5.1 Code of ethics

Question 1

What are ethics

Answer 1

• A set of moral principles to guide behaviour
• They relate to fairness, honesty and responsibility
• Ethics describes how an entity does it’s business, not what it does

Question 2

Why are ethics important

Answer 2

• Accountants should perform their work properly
• If not and work is carried out in bad faith this can affect:
  
  • the accountant (disciplinary action)
  • the business (financial viability)
  • in the public sector tax payers money could be wasted

Question 3

CIMA’s code of ethics

Answer 3

• Can help you to identify and deal with situations where your professional integrity may be at risk
• It describes the high ethical standards every member must demonstrate and gives guidance on how to uphold these

Question 4

Five fundamental principles form the basis of CIMA’s code of ethics

Answer 4

• Objectivity
• Professional competence and due care
• Professional behaviour
• Integrity
• Confidentiality

Question 5

Objectivity

Answer 5

• means not allowing bias, conflict of interest or other people’s influence to override your professional judgement
• to protect your objectivity you should avoid relationships that could bias or overly influence your professional opininion

Question 6

Professional competence and due care

Answer 6

• is an ongoing commitment to maintain your level of professional knowledge and skill so that your employer receives a competent professional service
• this should be based on current developments in practice, legislation and techniques
• and you must ensure those working under your supervision have the appropriate training and supervision
• work should be completed carefully, thoroughly and diligently in line with relevant technical and professional standards

Question 7

Professional behaviour

Answer 7

• requires you to comply with relevant laws and regulations
• you must also avoid any action that could negatively affect the reputation of the profession

Question 8

Integrity

Answer 8

• means being straightforward, honest and truthful in all professional and business relationships
• you should not be associated with any information that you believe contains a material false or misleading statement, or omits or obscures the facts

Question 9

Confidentiality

Answer 9

• means respecting the confidential nature of information you acquire through professional relationships
• you should not disclose such information unless you have a legal or professional duty to do so
• you should never use confidential information for yours or another persons advantage

Question 10

Threats to CIMA’s principles

Answer 10

• Self interest threats
• Self review threats
• Familiarity threats
• Intimidation threats
• Advocacy threats

Question 11

Self interest threats

Answer 11

• can occur as a result of your own or close family’s interests
• these threats often result in a conflict of interest situation
• eg in business: concern over job security, incentive remuneration arrangements
• eg in practice: losing a client, holding financial interest in client

Question 12

Self review threats

Answer 12

• occur when you are required to re-evaluate your own previous judgement
• eg; review and justify a business decision you made / reporting on operation of financial systems you were involved in designing or implementing

Question 13

Familiarity threats

Answer 13

• can be present when you become so sympathetic to the interests of others as a result of a close relationship that your professional judgement is compromised
• eg: can result from long association with business contacts, a long association with colleagues, accepting gifts or preferential treatment from a client

Question 14

Intimidation threats

Answer 14

• occur when you are deterred from acting objectively by actual or perceived threats
• eg: threat of dismissal over disagreement about applying accounting principle, or dominant personality trying to dominate decision making process

Question 15

Advocacy threats

Answer 15

• can be a problem when you are promoting a position or opinion to the point where your subsequent objectivity is compromised
• eg: acting as an advocate on behalf of an assurance client in litigation or dispute with third parties
• promoting legitimate goals of employer is fine as long as not misleading

Question 16

CIMAs code of ethics has a threats and safeguard approach to

Answer 16

• resolving ethical issues
• in any situation where there is a threat to the principles
  
  • you first assess whether the threat is significant
  • if yes take action to remove or reduce to acceptable level

Question 17

Safeguards

Answer 17

• are actions that will reduce or prevent any ethical issues arising
• they can be found in employing organisations - whistle blowing / grievance procedures
• or can be embedded within the profession - standards / legislation
• safeguards are also the actions that a professional accountant takes to resolve ethical conflict or dilemmas

Question 18

Resolving an ethical dilemma

Answer 18

1. Start by gathering all the relevant information so you can be sure of the facts and decide whether there is an ethical problem
2. Raise your concerns internally (manager, colleague, board, NED, internal grievance / whistleblowing procedure)
3. If your concerns have not been addressed and you feel it is a significant or persistent problem, you should think about reporting it externally (auditors, trade, industry or regulatory authority)
4. If you are still unable to resolve the ethical conflict, consider how you could remove yourself from the situation (stop working with team / client or resign)