Codes of professional ethics and regulatory issues

Question 1

Is there a legal requirement to have ethics code?

Answer 1

No

Question 2

Give reasons why the accounting profession needs ethical codes.

Answer 2

Accountants have access to confidential information

Assurance providers claim to give an independent view

The financial community relies on accountants

Question 3

ICAEW qualified auditors acting in the UK are subject to which Code of Ethics?

Answer 3

ICAEW qualified auditors acting in the UK are subject to the ICAEW Code and the FRC’s Ethical Standard.

Question 4

Are ICAEW qualified auditors acting in the UK bound by the IESBA Code of Ethics?

Answer 4

No.

The principles of the IESBA Code are incorporated within the ICAEW code, but ICAEW members are not bound by it directly.

Question 5

principles based guidance

Answer 5

• Encourages the accountant to use judgement
• Requires compliance with the spirit of the guidance
• Flexible so can be applied to new unusual or rapidly changing situations
• Can still incorporate rules where necessary

Question 6

rules based guidance

Answer 6

• may be easier to follow because it is objective
• needs frequent updating to ensure the guidance applies to new situations
• may encourage accounts to interpret requirements narrowly in order to get round the spirit of requirements

Question 7

what is the IFAC code

Answer 7

the IFAC code is issued by the international ethics standard board for accountants (IESBA). IESBA is IFAC’s ethics board. IESBA applies to all professional accountants

Question 8

What are the fundamental principles of the IESBA Code?

Answer 8

Integrity

Objectivity

Professional competence and due care

Confidentiality

Professional behaviour

Question 9

independance

Answer 9

• assurance providers should be, and seen to be independant

Question 10

independence of mind

Answer 10

The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment.

Question 11

independence in appearance

Answer 11

The avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude that a firm’s, or member’s, integrity, objectivity or professional scepticism has been compromised.

Question 12

What are the three steps regarding the purpose of the IESBA code?

Answer 12

• Identify threats
• Evaluate the threats identified
• Address the threats: Eliminate, reduce. apply safeguards.

Question 13

Which bodies issues ethical guidance.

Answer 13

ICAEW

IESBA

FRC

(IAASB issues ISAs but not ethical guidance)

Question 14

Which statement best describes ethical guidance in the UK?

Answer 14

Ethical guidance is a framework containing a combination of rules and principles the application of which is dependent on the professional judgement of the assurance provider based on the specific circumstances.

Question 15

What five sources of threats are identified by both the ICAEW Code and the FRC’s Ethical Standard?

Answer 15

Self-interest

Self-review

Advocacy

Familiarity

Intimidation

Question 16

Which source of threat is identified by the FRC’s ethical standard only?

Answer 16

Management - doing work that should be carried out by management. such as the design and implementation of IT systems.

Question 17

What are six safeguards created by profession, legislation or regulation?

Answer 17

• Education and training
• Continuing professional development requirements
• Corporate governance regulations
• Professional standards
• Monitoring of professional work including disciplinary proceedings
• External reviews

Question 18

Give three reasons why independence and objectivity are important to the assurance profession.

Answer 18

• The public’s expectations of accountants
• Public interest in financial information
• Credibility of published financial information

Question 19

Does a principles-based code requires a professional accountant to comply with a set of specific rules.?

Answer 19

no

Question 20

Does a rules-based code requires a professional accountant to identify, evaluate and address threats to compliance with fundamental ethical principles?

Answer 20

no

Question 21

Does the ICAEW use a rules-based approach?

Answer 21

No, the ICAEW uses a principles-based approach,

Question 22

Can principles-based guidance contain rules?

Answer 22

yes

Question 23

If guidance is principles-based, does it allow for particular or unique situations?

Answer 23

yes

Question 24

Can principles-based guidance permit multiple correct responses in a given situation?

Answer 24

yes

Question 25

A management threat

Answer 25

is where the auditors find themselves in the shoes of the management. The work that belongs to the management is being requested to be done by the auditor e.g. making decisions in a board meeting. (applies to UK auditors only)