Chapter 8 - The Accountancy Profession Flashcards
What is a profession?
A profession is an occupational area or vocation that requires prolonged training and qualification in order to demonstrate competence.
What are the common features of a profession? 4
- Formal regulatory process: Sets licensing rules and regulations that restrict membership and prevent new entrants without qualification.
- Great degree of autonomy to self-regulate: Professionals hold each other accountable to maintain trust.
- Professional values: Set the standard of behavior for members.
- Co-regulation: Involves additional bodies to set and enforce standards of behavior.
QBE stand for
Qualified by experience
Who is a professional?
A person who professes to have skill resulting from a coherent course of study and training based on professional values, and who continues to develop and enhance those skills through experience and continuing professional education.
What is accountancy?
The profession of accounting, which includes measurement, preparation, validation, disclosure, auditing, and provision of assurance and advisory services on financial information.
What is the accountancy profession?
It is the profession concerned with the measurement, disclosure, or provision of assurance about financial information, helping managers, investors, tax authorities, and other decision-makers make resource allocation decisions.
What are the key elements at the heart of the accounting profession? 2
- Financial reporting: Provision of financial information useful for economic decisions and assessing stewardship.
- Assurance: Expression of opinion or conclusion by a professional accountant to enhance user confidence.
Why is the work of the accountancy profession important? 2
The accountancy profession is important for:
1. The effective working of capital markets.
2. The public interest.
What is required for the effective working of capital markets?
The capital markets require accurate and open information that can be used by investors and other providers of finance to make economic decisions.
What happens if there is inadequate or asymmetric information in capital markets? 3
- Investors may be at a disadvantage and unable to make optimal economic decisions.
- Confidence in the capital markets will erode.
- The source of new capital for businesses would dry up.
How do professional accountants support the capital markets?
Professional accountants ensure high quality, accurate financial reporting, which supports the effective working of capital markets for the benefit of businesses.
What is a distinguishing mark of the accountancy profession as per the ICAEW Code of Ethics?
It is the acceptance of the responsibility to act in the public interest, rather than exclusively satisfying the needs of an individual client or employing organization.
What must accountants demonstrate to ensure confidence in their work? 3
- Professional scepticism: Critical assessment of information with a questioning mind and alertness to possible misstatements.
- Critical thinking: Ability to objectively and rationally analyze and evaluate issues.
- Professional judgement: Application of relevant training, knowledge, skill, and experience based on facts and circumstances.
Define Professional judgement
Professional judgement: Application of relevant training, knowledge, skill, and experience based on facts and circumstances.
What is a key consequence of working with the public for ICAEW members?
ICAEW members must report acts of misconduct.May also need to self-report.
What is the role of accountants in sustainability and climate change?
Accountants help organizations meet requirements concerning sustainability and climate change, particularly in environmental, social, and governance (ESG) management.
What kinds of activities are accountants involved in for regulation and intervention in sustainability? 5
- Mandatory reporting requirements: Climate-related disclosures in financial statements.
- Regulatory returns: Ensuring compliance with sustainability regulations.
- Taxes and tariffs: Levied on activities like carbon emissions.
- Grants: Available to improve environmental behavior.
- Compliance audits: Ensuring rigor for controls and meeting standards.
Regulation and intervention in sustainability - what is mandatory reporting requirements
- Mandatory reporting requirements: Climate-related disclosures in financial statements.
Regulation and intervention in sustainability - what is regulatory returns
- Regulatory returns: Ensuring compliance with sustainability regulations.
Regulation and intervention in sustainability - what is taxes and tariffs
- Taxes and tariffs: Levied on activities like carbon emissions.
Regulation and intervention in sustainability - what is grants
- Grants: Available to improve environmental behavior.
Regulation and intervention in sustainability - what compliance audits
- Compliance audits: Ensuring rigor for controls and meeting standards.
How can accountants help organizations understand market forces related to sustainability?
Accountants can also help organisations understand the complexities of market forces with respect to sustainability and climate change: 1. Risk management: Identifying additional risks from climate change.
