Ch 1 Ethics

Question 1

What are the 5 fundamental principles?

Answer 1

Integrity
Objectivity
Professional competence and due care
Professional behaviour 
Confidentiality

Question 2

Define integrity

Answer 2

Members should act in a straightforward and honest manner in performing their work

Question 3

Define objectivity

Answer 3

Members shouldn’t allow prejudice or bias, or the influence of others, to override objectivity

Question 4

Define professional competence and due care

Answer 4

Members must exercise sound judgement in applying professional knowledge and skill

• Shouldn’t undertake any work they are not competent to carry out
• Members have an outgoing duty to maintain professional knowledge and skills
• Members should carry out their work with due care having regard to the nature and scope of the assignment

Question 5

Define professional behaviour

Answer 5

Members should refrain from any conduct that might bring discredit to the profession

Question 6

Define confidentiality

Answer 6

Members should respect the confidentiality of information acquired as a result of professional and business relationships.

• Shouldn’t disclose any such info to third parties unless
• they have proper and specific authority
• there is a legal/prof duty to disclose
  e. g. money laundering

Confidential info acquired as result of prof/bus relationships shouldn’t be used for personal adv of members/third parties

Question 7

If you prepare Jane and her husbands tax returns, can you discuss Janes affairs with her husband?

Answer 7

Can’t discuss his tax affairs with husband unless you have Janes permission
You have duty of confidentiality to Jane

Question 8

Define self-interest

Answer 8

Such a threat may occur as a result of a member’s financial or other interests, or those of an immediate or close family members, influencing behaviours and decisions of the member

Question 9

Define self review

Answer 9

Threat can occurs when a prev judgement needs to be re-evaluated, or reviewed, by the same member responsible for that judgement

Question 10

Define advocacy

Answer 10

Such a threat may occur when a member promotes a position or opinion to the point that obj may be compromised

Question 11

Define familiarity

Answer 11

Occurs because of a close relationship, a member becomes too sympathetic to the interests of the client

Question 12

Define intimidation

Answer 12

May occur when a member is deterred from acting objectively by actual or perceived pressures from other

Question 13

What do safeguards do

Answer 13

Reduce the threats to an acceptable level, or eliminates them entirely

Question 14

If you’re a trainee and preparing a SA TR and noticed errors in the previous TR that was prepared by your man. Man begs you not to tell your partner and offers you a large bonus to keep quiet. What are the threats to fundamental ethics principles?

Answer 14

Self-interest threat as man promised a bonus for keeping quiet about his errors

Intimidation threat as man is in position of authority over you

Question 15

When initiating an ethical conflict resolution process, what factors should be considered?

Answer 15

Relevant facts
Ethical issues involved
Fundamental principles relating to the matter in q 
Any established internal procedures 
Possible alternative courses of action

Question 16

If a conflict remains unresolved after r the ethical conflict resolution process, what should a member do?

Answer 16

Seek advice within his/her own firm and document the advice given
Seek legal advice or advice from their professional body
Consider withdrawing from the eng/conflict situation

Question 17

You work for ICAEW CA and manager is approached by a new client, whose TR were prev done by non-qualified TR. Client has contacted HMRC about errors, and wanted to know the safeguards in place to protect him in case of any future problems with work carried out by your firm. What safeguards are available to reassure clients in relation to the work of ICAEW CA?

Answer 17

Safeguards:

• CPD requirements
• Professional standards
• Monitoring/disciplinary procedures
• Complaint systems

Question 18

When can conflicts arise?

Answer 18

Between

• firm and client
• 2 clients (managed by same firm)

Question 19

If a conflict of interest is identified, what steps should be taken?

Answer 19

• Notify relevant parties of any actual/potential conflict(s) of interest
• Obtain consent from relevant parties to act
• If consent is refused, cease acting for one party involved in the conflict
• If consent is granted
  
  • Use separate eng teams
  • Impose procedures to team members, on both eng teams, in relation o security and confidentiality
• Use confidentiality agreements for partners/employees
• Regular review of safeguards by senior members of staff not involved w conflicting eng
• if conflict can’t be resolved consider not accepting/resigning from one eng

Question 20

How would you address the follow situation?

Work in ICAEW acc, man taken of clients prev looked after by her fiancé who moved to another firm. You notice errors made by her fiancé, and clients will need to be notified and will face penalties

Answer 20

Consider following factors:

• Relevant facts (actual errors in the returns signed off by him)
• ethical issues involved (normally refer this matter to man, who is eng to error maker)
• Relevant fundamental principles (obj, professional competence and due care)
• • Any established internal procedures (e.g. referring directors/partner overseeing work)
• possible alternative courses of actions

If remains unresolved, seek advice within their firm and document advice given

Question 21

Define tax avoidance

Answer 21

Is using any legal method to reduce an entity’s tax burden, even if the method isn’t following the intent of the law
E.g. artificially using foreign jurisdictions with low rates

Question 22

Is tax avoidance legal?

