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AAT Level 3 Synoptic > Ethics > Flashcards

Ethics Flashcards

1
Q

What are the 5 Fundamental ethical principles?

A
  1. ) Integrity
  2. ) Objectivity
  3. ) Confidentiality
  4. ) Professional (& technical) Competence & Due Care
  5. ) Professional Behavior
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2
Q

When can confidential information be disclosed?

A

When given authorization

When there is a professional duty to do so

When there is a legal duty to do so

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3
Q

The Conceptual Framework approach requires members to _______, ______ & ______ to any threat of non-compliance with the fundamental principles

A

Identify

Evaluate

Respond

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4
Q

What are AAT’s 3 reasons as to why an accountant should behave ethically?

A
  1. ) Compliance with law & regulation
  2. ) Protection of public interest
  3. ) Maintain the reputation and standing of the AAT
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5
Q

What are AAT’s 6 objectives of the accountancy profession?

A
  1. ) The mastering of particular skills & techniques acquired through learning and education and maintained through CPD (Continuing Professional Development)
  2. ) Development of an ethical approach to work as well as to employers and clients
  3. ) Acknowledgement of duties to society as a whole, in addition to duties to the employer or client
  4. ) An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest
  5. ) Rendering services of the highest standards of conduct and performance
  6. ) Achieving acceptance by the public that members provide accountancy services in accordance with those high standards and requirements
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6
Q

What are the 3 statutory regulated (reserved) areas in accountancy & finance where registration is essential?

A
  1. ) Audit
  2. ) Investment business
  3. ) Insolvency
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7
Q

What is the international body which represents all the major accountancy bodies worldwide?

A

IFAC - The International Federation of Accountants

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8
Q

What are IFAC’s 4 mission statements?

A
  1. ) Serve the public interest
  2. ) Strengthen the worldwide accountancy profession
  3. ) Establish and promote adherence to high quality professional standards
  4. ) Promote further international convergence of standards
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9
Q

What are the 5 accountancy professional bodies that make up the Consultative Committee of Accountancy Bodies (CCAB)?

A
  1. ) The institute of Chartered Accountants in England & Wales (ICAEW)
  2. ) The Institute of Chartered Accountants in Scotland (ICAS)
  3. ) The Institute of Chartered Accountants in Ireland (ICAI)
  4. ) The Association of Chartered Certified Accountants (ACCA)
  5. ) The Chartered Institute of Public Finance and Accountancy (CIPFA)
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10
Q

What 4 Professional Bodies are AAT sponsored by?

A
  1. ) The Institute of Chartered Accountants in England & Wales (ICAEW)
  2. ) The Institute of Chartered Accountants In Scotland (ICAS)
  3. ) The Chartered Institute of Management Accountants (CIMA)
  4. ) The Chartered Institute of Public Finance and Accountancy (CIPFA)
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11
Q

What are 4 benefits of introducing a Code of Conduct to employees?

A
  1. ) The expected standard of behavior is clearly communicated
  2. ) Employee behavior becomes more standardized and consistent
  3. ) The risk of unethical behavior is reduced
  4. ) Business behavior is more ethical reducing reputation risk
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12
Q

What is the difference between Code of Conduct & Code of Practice?

A
  1. ) Code of Conduct influences the behaviour of employees. It sets out how to behave in situations where ethics need to be considered, e.g. conflict of interest. Violation of the code of conduct may result in disciplinary action being taken against the employee.
  2. ) Code of Practice focuses on behaviour within professions or organisations. Failure to comply can result in expulsion from the professional organisation.

Both are not legally binding, they provide examples of best practice and is recommended that they are followed.

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13
Q

What are the 3 elements to an effective ethical programme?

A
  1. ) Active leadership - Management leading by example
  2. ) Buy-In - Involve staff and make them aware of the importance of ethical behavior which will give them principles and values in their work life
  3. ) Training - New staff inductions, ongoing training for current staff to keep them updated and re-enforce the ethical behavior
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14
Q

What is Money Laundering?

A

Money Laundering is the process by which the proceeds of crime, and the true ownership of those proceeds, are changed so that the proceeds appear to come from a legitimate source.

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15
Q

What are the 3 steps involved in Money Laundering and explain what they mean?

A
  1. ) Placement - This is where the criminal proceeds are initially entered into the system and made to look like they have come from a legitimate source
  2. ) Layering - This is where the cash is transferred from business to business or from one country to another. The aim is to make the original source of the cash difficult to trace helping to disguise the criminal proceeds
  3. ) Integration - This is where the money is now withdrawn from companies in the form of salaries, dividends etc… to make it look like the earnings are legitimate and not related to criminal activity.
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16
Q

What are the 3 offences an accountant could be guilty of in relation to money laundering?

A
  1. ) Money Laundering - Where the accountant helps conceal, disguise, convert, transfer or remove criminal proceeds
  2. ) Tipping Off - Where the accountant tells someone a money laundering report has/will be filed
  3. ) Failure to Report - Where the accountant discovers or suspects money laundering and fails to report it to the correct authorities
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17
Q

Who should a money laundering report be filed to?

