Chapter 1 - Ethics

Question 1

What are the 5 fundamental principles outlined in the ICAEW code of Ethics?

Answer 1

1. Integrity
2. Objectivity
3. Professional Competence and due care
4. Confidentiality
5. Professional Behaviour

Question 2

What is the meaning of integrity?

Answer 2

To be straightforward and honest in all professional and business relationships.

Question 3

What is the meaning of objectivity?

Answer 3

To not allow bias, conflict of interest or the undue influence of others to override
professional or business judgements.

Question 4

What is meant by professional competence and due care?

Answer 4

To maintain professional knowledge and skill at the level require
and
To act diligently in accordance with applicable technical and professional standards.

Question 5

What is meant by confidentiality?

Answer 5

• To respect the confidentiality of information acquired as a result of professional
  and business relationships
• Not disclose such information without proper and specific authority unless there is a legal or professional right or duty to disclose,
• Refrain from using information for their personal advantage

Question 6

What is meant by professional behaviour?

Answer 6

To comply with relevant laws and regulations and avoid any action that discredits the profession.

Question 7

What are the five categories of threats to compliance with the fundamental principles of the ICAEW ‘Code of Ethics for Professional Accountants’?

Answer 7

1. Self-interest threats
2. Self-review threats
3. Advocacy threats
4. Familiarity threats
5. Intimidation threats

Question 8

What is meant by self-interest threats?

Answer 8

Which may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member.

Question 9

What is meant by self-review threats?

Answer 9

Which may occur when a previous judgement needs to be re-evaluated by the professional accountant responsible for that judgement.

Question 10

What is meant by advocacy threats?

Answer 10

Which may occur when a professional accountant promotes a position or opinion to the point that objectivity may be compromised

Question 11

What is meant by familiarity threats?

Answer 11

Which may occur when, because of a close relationship, a professional
accountant becomes too sympathetic to the interests of others.

Question 12

What is meant by intimidation threats?

Answer 12

Which may occur when a professional accountant may be deterred from acting objectively by actual or perceived pressures

Question 13

What are six factors a professional accountant should consider when initiating an ethical resolution process?

Answer 13

1. relevant facts
2. relevant parties
3. ethical issues involved
4. fundamental principles related to the matter in question
5. established internal procedures
6. alternative courses of action

Question 14

What safeguards exist that may eliminate threats or reduce them to an acceptable level?

Answer 14

1. Educational, training and experience requirements for entry into the profession.
2. Continuing professional development requirements.
3. Corporate governance regulations.
4. Professional standards.
5. Professional or regulatory monitoring and disciplinary procedures.
6. External review by a legally empowered third party
7. An effective, well-publicised complaints system
8. An explicitly stated duty to report breaches of ethical requirements.

Question 15

When may a professional accountant disclose confidential information?

Answer 15

• Disclosure is permitted by law and is authorised by the client
• A disclosure is required by law:
  
  • To produce documents in legal proceedings
  • Disclosure to appropriate public authorities due to breaches in laws

Question 16

Steps when accepting a new client:

Answer 16

1 - confirm ID of the client

2 - Considerations of threats to fundamental principles (integrity, Prof. competence, conflicts of interest)

3 - Issue an engagement letter (scope, responsibilities, authority to disclose to HMRC,)

Question 17

Some anti money laundering procedures

Answer 17

Register with supervisory authority (ICAEW)

Appoint MLRO

Create internal procedures

Train staff regarding legislation, recognition of money laundering and how to deal with suspected money laundering

Carry out customer due diligence

Report suspicions of ML to National Crime Agency

Maintain clients ID for at least 5 years after the termination of the relationship.

Question 18

What Is Tax PLANNING

Answer 18

The LEGAL method of reducing tax liability 
E.g:
 - Pension contributions
 - Using ISA 
 - Reliefs on R&D expenditure

Question 19

Tax AVOIDANCE

Answer 19

The LEGAL tax reduction involving bending the rules and obtaining tax advantage.
E.g:
- Using loss schemes

Question 20

Tax EVASION

Answer 20

Illegal reduction of tax by Misleading HMRC

• Penalties for it
• Falls within money laundering

Failing to declare income
Understating income, overstating expenditure