Ethics

Question 1

What are the five fundamental principles of the ICAEW ‘Code of Ethics’?

Answer 1

• Integrity
• Objectivity
• Professional competence and due care
• Professional behaviour
• Confidentiality

Question 2

What is meant by integrity?

Answer 2

Members should act in a straightforward and honest manner in performing their work

For example, an ICAEW member should not be involved in providing HMRC with inaccurate or misleading information about a client’s tax affairs.

Question 3

What is meant by objectivity?

Answer 3

Members should not allow prejudice or bias, or the influence of others, to override objectivity

Question 4

What is meant by ‘professional competence and due care’?

Answer 4

Members must exercise sound judgement in applying professional knowledge and skill:

• Members should not undertake work that they are not competent to carry out
• Members have an ongoing duty to maintain professional knowledge and skills
• Members should carry out their work with due care having regard to the nature and scope of the assignment

Question 5

What is meant by ‘professional behaviour’?

Answer 5

Members should refrain from any conduct that might bring discredit to the profession

An accountant should not put his or herself in a position where a reasonably informed third party, having knowledge of all relevant information, might derive a negative conclusion that would affect the good reputation of the profession.

Question 6

What is meant by confidentiality?

Answer 6

Members should respect the confidentiality of information acquired as a result of professional and business relationships

Confidential information acquired through professional or business relationships should not be used for the personal advantage of members or third parties

Question 7

When can members disclose information to third parties?

Answer 7

Members should not disclose any such information to third parties unless:

• they have proper and specific authority; or
• there is a legal or professional right or duty to disclose e.g. money laundering

Question 8

What constitutes a self-interest threat?

Answer 8

A self-interest threat may occur as a result of a member’s financial or other interests, or those of an immediate or close family member, influencing behaviours and decisions of the member

Question 9

What constitutes a self-review threat?

Answer 9

A self-review threat may occur when a previous judgment needs to be re-evaluated, or reviewed, by the same member responsible for that judgment

Question 10

What constitutes an advocacy threat?

Answer 10

An advocacy threat may occur when a member promotes a position or opinion to the point that objectivity may be compromised

Question 11

What constitutes a familiarity threat?

Answer 11

A familiarity threat may occur when, because of a close relationship, a member becomes too sympathetic to the interests of a client

Question 12

What constitutes an intimidation threat?

Answer 12

An intimidation threat may occur when a member is deterred from acting objectively by actual or perceived pressures from others

Question 13

What are safeguards?

Answer 13

Safeguards are measures that may reduce threats to an acceptable level, or eliminate them entirely

Question 14

What are some possible safeguards against threats to compliance with the fundamental principles?

Answer 14

• Education/training/experience required for entry into the profession
• CPD requirements
• Corporate governance regulations
• Professional standards
• Monitoring/disciplinary procedures
• External review
• Complaints systems
• Explicitly stated duty to report breaches of ethics

Question 15

What is the first step in a conflict resolution process?

Answer 15

1. Consider the following factors:
   - the relevant facts and parties
   - the ethical issues involved
   - the fundamental principles relating to the matter in question
   - any established internal procedures
   - possible alternative courses of action

Question 16

What is the second step in a conflict resolution process?

Answer 16

2. If the conflict remains unresolved, the member should then seek advice within his or her own firm and document the advice given

Question 17

What is the third step in a conflict resolution process?

Answer 17

If the member is a sole practitioner or cannot resolve the matter internally, he or she should seek legal advice or advice from the ICAEW

Question 18

What is the fourth step in a conflict resolution process?

Answer 18

If the ethical conflict cannot be resolved, the member should consider withdrawing from the engagement/conflict situation

Question 19

With whom can conflicts of interest arise?

Answer 19

• firm and client

- two clients (managed by same firm)

Question 20

What should members do if a conflict of interest is identified?

Answer 20

• Notify relevant parties of any actual/potential conflict(s) of interest
• Obtain consent from relevant parties to act
• Consent can then either be refused or granted
• If the conflict cannot be resolved, consider not accepting/resigning from one engagement

Question 21

What do you do if consent is refused from one party within a conflict of interest?