A

If a member works in practice, then there should be a Money Laundering Reporting Officer (MLRO) appointed, who will then decide if it need to be reported to the National Crime Agency (NCA)

If a member is self-employed, with no appointed MLRO they can report directly to the NCA themselves.

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18
Q

What 3 things should be filled out on a Suspicious Activity Report (SAR)?

A
  1. ) Identity of the suspect - Who
  2. ) Information on which the suspicion is based - What
  3. ) Whereabouts of the laundered property - Where
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19
Q

Explain the 4 offences under the Bribery Act 2010

A
  1. ) Bribing another person - This offense is committed where a person offers money or some other benefit to someone else in order to receive goods or services they would not normally get.
  2. ) Being bribed - This offence is committed where a person accepts a financial or other benefit in exchange for providing services or goods to the other party when they would not normally be entitled to them.
  3. ) Bribing a foreign public official - Similar to bribing another person but i.e. a government official in another country.
  4. ) Corporate failure to prevent bribery - This offence is committed by a company where it has failed to implement proper procedures and internal controls to prevent bribery occurring by its members of staff.
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20
Q

Explain the 4 risks of improper practice?

R.O.L.E.

A
  1. ) Operational risk - Is the risk of losses arising due to the day to day business of the company e.g. running out of inventory
  2. ) Reputation risk - Damage to the company through loss of reputation. E.g. selling an unsafe product. People might assume all your products are unsafe
  3. ) Litigation risk - losses due to legal action against the company. E.g. settling a legal claim
  4. ) Event risk - This could either be disaster risk (catastrophe - fire, terrorism, flood etc) or regulatory risk (new regulation is introduced which affect business operations).
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21
Q

What is Terrorist Financing?

A

Terrorist Financing is the provision or collection of funds from legitimate or illegitimate sources with the intention or in the knowledge that they should be used in order to carry out any act of terrorism, whether or not those funds are in fact used for the purpose.

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22
Q

What is the maximum penalty for both money laundering or terrorist financing?

A

14 years in prison and maybe also an unlimited fine

23
Q

What are Money Laundering & Terrorist Financing offences governed by?

A
  1. ) The Proceeds of Crime Act 2002 (POCA)
  2. ) The Money Laundering Act 2007
  3. ) The Terrorism Act 2000 (TA)
24
Q

Explain 2 ways in which a money laundering offence is committed

A
  1. ) Proceeds of crime - Criminal property is concealed, disguised, converted, transferred or removed. I.e. the investment of criminal property or proceeds of crime into other financial products, property or assets.
  2. ) Help - An arrangement is made which facilitates the acquisition, retention, use of or control of criminal property or being involved in any criminal or terrorist property. Involvement with the proceeds of crime such as theft, tax evasion or fraud.
25
Q

What 3 reasons are an obligation for disclosure of a money laundering offence as an accountant?

A
  1. ) A person knows or suspects (or has reasonable grounds for doing so) that another person is engaged in money laundering or terrorist financing
  2. ) The information in which the knowledge or suspicion is based arose on the course of business in the regulated sector.
  3. ) The suspect can be identified, or there is information which can assist with identification and which can help concerning the whereabouts of laundered property.
26
Q

What is an offence committed under if an accountant fails to disclose knowledge or suspicion of money laundering or terrorist financing as soon as possible?

A

The Proceeds of Crime Act 2002 (POCA)

27
Q

What is the maximum penalty for failing to report money laundering?

A

Maximum prison sentence of 5 years and/ or a fine

28
Q

If found guilty of the offence for “Tipping Off” what would be the penalty?

A

5 years prison sentence and/or a fine

29
Q

What is meant by a protected disclosure?

A

This means the person or accountant will not be in breach of confidentiality.

30
Q

When would an accountant NOT be required to report suspicious activity?

A

If the information was obtained outside of their professional duties. I.e during a social event.

Or

Whilst giving legal advise in relation to legal proceedings. (Advise will need to be sought on this)

31
Q

What is the first thing an accountant needs to do before acceptance of a new client?

A

The accountant must carry out a customer due diligence exercise.

32
Q

What 4 things does a due diligence exercise involve when taking on a new or existing client?

A
  1. ) Identifying the client and verifying their identity from reliable sources. I.e. obtaining a copy of the clients passports, utility bills or other suitable ID.
  2. ) Attend the clients premises to ensure it is a genuine trading entity
  3. ) Inspecting incorporation documents for companies to ensure properly registered as a legitimate company
  4. ) Gain an understanding of the clients business operations and financing. This way any unusual transactions that could be money laundering can be spotted by the accountant when working on the clients books.
33
Q

What is the maximum penalty for bribery?

A

10 years in prison and/or a fine (for commercial organisations there may be an unlimited fine if found guilty of corporate failure to prevent bribery).

34
Q

What are the 4 areas that are essential for up to date knowledge as accountants in the finance sector?

