Chapter 10 - Ethics

Question 1

Q: What are the fundamental principles of ethics?

Answer 1

A: Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour, Professional scepticism.

Question 2

Q: What does “Integrity” mean in the context of professional ethics?

Answer 2

A: Act honestly and straightforwardly in all relationships.

Question 3

Q: What does “Objectivity” mean in professional ethics?

Answer 3

A: Avoid bias and external influence, maintain impartiality.

Question 4

Q: What is required for “Professional competence and due care”?

Answer 4

A: Maintain knowledge, follow current standards, and act diligently.

Question 5

Q: What does “Confidentiality” entail in professional ethics?

Answer 5

A: Respect and protect confidential information.

Question 6

Q: What is meant by “Professional behaviour”?

Answer 6

A: Refrain from actions that could damage the profession’s reputation.

Question 7

Q: What is “Professional scepticism”?

Answer 7

A: Maintain a questioning mind, alert to potential errors or fraud.

Question 8

Q: What should a professional do to exercise “Professional competence and due care”?

Answer 8

A: Exercise sound judgment, avoid tasks beyond competence, continuously update professional knowledge, and work diligently.

Question 9

Q: What are the conditions for disclosing confidential information?

Answer 9

A: Only with proper authority or if legally or professionally required (e.g., money laundering).

Question 10

Q: What is prohibited regarding the use of confidential information?

Answer 10

A: The information must not be used for personal or third-party benefit.

Question 11

Q: What are the five main threats to compliance with ethical principles?

Answer 11

A: Self-interest, Self-review, Advocacy, Familiarity, Intimidation.

Question 12

Q: What is a “Self-interest” threat?

Answer 12

A: Personal financial interests influencing decisions.

Question 13

Q: What is a “Self-review” threat?

Answer 13

A: Reviewing previous judgments or work, which could influence objectivity.

Question 14

Q: What is an “Advocacy” threat?

Answer 14

A: Promoting an opinion to the point of losing objectivity.

Question 15

Q: What is a “Familiarity” threat?

Answer 15

A: Sympathetic bias due to close relationships.

Question 16

Q: What is an “Intimidation” threat?

Answer 16

A: External pressure causing a loss of objectivity.

Question 17

Q: What safeguards can be taken against threats to compliance?

Answer 17

A: Education and training, CPD, corporate governance, monitoring, external reviews, and the duty to report ethical breaches.

Question 18

Q: What steps should be taken during the conflict resolution process?

Answer 18

A: Consider the facts, seek internal advice, and, if unresolved, seek legal or ICAEW advice, possibly withdrawing from the engagement.

Question 19

Q: What are common sources of conflict of interest in a professional setting?

Answer 19

A: Conflicts between a firm and client, or between two clients managed by the same firm.

Question 20

Q: What should be done if a conflict of interest is identified?

Answer 20

A: Notify relevant parties, obtain consent to act, or cease acting if consent is refused.

Question 21

Q: What actions can be taken to safeguard against conflict of interest?

Answer 21

A: Use separate teams, restrict access to information, confidentiality agreements, and regular review of safeguards.

Question 22

Q: What is “Tax avoidance”?

Answer 22

A: Legal methods to reduce tax liability, though not always aligning with the law’s original intent.

Question 23

Q: How is “Tax avoidance” treated by the courts?

Answer 23

A: Tax avoidance schemes can be disregarded if they have no commercial purpose other than tax reduction.

Question 24

Q: What is the difference between “Tax planning” and “Tax avoidance”?

Answer 24

A: Tax planning uses tax legislation as intended to minimize tax (e.g., using marriage allowances), while tax avoidance may exploit loopholes in the law.

Question 25

Q: What is “Tax evasion”?

Answer 25

A: An illegal method to reduce tax by misleading HMRC, such as suppressing income or submitting false claims.

Question 26

Q: What are the penalties for tax evasion?

Answer 26

A: Fines, imprisonment up to 14 years for money laundering or up to 5 years for failing to report, and up to 2 years for tipping off.

Question 27

Q: What constitutes “Money laundering”?

Answer 27

A: Concealing, transferring, or using criminal property, including proceeds of tax evasion.

Question 28

Q: What regulations must accountants comply with regarding money laundering?

Answer 28

A: Proceeds of Crime Act 2002, Serious Organised Crime and Police Act 2005, and the Money Laundering Regulations 2017.

Question 29

Q: What are the procedures for anti-money laundering?

Answer 29

A: Register with a supervisory body, appoint a Money Laundering Reporting Officer (MLRO), report suspicious activity, provide staff training, verify clients, and retain documents for 5 years.

Question 30

Q: When must accountants disclose confidential information?

Answer 30

A: When required under anti-money laundering obligations if they suspect or know about money laundering.

Question 31

Q: What is prohibited under anti-money laundering regulations?

Answer 31

A: Tipping off the money launderer.

Question 32

Q: What are the penalties for money laundering offences?

Answer 32

A: Unlimited fines, up to 14 years imprisonment for money laundering, up to 5 years for failing to report, and up to 2 years for tipping off.