Answer 21

If consent is refused, cease acting for one party involved in the conflict

Question 22

What do you do if consent is granted from one party within a conflict of interest?

Answer 22

• Use seperate engagement terms
• Impose procedures to prevent access to information
• Issue guidelines to team members, on both engagement teams, in relation to security and confidentiality
• Regular review of safeguards by senior members of staff not involved with the conflicting engagements

Question 23

What is tax avoidance?

Answer 23

Tax avoidance is using any legal method to reduce an entity’s tax burden, even if the method is not following the intent of the law (e.g. artificially using foreign jurisdictions with low tax rates)

Question 24

What are promoters of tax avoidance schemes required to do?

Answer 24

Promoters of tax avoidance schemes are now required to disclose details to HMRC, to allow HMRC to close loopholes quickly

Question 25

What can courts do in regard to tax avoidance?

Answer 25

The courts may disregard elements of transactions that have no commercial purpose (i.e. where they have been designed with the main aim of avoiding tax)

Question 26

What is GAAR?

Answer 26

The general anti-abuse rules (GAAR) enables HMRC to challenge abusive tax avoidance arrangements

Question 27

What is tax planning?

Answer 27

Tax planning is a form of tax avoidance where the taxpayer uses the tax legislation legally and as intended to minimise tax bills, but pay the correct amount of tax (e.g. claiming the marriage allowance)

Question 28

What is tax evasion?

Answer 28

Tax evasion is illegally seeking to pay less tax than is due by deliberately misleading HMRC. It carries a risk of criminal prosecution (fines and/or imprisonment)

Question 29

What are the main forms of tax evasion?

Answer 29

• Suppressing information e.g. failing to declare taxable income to HMRC
• Submitting false information e.g. claiming expenses that have not been incurred

Question 30

When is a person engaged in money laundering?

Answer 30

If he or she:

• conceals, disguises, converts, transfers, or removes (from the UK) criminal property (including the proceeds of tax evasion)
• enters into, or becomes concerned about, an arrangement he or she knows or suspects facilitates the acquisition, retention, use or control of criminal property (including the proceeds of tax evasion)
• acquires, uses or has possession of criminal property (including the proceeds of tax evasion)

Question 31

Which obligations related to money laundering are accountants required to comply with?

Answer 31

• Proceeds of Crime Act 2002 (POCA) as amended by the Serious Organised Crime and Police Act 2005 (SOCPA)
• Money Laundering Regulations 2017

Question 32

What is the ECSB?

Answer 32

The ICAEW supports the UK Economic Crime Strategic Board (ESCB)’s economic crime plan. This includes recommendations for accountants, including information sharing to help identify economic crimes and criminal activity in an increasingly digital society

Question 33

What anti-money laundering procedures should accountants consider?

Answer 33

• Register with an appropriate supervisory body e.g. ICAEW
• Appoint a Money Laundering Reporting Officer (MLRO). If a member suspects a client of involvement in money laundering, they should make an internal report to their MLRO, who must decide whether to report suspicions to NCA using a Suspicious Activity Report
• Establish internal procedures to reduce the risk of being involved in money laundering schemes (e.g. regular staff training)
• Verify the identity of new clients and retain relevant documents for five years after the termination of the client relationship
• Maintain records of all transactions undertaken for each client for five years after completion of the transaction

Question 34

How can accountants incriminate a money launderer?

Answer 34

In order to meet anti-money laundering requirements an accountant may have to disclose confidential information without client consent

The accountant must have knowledge, or suspicion, that the client has committed a money laundering offence

It is an offence to tip-off a money launderer

Question 35

What are the penalties for money laundering?

Answer 35

Anyone found guilty of money laundering, failure to report money laundering or tipping-off can receive unlimited fines

All of these offences can also be punished by imprisonment:

• up to 14 years for main money laundering offences
• up to 5 years for failure to report an offence
• up to 2 years for tipping off