A
  1. ) Changes in accounting and auditing standards
  2. ) Changes in ethical codes
  3. ) Changes in relevant criminal law e.g. bribery, fraud & money laundering
  4. ) Changes in tax legislation
35
Q

What are the 5 threats to the fundamental principles that could threaten ethical behaviour?

A
  1. ) Self interest
  2. ) Self review
  3. ) Familiarity
  4. ) Intimidation
  5. ) Advocacy
36
Q

What is a self-interest threat?

A

Self interest is where you stand to gain personally. This can arise if you have an interest in the transaction, client or third party that you are working on or with. You should be objective and just focus on task at hand to the best of your ability but with a self interest threat you may put this other interest first and not act properly.

37
Q

What is a self review threat?

A

Self review is where you have an opinion of your own work. If reviewing your own work or that of other colleagues you are working closely with, you may not review it properly as you may think you have done it correctly or if you find an error, you may try to cover it up.

38
Q

What is a familiarity threat?

A

A familiarity threat is where you could be too close/friendly to the client or colleague and are too trusting of the responses given to you. This would mean you are not acting with professional skepticism. The same threat can be if you have a long association with the client or have been offered gifts or preferential treatment.

39
Q

What is an intimidation threat?

A

An intimidation threat is where there could be pressure on you to do or act in a way that is not consistent with the ethical principles. The intimidation could take the form of a threat to dismiss you, to not award you the assignment, or a threat of taking legal action.

40
Q

What is an advocacy threat?

A

An advocacy threat arises where you speak up on behalf of someone else, usually publicly, and are seen to be promoting them or their business. This could be seen as taking sides in a court of law and therefore people would not trust your opinion.

41
Q

Which ethical principle requires accountants to not allow bias, conflict of interest or undue influence of others to override professional or business judgements?

A

Objectivity

42
Q

Which threat to our ethical principles may occur when a previous judgement needs to be re-evaluated by the member responsible for that judgement.

A

Self-Review

43
Q

Which threat to our ethical principles may occur where a financial or other interest will inappropriately influence the member’s judgement or behaviour?

A

Self interest

44
Q

Which ethical principle requires accountants to maintain professional knowledge and skill?

A

Professional competence & due care

45
Q

If an accountant is going to report a client for suspected money laundering offences and says something that makes the client aware of the suspicion, they are guilty of..

A

Tipping off

46
Q

Why have a conceptual framework instead of rules?

A

We cannot write rules that will cover every scenario. A conceptual framework gives each person guidance to meet any challenges that arise.

47
Q

The advocacy threat. What is it?

A

This may occur when a member promotes a position or opinion to the point that subsequent objectivity may be compromised.

48
Q

What is Integrity?

A

This is about being fair and honest in all of your professional dealings.
For example, an accountant should never be associated with any report, returns or
other information where they know it contains any false or misleading statements, or omits or obscures any required information. If they find out they have unwittingly been involved in the above, they must take steps to disassociate themselves from it.

49
Q

What is Objectivity?

A

They should not take on any work if a circumstance or relationship could unduly influence their professional judgment with regards to that activity, such as undertaking work for a close friend or an immediate family member.

50
Q

What is Professional competence and due care?

A

Accountants must maintain their skills and knowledge throughout the course of their careers. This includes keeping up to date with the latest laws, regulations and standards. It also includes an understanding of business changes, both company-specific and more general. Accountants must keep abreast of changing business needs and how best to serve those needs within the confines of standards and regulations.

51
Q

What is Confidentiality?

A

Accountants must be alert to any possibilities of inadvertent disclosure, such as working in open office environments or working in a confined environment with a business associate or family member. They certainly should not use that information to benefit themselves or any third party. The only instances in which accountants should disclose information is when there is a legal or professional duty to do so. This principle of confidentiality does not cease when the relationship with your client or employer ends.

52
Q

What is Professional behaviour?

A

Accountants must avoid any conduct that might discredit the profession. If a “reasonable and informed” third party could conclude that the activity “adversely affects the good reputation of the profession”, then it’s best not to do it. This is a broad remit that requires accountants to think about activities they are involved in and how it might look to others. For example, false claims made in marketing.

53
Q

If a client refuses to disclose an error/omission on a tax return what is the AAT members obligation to report this to HMRC?

A

If the AAT member prepared the tax return, then they can report the clients refusal to HMRC asap. This gives the member a defence against any criminal action brought against them.

If the AAT member did not prepare the tax return, then they have no obligation to report to HMRC. If they do however make a report, this will not breach the AAT members duty of confidentiality to the client.

54
Q

If you are an employee involved in preparation of a tax return for your employers which contain errors what action should be taken?

A

First of all, let the employers know there are errors. If they refuse to correct the errors, the employee needs to make a voluntary disclosure to NCA about yourself so that you can protect yourself against money laundering.

If any doubts, they should contact one of the sponsoring bodies or Chartered Institute of Taxation (CIT) who will be able to offer guidance in this area.

AAT Level 3 Synoptic (4 decks)

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