Inducements, Including Gifts and Hospitality

Introduction

5340.1 Sustainability assurance providers are required to comply with the fundamental principles and apply the conceptual framework set out in Section 5120Section 5120 to identify, evaluate and address threats. 5340.2 Offering or accepting inducements might create a self-interest, familiarity or intimidation threat to compliance with the fundamental principles, particularly the principles of integrity, objectivity and professional behavior. 5340.3 This section sets out requirements and application material relevant to applying the conceptual framework in relation to the offering and accepting of inducements when performing professional services for sustainability assurance clients that does not constitute non-compliance with laws and regulations.

This section also requires a sustainability assurance provider to comply with relevant laws and regulations when offering or accepting inducements.

Requirements and Application Material

General

5340.4 A1 An inducement is an object, situation, or action that is used as a means to influence another individual’s behavior, but not necessarily with the intent to improperly influence that individual’s behavior. Inducements can range from minor acts of hospitality between sustainability assurance providers and existing or prospective sustainability assurance clients to acts that result in non-compliance with laws and regulations. An inducement can take many different forms, for example: • Gifts. • Hospitality. • Entertainment. • Political or charitable donations. • Appeals to friendship and loyalty. • Employment or other commercial opportunities. • Preferential treatment, rights or privileges.

Inducements Prohibited by Laws and Regulations

R5340.5

The sustainability assurance provider shall obtain an understanding of relevant laws and regulations, if any, and comply with them when the practitioner encounters such circumstances.

Inducements Not Prohibited by Laws and Regulations

5340.6 A1 The offering or accepting of inducements that is not prohibited by laws and regulations might still create threats to compliance with the fundamental principles.

Inducements with Intent to Improperly Influence Behaviour

R5340.7

A sustainability assurance provider shall not offer, or encourage others to offer, any inducement that is made, or which the practitioner considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behaviour of the recipient or of another individual.

R5340.8

A sustainability assurance provider shall not accept, or encourage others to accept, any inducement that the practitioner concludes is made, or considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behaviour of the recipient or of another individual. 5340.9 A1 An inducement is considered as improperly influencing an individual’s behavior if it causes the individual to act in an unethical manner. Such improper influence can be directed either towards the recipient or towards another individual who has some relationship with the recipient. The fundamental principles are an appropriate frame of reference for a sustainability assurance provider in considering what constitutes unethical behavior on the part of the practitioner and, if necessary by analogy, other individuals. 5340.9 A2 A breach of the fundamental principle of integrity arises when a sustainability assurance provider offers or accepts, or encourages others to offer or accept, an inducement where the intent is to improperly influence the behavior of the recipient or of another individual. 5340.9 A3 The determination of whether there is actual or perceived intent to improperly influence behavior requires the exercise of professional judgment. Relevant factors to consider might include: • The nature, frequency, value and cumulative effect of the inducement. • Timing of when the inducement is offered relative to any action or decision that it might influence. • Whether the inducement is a customary or cultural practice in the circumstances, for example, offering a gift on the occasion of a religious holiday or wedding. • Whether the inducement is an ancillary part of a professional service, for example, offering or accepting lunch in connection with a business meeting. • Whether the offer of the inducement is limited to an individual recipient or available to a broader group. The broader group might be internal or external to the firm, such as other suppliers to the sustainability assurance client. • The roles and positions of the individuals at the firm or the sustainability assurance client offering or being offered the inducement. • Whether the sustainability assurance provider knows, or has reason to believe, that accepting the inducement would breach the policies and procedures of the sustainability assurance client. • The degree of transparency with which the inducement is offered. • Whether the inducement was required or requested by the recipient. • The known previous behavior or reputation of the offeror.

Consideration of Further Actions

5340.10 A1 If the sustainability assurance provider becomes aware of an inducement offered with actual or perceived intent to improperly influence behavior, threats to compliance with the fundamental principles might still be created even if the requirements in paragraphs R5340.7 and R5340.8 are met. 5340.10 A2 Examples of actions that might be safeguards to address such threats include: • Informing senior management of the firm or those charged with governance of the sustainability assurance client regarding the offer. • Amending or terminating the business relationship with the sustainability assurance client.

Inducements with No Intent to Improperly Influence Behavior

5340.11 A1 The requirements and application material set out in the conceptual framework apply when a sustainability assurance provider has concluded there is no actual or perceived intent to improperly influence the behavior of the recipient or of another individual. 5340.11 A2 If such an inducement is trivial and inconsequential, any threats created will be at an acceptable level. 5340.11 A3 Examples of circumstances where offering or accepting such an inducement might create threats even if the sustainability assurance provider has concluded there is no actual or perceived intent to improperly influence behavior include: • Self-interest threats o A sustainability assurance provider is offered hospitality from the prospective acquirer of a sustainability assurance client while providing corporate finance services to the client. • Familiarity threats o A sustainability assurance provider regularly takes an existing or prospective sustainability assurance client to sporting events. • Intimidation threats o A sustainability assurance provider accepts hospitality from a sustainability assurance client, the nature of which could be perceived to be inappropriate were it to be publicly disclosed. 5340.11 A4 Relevant factors in evaluating the level of such threats created by offering or accepting such an inducement include the same factors set out in paragraph 5340.9 A3 for determining intent. 5340.11 A5 Examples of actions that might eliminate threats created by offering or accepting such an inducement include: • Declining or not offering the inducement. • Transferring responsibility for the provision of any professional services to the sustainability assurance client to another individual who the sustainability assurance provider has no reason to believe would be, or would be perceived to be, improperly influenced when providing the services. 5340.11 A6 Examples of actions that might be safeguards to address such threats created by offering or accepting such an inducement include: • Being transparent with senior management of the firm or of the sustainability assurance client about offering or accepting an inducement. • Registering the inducement in a log monitored by senior management of the firm or another individual responsible for the firm’s ethics compliance or maintained by the sustainability assurance client. • Having an appropriate reviewer, who is not otherwise involved in providing the professional service to the sustainability assurance client, review any work performed or decisions made by the sustainability assurance provider with respect to the client from which the practitioner accepted the inducement. • Donating the inducement to charity after receipt and appropriately disclosing the donation, for example, to a member of senior management of the firm or the individual who offered the inducement. • Reimbursing the cost of the inducement, such as hospitality, received. • As soon as possible, returning the inducement, such as a gift, after it was initially accepted.

Immediate or Close Family Members

R5340.12

A sustainability assurance provider shall remain alert to potential threats to the practitioner’s compliance with the fundamental principles created by the offering of an inducement: