Chapter 1 - Ethics

Question 1

What are the five fundamental principles of the IESBA ‘Code of Ethics for Professional Accountants’?

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

Be straightforward and honest in all business dealings

Question 3

What is the meaning of objectivity?

Answer 3

Avoid bias, conflict of interest or undue influence

Question 4

What is meant by professional competence and due care?

Answer 4

Maintain professional knowledge and skill
Act diligently

Question 5

What is meant by confidentiality?

Answer 5

Do not disclose information outside of business unless there is a legal obligation to disclose

Question 6

What is meant by professional behaviour?

Answer 6

Comply with all relevant laws and regulations, avoid action which discredits the profession

Question 7

What are the five categories of threats to compliance with the fundamental principles of the IESBA ‘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 reevaluated 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, including attempts to exercise undue influence over the professional accountant

Question 13

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

Answer 13

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 of the reports, returns, communications
   or information produced by a professional accountant.

Question 14

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

Answer 14

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 15

What are the steps that can be taken for conflict resolution

Answer 15

• Consult with other appropriate persons within the firm, from the relevant professional body or legal advisors.
• Obtain professional advice from professional body or legal advisor. The ICAEW runs a confidential ethics helpline service for advice.
• Document issues and details of discussions held.
• If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional accountant should, where possible, refuse to remain associated with the matter creating the conflict.
• The professional accountant may determine that, in the circumstances, it is appropriate to withdraw from the engagement team or specific assignment, or to resign altogether from the engagement or the firm

Question 16

When can a professional accountant disclose confidential information?

Answer 16

A professional accountant may disclose confidential information if:
* Disclosure is permitted by law and is authorised by the client or the employer
* Disclosure is required by law, e.g. under anti money laundering legislation
* There is a professional duty or right to disclose, when not prohibited by law e.g. to comply with a review by a professional body or a regulator, or to protect the professional interests of a professional accountant in legal proceedings.

Question 17

What factors must a professional accountant consider when deciding to disclose confidential information?

Answer 17

In deciding whether to disclose confidential information, professional accountants should consider the following:
* Whether the interests of all parties, including third parties whose interests may be affected, could be harmed if the client or employer consents to the disclosure of information by the professional accountant
* Whether all the relevant information is known and substantiated, to the extent it is practicable to do so
* The type of communication that is expected and to whom it is addressed
* Whether the parties to whom the communication is addressed are appropriate recipients
* Whether the information is privileged, for example under legal professional privilege
* The legal and regulatory obligations and the possible implications of disclosure for the professional accountant

Question 18

What safeguards should a professional accountant employ to minimise the risk of a conflict of interest?

Answer 18

Safeguards should ordinarily include obtaining the consent of both clients as well as some of the following:
* Notifying the client of the firm’s business interest or activities that may represent a conflict of interest
* Notifying all known relevant parties that the professional accountant is acting for two or more parties in respect of a matter where their respective interests are in conflict
* Notifying the client that the professional accountant does not act exclusively for any one client in the provision of proposed services (for example, in a particular market sector or with respect to a specific service)

The following additional safeguards should also be considered:
* The use of separate engagement teams
* Procedures to prevent access to information (e.g. strict physical separation of such teams, confidential and secure data filing)
* Clear guidelines for members of the engagement team on issues of security and confidentiality
* The use of agreements signed by employees and partners of the firm to ensure actual and perceived confidentiality
* Regular review of the application of safeguards by a senior individual not involved with relevant client engagements

If consent cannot be obtained or if the conflict cannot be reduced to an acceptable level the accountant may not continue with both engagements. He must resign from one or both engagements

Question 19

Is tax avoidance legal?

Answer 19

Yes

Question 20

Is tax evasion legal?

Answer 20

No

Question 21

What is meant by money laundering?

Answer 21

The term used for a number of offences involving the proceeds of crime or terrorist funds. It includes possessing, or in any way dealing with, or concealing, the proceeds of any crime.

Question 22

Do tax evasion offences fall under the category of money laundering?

Answer 22

Yes

Question 23

How should professional accountant report suspicions of money laundering?

Answer 23

Within an accountancy firm, an internal report would be made to the firm’s Money Laundering Reporting Officer (MLRO). The MLRO, or the professional accountant if they are the MLRO for their firm, must then decide whether to submit a suspicious activity report (SAR) to the National Crime Agency (NCA).

Question 24

Is tipping off considered an offence under POCA?

Answer 24

Yes

Question 25

Is it an offence to fail to submit a SAR when a report should be made?

Answer 25

Yes

Question 26

What are the penalties related to money laundering offences?

Answer 26

Cases tried in the Crown Court can attract unlimited fines and up to 14 years’
imprisonment for the main money laundering offences.

Failure to disclose and tipping off can
attract unlimited fines and up to five years’ imprisonment for failure to disclose.

Tipping off can attract unlimited fines and up to two years’ imprisonment for tipping off.