9. Applying Ethical Principals

Question 1

Define Fraud?

and

What 3 factors need to be present for it to occur?

Answer 1

Fraud: The deliberate act of gaining an advantage by knowingly breaking the law.

3 Factors:-

1. Pressure - Motivation to commit fraud comes from:
   
   • Financial Pressure
   • ​​Social Pressure
2. Opportunity - Perpetuated because someone believes they can get away with it.
3. Rationalisation - Fraudster justifies the decision to themselves

Question 2

How to respond to fraud?

Answer 2

When responding to fraud managers need to consider if the 3 elements of fraud are present.

Managers should also consider if there are any red flags present, which would indicate if there is any fraud. e.g Lack of oversight or segregation of duties, unexplained irregularities, frequency of irregularities.

Question 3

What is Corruption or Bribery?

What are the elements of bribery?

What other forms of corruption are there?

Answer 3

• *Bribery:** Influencing someone to behave inappropriately by means of money, goods or services.
• *Corruption:** Deviation from prescribed behaviour, usually in conjunction with some other gain.

Elements of Bribery

1. A person who makes the bribe (UK Bribery Act makes the organisation liable too)
2. Other parties? Complicit if they know about the bribe but fail to report it
3. A recipient whose conduct is being influenced
4. Bribe (can be cash, gifts, services or even just a promise)

Forms of Corruption and other aspects of bribery.

• Bid Rigging
• Abuse of the system
• Cartel
• Influence peddling
• Bribery

Question 4

Why bribery and corruption are problems?

Answer 4

1. Lack of trusting someone to make the best decisions, due to honesty and good faith.
2. Conflicts of interest between duties to principals and own self-interest
3. International risk management – should you operate where bribery is acceptable?
4. Economic issues – costs may be higher and quality could be affected
5. Reputation suffers as people no longer have faith in your organisation

Question 5

What measures can management take to combat bribery and corruption?

Answer 5

1. Establish a culture
2. Code of conduct
3. Risk assessment
4. Conduct of business
5. Reporting and whistleblowing
6. Monitoring

Question 6

what are Tucker’s 5 questions?

Answer 6

1. Is it profitable?
2. Is it legal - does it break laws anywhere?
3. Fair and equitable for all involved?
4. is it right?
5. sustainable or environmentally sound?

Question 7

What are the typical features of a code of ethics?

Answer 7

• Guidance on acceptable and unacceptable behaviour
• Specific examples of company expectations
• Links to the organisation’s mission and objectives
• Clear guidance on consequences and sanctions
• Standards for the ethical treatment of suppliers, customers, employees

Question 8

How does the code of ethics affect accountants?

Answer 8

Professional behaviour: Imposes an obligation on professional accountants to ‘comply with relevant laws and regulations and avoid any conduct that may bring discredit to the profession.’

Among the most important obligations for modern professional accountants is maintaining the confidentiality and upholding ethical standards, including acting in the public interest.

The influence of the accountancy profession on business and society is potentially huge. It can be established simply by considering all the different involvements that accountants have.

Question 9

Explain the objective of IESBA code of ethics, and what are the pros and cons of a principal based framework.

Answer 9

(a) clarifies up-front acceptance by the accountancy profession of its responsibility to act in the public interest.
(b) The detailed guidance is preceded by the underlying fundamental principles of ethics.
(c) The guide supplies a conceptual framework that requires accountants to identify, evaluate and address threats to compliance, and applying safeguards to eliminate the threats or to reduce them to an acceptable level.

Question 10

What are The fundamental ethical principles of the ACCA code of ethics and conduct?

and

What type of safeguards are in place against breach of the code?

Answer 10

P.I.P.C.O

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

Safeguards

(a) Safeguards created by profession and regulations (eg corporate governance)
(b) Safeguards within the client/the accountancy firm’s own procedures
(c) Educational training and experience requirements for entry into the profession, together with continuing professional development.

Question 11

What types of threats are there for an accountants independence?

Answer 11

A.S.S.I.F

• Advocacy
• Self-Review
• Self-Intrest
• Intimidation
• Familiarty