Chapter 9 - Applying ethical principles Flashcards
Define fraud
The deliberate act of gaining an advantage by knowingly breaking the law
What are the conditions for fraud to exist?
- Pressure - motivation
- Opportunity - they are able to
- Rationalisation - justify to self
How can fraud risks be responded to?
- Segregation of duties
- Authorisation
- Performance review
Define bribery
Influencing someone to behave inappropriately by means of money, goods or services
Define corruption
Deviation from prescribed behaviour in conjunction with other gains
What can bribery and corruption lead to?
- Reputation suffers
- Lack of honesty
- Conflicts of interest
- International risk management - should you operate where legal?
- Economic issues - costs higher
What can be done to combat bribery and corruption?
- Culture
- Code of conduct
- Risk assessment
- Reporting and whistleblowing
What does Tucker’s 5 questions do?
Provides a benchmark against which to test the ethical credentials of a decision. Ask is the decision:
- Profitable
- Legal
- Equitable and fair
- Right (subjective judgement)
- Sustainable
PLERS
Define public interest
The collective wellbeing of the community of people and institutions the professional accountant serves
What are the advantages of a principles based framework for accountancy ethics?
- Think about relevant issues rather than a checklist
- Prevents interpreting legalistic requirements narrowly to get around ethical requirements
- Allows for variations
- Accommodates rapidly changing environment
What are the disadvantages of a principles based framework for accountancy ethics?
- Ethical codes cannot include all circumstances
- Good understanding needed
- International codes cannot fully capture regional cultural variations
- Difficult to enforce legally
What are the fundamental ethical principles for accountants?
PIPCO
- Professional competence and due care - maintain professional skill
- Integrity
- Professional behaviour - comply with relevant laws
- Confidentiality - do not abuse info
- Objectivity - avoid bias
What are the threats to independence for accountants?
ASIFS
- Advocacy - representing a client in two different capacities
- Self-interest - benefit you not client
- Intimidation - forced into action against will
- Familiarity - personal connection
- Self-review
What are the safeguards for advocacy threat?
- Different departments to carry out work
- Full disclosure to client audit committee
- Withdraw from engagement if risk too great
What are the safeguards for self-interest threat?
- Discuss issues with audit committees
- Reduce dependency on client
- Consult third party such as ACCA
