Never associated with misleading statements
What the integrity principle asks when a client wants statements, letters or returns that the accountant believes are misleading, and what to record.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Sooner or later every accountant is asked to put their name near something that is not true. It is rarely blunt. The client wants revenue booked a little early so the bank sees a better year. A director wants a loan from a related company left out of the notes. An owner asks for a letter to a landlord confirming income the books do not show.
The integrity principle answers each of these requests. The difficulty lies in applying it politely and firmly, and leaving a record that protects the firm when the client remembers events differently.
Straightforward and honest
The IESBA Code lists five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. The IESBA defines integrity as being straightforward and honest in professional and business relationships.
For an accountant, being straightforward and honest has a practical edge. It means not lending the firm's name to information you believe would mislead the people who rely on it, whether the problem is a false figure, a careless one or a convenient silence.
ACCA's description of financial statement fraud helps to show how wide "misleading" can be. ACCA describes fraudulent financial reporting as fraud causing a material misstatement in the statements, which can include deliberate falsification of accounting records, omission of transactions, balances or disclosures, or misapplication of financial reporting standards. Nothing on that list needs a forged document. Leaving out a disclosure, or bending a standard to flatter the result, can be enough.
Statements, letters and returns for third parties
The risk is highest when a document is meant for someone outside the client:
- Statements for a bank or funder. The reader lends or grants money on the strength of them.
- Confirmation letters. A landlord, an embassy or a supplier asks the accountant to confirm income or solvency.
- Tax returns. The figures go to SARS, the NRS or KRA under the client's name, often with the practitioner's details attached.
Each carries the firm's name to a reader who cannot see the books. That reader is the person the integrity principle protects.
Letters deserve special caution because they are often requested in a hurry and treated as a favour. A one-paragraph confirmation of a client's income, typed on the firm's letterhead for a visa or a lease application, can be relied on as heavily as a full set of statements. Write only what the firm has seen evidence for, say what the confirmation is based on, and keep a copy on the file.
Correct it, qualify it or withdraw
When information looks misleading, the steps run in order:
- Ask and explain. Tell the client what is wrong, why, and what the right treatment is. Many requests fall away once the client understands the consequence.
- Correct it. Make the change with the client's agreement and the supporting evidence.
- Qualify it. Where the engagement allows, say clearly in the report or letter what the information does not show.
- Withdraw. If the client refuses, step away.
In a compilation, IFAC's article on ISRS 4410 (Revised) explains that if management does not provide the additional information or agree to the recommended changes, the practitioner would have to resign from the engagement to avoid being associated with information known to be materially false or misleading. More broadly, the IESBA Code's conceptual framework says that where a threat is not at an acceptable level, the accountant eliminates the circumstance, applies safeguards, or declines or ends the engagement.
Incomplete records are a different problem from misleading ones, and call for a different response; see compilations from incomplete records.
Sign-off rules that hold the line
Integrity is easier to keep when no single person can make a quiet exception. In Achekam, each set of statements names a preparer, a reviewer and an engagement partner. Only a user with a partner role can sign, and the person recorded as preparer or reviewer cannot issue the set (Financials Studio, Partner Review & Signing).
That separation means a junior who has been pressed into a change cannot also push it out of the door, and the partner who signs comes to the set with fresh eyes. Where a client tries to change the statements directly, the routine in when a client wants to edit the statements applies.
Ending the appointment with a reason kept
Some clients will not accept the answer. Where a business keeps its books on Achekam and has appointed the firm, either the business or the firm can end the appointment. The firm then loses access to the books and the business keeps them. A reason is asked for, kept on the record and shown to the other side.
Write that reason with care, because the client will read it. It should be factual and calm, for example: "We were unable to agree the treatment of the related-party loan and cannot continue to prepare the statements on the basis requested." It should not accuse, and it should leave no room to suggest the firm walked away without cause.
Recording the conversation
Whatever the outcome, the file should show:
- what the client asked for, in the client's own words where possible;
- why the firm considered the result misleading, with reference to the standard or rule involved;
- what the firm proposed instead;
- the client's response and the decision taken;
- who in the firm was consulted, and whether they agreed.
The IESBA's overview of its Code of Ethics introduces the fundamental principles, including integrity, and the conceptual framework for dealing with threats.
A firm that says no clearly, offers the honest alternative and writes it all down rarely regrets it. The clients worth keeping usually accept the answer; the others were always going to cost more than their fees.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
