issue.

If a significant conflict cannot be resolved, a member may wish to obtain guidance on ethical issues
without breaching confidentiality from the Institute or legal advisors. For example, a member may have
encountered a fraud, the reporting of which could breach the member’s responsibility to respect
confidentiality. The member is advised to consider obtaining legal advice to determine whether there is a
requirement to report.

If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, the member should,
where ethically possible, refuse to remain associated with the matter creating the conflict. The member
may determine that, in the circumstances, it is appropriate to withdraw from the particular engagement
team or assignment, or to resign altogether from the engagement, the firm or the employing organization in
a manner consistent with the rules of professional conduct.

Fiduciary duty
Members have duties to their clients that arise from the nature of the relationships with the clients.
Members have a professional duty to act with integrity and due care and a contractual duty to provide
services as defined by the terms of the engagement. In certain cases, the relationship between a member
and a client could also be one that the courts describe as a fiduciary relationship that gives rise to fiduciary
duties.

The concepts of fiduciary relationship and fiduciary duty are derived from the law of trusts. The obligations
of a fiduciary can be onerous and the implications of being in breach of a fiduciary duty can be significant.

In determining whether a fiduciary relationship does exist, a court will look at all of the factors but, in a
professional engagement situation, will particularly focus on the purpose and nature of the service being
provided; the extent of the reliance which the client places on the member; any lack of sophistication of the
client; the vulnerability of the client to the influence of the member; and, the discretionary authority, if any,
granted by the client to the member. The court will also consider the extent of the disclosure to the client
of the member’s interest in the matter and whether the member has put himself or herself in a position of
conflict or has an opportunity to receive a benefit unknown to the client.

Courts have held that, absent other circumstances, an auditor is not a fiduciary in the typical financial
statement audit engagement (in keeping with the standard statutory purpose). However, when a member
of the audit firm provides non-audit advisory services to the audit client and when the criteria for a fiduciary
relationship exist, the audit firm may be found to be a fiduciary. A service provider is more likely to be
found to be a fiduciary in professional engagements such as forensic or investigative accounting and
investment advisory services.

Members must also note that a member who is an employee may, depending on the particular facts and
circumstances, have a fiduciary relationship with his or her employer.

If there is any question as to whether a fiduciary relationship exists, legal advice should be obtained.

The specific duties that a court might find applicable to a fiduciary will vary depending on the particular
facts and circumstances. In general, a fiduciary relationship requires the fiduciary to act in the utmost
good faith on behalf of the client. As such, a fiduciary must not place himself or herself in a position where
his or her interests conflict with that of the client; nor can a fiduciary profit from his or her position at the
expense of the client. A fiduciary must use information obtained in confidence from a client only for the
benefit of the client and must not use it for personal advantage or the benefit of another person. A
fiduciary cannot act at the same time both for and against the same client and must make available to a
client all of the information that is relevant to the client’s affairs, unless these requirements are modified
with the client’s agreement. Other duties may be found to pertain but are less likely to apply to public
accountants.

It is important for members to recognize that not all fiduciary relationships give rise to all fiduciary duties.
The terms of the engagement, including explicit provisions for the disclosure of potential conflicts and/or
the use of institutional mechanisms to maintain confidentiality are fundamentally important to the nature of
the relationship and the duties that a court will find to apply in a particular case

.
The responsibilities owed to an existing client are more comprehensive than the responsibilities owed to a
former client. The responsibility owed to a former client is generally limited to the duty of confidentiality.

Some, but not all, fiduciary duties are also professional obligations under the rules of professional conduct.
The existence of professional obligations that are similar to fiduciary duties is not in and of itself
determinative as to whether a fiduciary relationship exists between a member and his or her client. The
rules require that members maintain confidentiality, refrain from taking undisclosed profits and avoid
conflicts of interest in all client relationships. While the law recognizes that only certain professional
engagements give rise to fiduciary duties, members must be aware that they are subject to the rules of
professional conduct in all engagements.

Personal character and ethical conduct
The rules of professional conduct which follow are based on the principles expressed above in this
Foreword. These principles have emerged out of the collective experience of the profession as it has
sought, down the years, to demonstrate its sense of responsibility to the public it serves. By their
commitment to honourable conduct, members of the Institute, throughout its history, have given particular
meaning and worth to the designation "chartered accountant". They have done so by recognizing that
rules of professional conduct, which are enforceable by sanctions, do not by their nature state the most
that is expected of members, but simply the least -- the rules thus define a minimum level of acceptable
conduct. Ethical conduct in its highest sense, however, is a product of personal character -- an
acknowledgement by the individual that the standard to be observed goes beyond that of simply
conforming to the letter of a list of prohibitions.

Application of the rules of professional conduct

• The rules of professional conduct apply to all members irrespective of the type of professional services
  being provided. Some rules have particular relevance to members engaged in the practice of public
  accounting. The rules and the guidance in this Foreword also apply, as appropriate, to students.
• Members and students not engaged in the practice of public accounting must observe these rules
  except where the wording of any rule makes it clear that it relates specifically to the practice of public
  accounting or there is a specific exception made in a particular rule.
• The term “professional services” also applies to members and students who are not engaged in the
  practice of public accounting. In this context, it includes those of a member’s activities where the
  public or his or her associates are entitled to rely on membership in the Institute as giving the member
  particular competence and requiring due care, integrity and an objective state of mind.
• Members are responsible to the Institute for compliance with these rules by others who are either
  under their supervision or share with them proprietary interest in a firm or other enterprise. In this
  regard, a member must not permit others to carry out on his or her behalf acts which if carried out by
  the member would place him or her in violation of the rules.
• Members and students who reside outside Manitoba continue to be subject to the rules of professional
  conduct in the province or provinces of membership. They may also be subject to the rules of the
  organized accounting profession in the jurisdiction in which they reside. Should the rules in two or
  more jurisdictions conflict, a member will, where possible, observe the higher or stronger of the
  conflicting rules and, where that is not possible, he or she will consider the ethical conflict guidance set
  out above.

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