CH 2. Professional and ethical duty of the Accountant

Question 1

What are the 5 principles of the ACCA code of ethics?

Answer 1

PIPCO

1. Professional Behaviour - To comply with relevant laws and regulations and avoid any action that behaviour discredits the profession
2. Integrity - To be straightforward and honest in all professional and business relationships
3. Professional Competence and due care - maintain professional knowledge and skill at the level required to deliver competent professional services, and to act diligently (show care).
4. Confidentiality - respect the confidentiality of information acquired as a result of a professional and business relationship, to not disclose info to a third party, unless legal right or duty. Or use the information for personal gain.
5. Objectivity - Not allow bias or personal conflict of interest to override professional judgments.

Question 2

What are the threats to the fundamental principles of the ACCA code of ethics?

Answer 2

ASS IF

1. Advocacy - threat that the accountant promotes the client’s or employer’s position to the point that their objectivity is compromised.
2. Self Interest - financial or other interest will inappropriately influence the accountant’s judgement or behaviour.
3. Self Review - Accountant will not appropriately evaluate the results of a previous judgement made or service performed by themselves or others within their firm, on which the accountant will rely when forming o judgement as a part of providing a current service.
4. Intimidation - The accountant could be deterred from acting objectively because of actual or perceived pressures and attempts to exercise undue influence over the accountant
5. Familiarity - due to a long or close relationship with a client or employer, could lead the accountant to be too sympathetic to their interests or to acceptance of their work.

Question 3

Name the appropriate safeguards that must be put in place to eliminate or reduce the risk of breaching the professional and ethical duty of an accountant?

Answer 3

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

Question 4

Appraise (assess) the potential ethical issues to professional and managerial decisions in the preparation of corporate reports

Answer 4

There are times when an accountant may have an incentive to misrepresent the performance or position of an entity or a variety of other ethical problems that may arise:

- Professional Competence - accountants have a duty to keep up to date with developments in the profession and other regulations, and they must perform the duties that would show professional due care, this could be threatened by:

• Insufficient time
• Incomplete, restricted or inadequate information
• Insufficient experience, skill or training
• Lack of resources

- Objectivity and Integrity, could be threatened by:

• • Self-interest, e.g job security, profit-related bonuses
• • Inducements/persuaded/intimidated that promote unethical behaviour

- Breaking the ACCA Code of Ethics, The Code clearly states that members should not be associated with reports, returns, communications or other information where they believe that the information:

• Contains a materially misleading statement;
• Contains statements or information furnished recklessly;
• Has been prepared with bias; or
• Omits or obscures information required to be included where such omission or obscurity would be misleading.

Question 5

When can an accountant depart from the international standards or the local accounting regulations?

Answer 5

IAS 1 states that departures from international standards are only allowed:

• In extremely rare cases;

or

• Where compliance with IFRS would be so misleading as to conflict with the objectives of financial statements as set out in the Conceptual Framework,

IAS 1 expands on this principle as follows:

• Compliance with IFRS should be disclosed.
• Financial statements can only be described as complying with IFRS if they comply with all the requirements of IFRS.
• Use of inappropriate accounting policies cannot be rectified either by disclosure or explanatory material.

‘Compliance’ is necessary, but not sufficient for a fair presentation

Question 6

Assess the consequences of not upholding ethical principles in the preparation of corporate reports?

Answer 6

The consequences of unethical behaviour in deliberately presenting incorrect financial information are severe.

Many accountants have been fined or jailed for not fulfilling their professional duties.

• The consequences for individuals include:
  
  • Fines
  • The loss of professional reputation
  • Being prevented from acting as a director or officer of a public company in the future
  • The possibility of being expelled by a professional accountancy body
  • A prison sentence.

The wider consequences:

• Lead to the disrepute of the profession
• Financial loss for investors

Question 7

How should an accountant deal with an ethical issue?

Answer 7

Various ways of addressing an ethical issue and one such way is outlined below:

• Determine the nature of the decision that has to be made by determining the context of the ethical dilemma.
• Determine whose rights and interests are affected by the decision.
• Determine the rules of professional practice, internal and external governance codes and relevant laws.
• Set out the arguments for and against taking a particular course of action.
• Formulate a solution that does justice to the arguments for and against the action to be taken.
• Take into account any negative consequences of taking or not taking the action.

Types of actions they could possibly take:

• Educate the manager and rectify the issue.
• Discuss the concern with senior staff, ideally, that is independent e.g Internal auditor or Non-Executive
• Take legal advice/discus with accountancy board
• Whistleblow
• Resign

Question 8

How to deal with an ethics question?

Answer 8

Most likely questioned on:

• • Incorrect accounting treatment has been discovered
• • Manager has requested to perform an action that is not justified by accounting standards or is morally/ethically unacceptable

How to answer it:

• • Call out the ethical principle under threat and the type of threats, the mistakes. (link scenario to the principal)
• • Explain what should happen or what should have been done.
• • Suggest an action to eliminate or reduce the threat.
    
    • Educate the manager and rectify the issue.
    • Discuss the concern with senior staff, ideally, that is independent e.g Internal auditor or Non-Executive
    • Take legal advice/discus with accountancy board
    • Whistleblow
    • Resign