2. Strategy: Analyzing external environments on macro (PESTEL) and micro (PSF?) levels and developing strategies.
3. Finance: Promoting green finance to achieve net zero.
4. Governance: Directing stakeholders’ efforts towards responsible organizations.
5. Metrics and targets: Setting and comparing climate-related performance targets.
6. Supply chain management: Reviewing and improving the social and environmental impact of supply chains.
How can accountants help organizations understand market forces related to sustainability through risk management
- Risk management: Identifying additional risks from climate change.
How can accountants help organizations understand market forces related to sustainability through strategy
- Strategy: Analyzing external environments on macro (PESTEL) and micro (PSF?) levels and developing strategies.
How can accountants help organizations understand market forces related to sustainability through finance
- Finance: Promoting green finance to achieve net zero.
How can accountants help organizations understand market forces related to sustainability through governance
- Governance: Directing stakeholders’ efforts towards responsible organizations.
How can accountants help organizations understand market forces related to sustainability through metrics and targets
- Metrics and targets: Setting and comparing climate-related performance targets.
How can accountants help organizations understand market forces related to sustainability through supply chain management
- Supply chain management: Reviewing and improving the social and environmental impact of supply chains.
What is the International Federation of Accountants (IFAC)?
IFAC is the global organization for the accountancy profession, consisting of 175 member organizations and associates, including the ICAEW.
What is the aim of IFAC?
The aim of IFAC is to protect the public interest by encouraging high-quality practices by accountants worldwide. It includes best practice guidance for professional accountants and a membership compliance programme.
What is the basis of ICAEW’s professional code of ethics?
The ICAEW’s professional code of ethics, as well as those of other bodies, is based on IFAC’s code.
Who can call themselves an accountant in the UK?
The term ‘accountant’ has no special legal status in the UK. Anyone can advertise as an accountant and offer accountancy services, except for four reserved areas (statutory audit, investment business, insolvency, and probate) requiring specific levels of competence.
Anyone can advertise as an accountant and offer accountancy services, except for four reserved areas name them
four reserved areas (statutory audit, investment business, insolvency, and probate) requiring specific levels of competence.
Why is regulation of professions necessary?
Regulation is needed to protect the public interest in situations where the issues are too technically complex for the public to protect their own interests.
What should regulation not do? 4
- Protect vested interests from competitors.
- Be for personal gain or satisfy prurient interest.
- Be disproportionate to the benefit gained.
- Distort competition by imposing extra burden on some but not others.
What are the methods of regulation? 4
- By government directly via legislation.
- By separate agencies established by government (delegated legislation).
- By the profession/industry itself (self-regulation).
- By a combination of methods.
What is self-regulation, and why is it useful?
Self-regulation provides a flexible approach based on detailed knowledge of issues within the profession.
When does self-regulation work effectively? 4
- The regime does not act against the public interest.
- Regulatory guidance and its importance are understood and enforced.
- Members of the profession ‘buy in’ to the process.
- There is an oversight mechanism.
What is required for an effective oversight mechanism? 2
- Proof of good intent and actions to counter self-interest accusations.
- An independent oversight mechanism backed by the government, regulators, members of the profession, and members of the public.
What is the role of the Financial Reporting Council (FRC)?
The FRC acts as the UK’s independent regulator for corporate reporting and governance.
What are the key functions of the FRC? 5
- Setting standards for corporate governance, financial reporting, audit, assurance, and actuarial policy.
- Monitoring the quality of audit and financial reporting in large entities.
- Regulating the audit profession.
- Overseeing self-regulation in accountancy, audit, and actuarial professions.
- Acting as the disciplinary body for accountancy and actuarial professions.
What are the two divisions of the FRC?
- The Conduct Committee: Responsible for professional oversight, discipline, corporate reporting review, and audit quality review.
- The Codes and Standards Division: Responsible for codes and standards in actuarial policy, accounting and reporting policy, audit, assurance, and corporate governance.
What is the role of the Conduct Committee within the FRC? 2
- Professional oversight: Oversees how professional bodies regulate their members beyond statutory auditors.
- Professional discipline: Operates an independent investigative and disciplinary body for accountants and actuaries in the UK, administering the Accountancy Scheme.
What is the Accountancy Scheme?
The Accountancy Scheme investigates cases affecting public interest in the UK to determine misconduct by an accountant or accountancy firm.