What are the issues with it

Answer 22

No illegal

But morally questionable and isn’t always effective

Question 23

Why are tax avoidance measures not always effective?

Answer 23

• Promoters of tax avoidance schemes are now required to disclose details to HMRC, enabling HMRC to close loopholes quickly
• The courts may disregard elements of transactions that have no commercial purpose i.e. where they have been designed with the main aim of avoiding tax
• General anti-abuse rule (GAAR) enables HMRC to challenge abusive tax avoidance arrangements

Question 24

Longstanding client is owned 50:50, and one is considering selling shares to the other and retired. Both SH asked the firm to advise them on the sale. What steps would you take to address this situation?

Answer 24

Confict of interest arisen as asked to act for seller and buyer
Take following steps
- Notify both of conflict
- Obtain consent from relevant parties to act
- If consent is refuted, either refuse to act for one or both
- If granted consent, use separate eng teams, improve procedures to prevent access to info, issue guidelines to team members

Question 25

What is tax evasion?

Answer 25

Its illegally seeking to pay less tax than is due by deliberately misleading HMRC.
It carries a risk of criminal prosecution (fines and/or imprisonment)

Question 26

What are the main forms of tax evasions?

Answer 26

Suppressing info e.g. failing to declare taxable income to HMRC

Submitting false info e.g. claiming expenses that shouldn’t have been incurred

Question 27

Give an example of tax evasion by suppressing info

Answer 27

Failing to declare taxable income to HMRC

Question 28

Give an example of tax evasion by submitting false info

Answer 28

claiming expenses that shouldn’t have been incurred

Question 29

How are the proceeds of tax offences treated?

Answer 29

The same way as proceeds from theft, drug trafficking and other criminal conduct

So failure to report tax evasion is also an offence under money laundering regs

Question 30

What is tax evasion an offence under?

Answer 30

Money laundering regulations

Question 31

When has an individual engaged in money laundering?

Answer 31

When they

• Conceal, disguise, convert, transfer or remove (from UK) criminal property
• Enter into, or become concerned about, an arrangement which they know or suspect facilitates the acquisition, retention, use or control of criminal property
• Acquire, use or have possession of criminal property

Question 32

What does criminal property income?

Answer 32

• Proceeds of tax evasion
• Benefits obtained through bribery and corruption
• benefits obtained through operation of a criminal cartel
• benefits from failure to comply with regulatory requirements (where that failure is a criminal offence)

Question 33

What are accountants required to comply with?

Answer 33

• Proceeds of Crime Act 2002 (POCA) as amended by the Serious Organised Crime and Police Act 2005 (SOCPA)
• Money Laundering Regulations 2007
• Guidance on acc obligations in relation to the prevention, recognition and reporting of money laundering is included in ICAEW members’ handbook

Question 34

When considering AML procedures, what procedures should accountants consider?

Answer 34

• Register with appropriate supervisory body
• Appoint an Anti-Money Laudnering Reporting Officer (MLRO)
• Implement internal reporting procedures: if a member suspects a client of involvement in money laundering, they should make an internal report to their MLRO, who must decide whether to report suspicions to NCA using Suspicious Activity Repot

Question 35

When considering AML procedures, what procedures should accountants consider?

Answer 35

• Register with appropriate supervisory body
• Appoint an Anti-Money Laudnering Reporting Officer (MLRO)
• Implement internal reporting procedures: if a member suspects a client of involvement in money laundering, they should make an internal report to their MLRO, who must decide whether to report suspicions to NCA using Suspicious Activity Repot
• Regular staff training
• Establish internal procedures to reduce the risk of being involved in ML schemes
• Verify new clients ID and retain relevant docs for 5 years after termination of client relationship
• Maintain records of all transactions undertaken for each new client (5 yrs after completion of the transaction)

Question 36

While preparing a TR for a new client, discover FD has been falsifying sales inv for many years and has underpaid corp tax for years. is this tax planning, avoidance or evasion?

Answer 36

Actions of FS is clearly deliberate attempt to mislead HMRC and therefore consistute tax evasion

Question 37

What are the penalties for money laundering?

Answer 37

Unlimited fines

Imprisonment

Question 38

Who faces the penalties for money laundering?

Answer 38

Those who are found guilty of it
Failure to report money laundering
Tipping off money laundering

Question 39

What are the imprisonment rules for those being penalised for money laundering?

Answer 39

14 years for money laundering offences
5 years for failure to report an offence
2 years for tipping off

Question 40

Client for many years, whilst preparing their SA TR you became curious about money coming into business account. Explanations provided weren’t satisfactory. What is the correct course of guidance to AML for accountants issued by ICAEW?

Answer 40

Contact MLRO ASAP re suspicions so that they can assess whether a suspicious activity report (SAR) is required

You must not inform them you have contacted MLRO as this would be tipping off

Tipping off is notifying the client that you know/ suspect that a SAR has been made