Chapter 6 - Threats And Safeguards To Fundamental Ethical Principles Flashcards
Principles based approach
The code of ethics says that accountants should take a principled based approach to ethics. This requires an accountant to identify, evaluate and address threats to their compliance with the fundamental principles rather than a rules based approach which doesn’t consider the circumstances.
Acting ethically - not doing nothing
If an accountant believes there is an ethical problem they must take appropriate action in order to behave ethically.
Acting ethically - complying with the regulations
Accountants cannot simply rely on complying with regulations as constituting ethical behaviour.
Threats to fundamental ethical principles
These threats will differ depending on the circumstances and whether the accountant works in practice or in business. The accountant must take a principles based approach to the threats and consider each individual circumstance when deciding how to deal with the threats they face.
Threats to the fundamental ethical principles for accountants in practice
Self interest threats - interest will inappropriately influence the accountants judgement or behaviour
Self review threats - an accountant has to re evaluate a judgement or data they have previously made or produced
Familiarity threats - because of a close or personal relationship an accountant becomes too sympathetic to the interests of others
Intimidation threats - accountant may be deterred from acting objectively because of real or perceived threats
Advocacy threats - accountant promotes a position or opinion to the point that their objectivity may be compromised in the future
Safeguards against threats to the fundamental ethical principles of accountants in practice
There are a number of possible safeguards and procedures that an accountant could put in lace to help reduce the threats to their compliance with the fundamental ethical principles. A list of suggested safeguards is shown below:
A leadership culture in the accounting practice that stresses how important it is for staff to comply with the fundamental ethical principles
A leadership culture in the practice that expects all members of staff working on assurance assignments to act in the public interest
Strong quality control procedures which are monitored for all engagements
Documented internal policies requiring compliance with the fundamental principles and a disciplinary mechanism
Threats to the fundamental ethical principles of accountants in business
These can be any of the following:
Self interest threats - financial interest on the part of the accountant may influence the judgment or behaviour of the accountant
Self review threats - involved in preparing data that is then going to be used for making business decisions which the accountant is also involved in
Familiarity threats - accountant has a close personal relation which means they become too sympathetic to the interests of that person.
Intimidation threats - an employed accountant may feel intimidated leading to their fundamental ethics principles being threatened
Advocacy threat - an accountant in business will be expecting to support the goals and objectives of the business. It would therefore be part of the accountants job to promote the business provided ensuring any statements that they made were not false or misleading. This means it is unlikely that this would be a threat to an employed accountant.
Safeguards against threats to the fundamental ethical principles of accountants in business
In addition to the safeguards that are created by the accounting profession, legislation and regulation there are a number of safeguards that can be put in place in the work environment to reduce or eliminate the threats of a accountant in business. Examples:
The employer’s system of corporate oversight
The employers ethics and conduct programmes
Recruitment procedures
A System of strong internal controls
Disciplinary processes
Policies that encourage employees to communicate any ethical issues
Safeguards created by the accounting profession, legislation or regulation
Educational, training and experience requirements for entry into the accounting profession
Continuing professional development requirements
Corporate governance regulations
Professional accounting standards
Professional or regulatory monitoring and disciplinary procedures
External review of the reports by a legally empowered third party