What is the role of the Codes and Standards Division within the FRC?
Responsible for codes and standards in actuarial policy, accounting and reporting policy, audit, assurance, and corporate governance.
Define Corporate governance
Corporate governance: maintains and updates two codes in relation to corporate governance: the UK Corporate Governance and the Stewardship Code.
What are the corporate governance codes maintained by the FRC?
- The UK Corporate Governance Code.
- The Stewardship Code.
What are the components of the regulatory regime for the accountancy profession in the UK? 3
- The government.
- Self-regulation by the accountancy profession.
- An oversight mechanism by the FRC.
What is the role of the government in regulating the accountancy profession?
The government is responsible for the legislative elements of the regulatory framework. The Financial Reporting Council (FRC) acts as an adviser on necessary legislative changes.
What statutory powers were delegated to the FRC by the government?
Certain statutory powers related to regulation were delegated to the FRC once the framework was established.
What is the role of professional accountancy bodies in self-regulation?
Professional accountancy bodies, including the ICAEW, are responsible for supervising their members in a professional capacity to maintain standards and uphold the professional standing of accountancy.
What are the direct responsibilities of the ICAEW in self-regulation? 5
- Entry and education requirements.
- Eligibility to engage in public practice.
- Dealing with professional misconduct by its members.
- Eligibility for the performance of reserved activities under statutory powers delegated by the government.
- Professional conduct requirements.
Who is responsible for oversight of the profession within the FRC?
The Conduct Division’s Professional Oversight Team of the FRC is responsible for oversight.
non statutory vs statutory
The difference between a statutory and non-statutory service is that a statutory service is required by legislation and non-statutory services is not
What are the three main roles of the FRC regarding audit and accountancy?
- Non-statutory oversight of professional accountancy bodies regarding their regulatory responsibilities for members.
- Statutory oversight of the regulation of statutory auditors by recognized supervisory bodies, including recognition, supervision, and de-recognition of accountancy bodies. e.g. ICAEW, ACA
- Independent monitoring of the auditing function’s quality through the Audit Quality Review team for public interest entities.
What statutory powers does the FRC have?
- Recognize and derecognize accountancy bodies.
- Require information from accountancy bodies on key matters.
- Serve enforcement orders.
- Impose fines.
What additional actions can the FRC take outside its statutory powers?
The FRC can investigate and make recommendations on matters such as education, training, continuing professional education, and professional discipline.
What are the areas of direct responsibility for the ICAEW? 5
- Entry and education requirements.
- Eligibility to engage in public practice.
- Eligibility for the performance of reserved activities (statutory audit, investment, insolvency, and probate) under statutory powers.
- Professional conduct requirements and dealing with misconduct.
- Supervising members regarding anti-money laundering regulations, reporting to the Office of the Professional Body of AML Supervision (OPBAS). Regulation involve vetting prospective clients and to report suspicious activities.
What must professional accountants do to continue ICAEW membership?
- Obey the Institute’s rules and regulations.
- Pay the subscription fee annually.
- Undertake Continuing Professional Development (CPD) to maintain technical competence.
What additional requirements exist for ICAEW members engaged in public practice?
- Hold a Practising Certificate.
- Implement the Code of Ethics.
- Be covered by Professional Indemnity Insurance (PII).
Professional Indemnity Insurance (PII)
Professional indemnity insurance covers the cost of compensating clients for loss or damage resulting from negligent services or advice provided by a business or an individual.
Do I need it?
If you offer your knowledge, skills or advice as part of your profession – either as a self-employed individual or for a company – you should consider taking out professional indemnity insurance.
Some professions are required to have professional indemnity insurance by their professional bodies or regulators – these include:
Solicitors
Accountants
Architects
Chartered surveyors
Financial advisers
Some healthcare professionals
Many other businesses choose to take out professional indemnity insurance to protect themselves against claims – these include:
advertising agencies
consultancies
design agencies
public relations agencies
What it covers
Professional indemnity insurance protects you against claims for loss or damage made by clients or third parties as a result of the impact of negligent services you provided or negligent advice you offered.
Compensation claims can be brought against you even if you provided a service or offered advice for free.
