Ethics Flashcards
Conclusion
Company X should ensure that they have safeguards in place to ensure staff have the ability to report ethical dilemmas. Options should include a confidential whistleblowing contract within the organisation for staff to tell their problems and issues. Staff should also be trained around ethical dynamics, including where to report any issues, whilst an audit of the business’ ethical practices should take place regularly. X can also contact HMRC or the relevant accounting body if they need further advice, guidance or support.
What does it mean to qualify an audit?
When you don’t think the accounts show a true and fair view
Name the 5 ethical principles
COPPI
Confidentiality
Objectivity
Professional competence & due care
Professional behaviour
Integrity
Describe the following ethical principle: Integrity
Accounting staff must always act in a straightforward, honest manner around all professional dealings.
For example :
the recording of a transaction must always be honest, overstating or under transaction financial statement which do not show a true and fair view.
Honest dealing with all stakeholders i.e. potential investors or members of staff.
Describe the following ethical principle: Objectivity
The removal of bias from the decision-making process. Dealings must be transparent and fair.
For example:
Decision making - you must be confident in reviewing the process/thinking behind all decisions made.
Stakeholders -you must be clear that any decisions made are fair to all stakeholder groups.
Describe the following ethical principle: Professional competence & due care
All accountants and staff must only complete tasks that they have received adequate trading in. Professional standards/company law must be adhered to and knowledge should be maintained and kept up-to-date.
For example:
an accountant w/o the relevant training in mergers should never advise clients or any potential deal w/o compromising their own professional competence.
Describe the following ethical principle: Confidentiality
Information acquired for business dealing should never be passed on to a third-party, or less express permission is received or there is a legal duty to do so (i.e. a client is willfully breaking the law) .
For example:
Giving advice to family/friends/associates regarding potential investment in a client.
Allow the submission of misleading/tax returns.
Describe the following ethical principle: Professional Behaviour
Accountants must comply with relevant laws and regulations and avoid bringing the accounting profession into dispute. Accountants must also be able to deal with pressure -real or perceived.
Familiarity - decision making must not be influenced by sympathy towards an organisation or a staff/members i.e. decisions must be must abide by the law.
Authority -accountants must comply with the law even if those in positions of authority ask them to do otherwise.
Name the 5 threats to ethical principles
ASSIF
Advocacy
Self review
Self interest
Intimidation
Familiarity
Describe the following threat: Self interest
This threat can occur when an accountant may benefit financially or otherwise from a situation. Any personal gain could be deemed a self interest threat.
For example :
an auditor may be offered a gift by a client.
The underlining implication maybe the acceptance of the gift may lead to beneficial treatment/willingness to keep quiet about issues found within the accounting process.
Describe the following threat: Self Review
This occurs when an auditor has to review work that they previously performed.
For example :
if the external auditor prepared the financial statement and then asked them.
There is a risk of the auditor would not identify any shortcomings in their own work for fear of penalty (either financial or reputational).
Describe the following threat: Advocacy
(Placing one group/person above another - occurs when there’s bias).
This can occur when the auditor is asked to promote or represent their client in someway.
In this situation the auditor would have to be biased in favour of the client and therefore can’t objective.
This could happen if the client asked the auditor to promote their shares for a stock exchange listing or if the client asked the auditor to represent them in court.
Describe the following threat: Familiarity
This threats could occur when it is deemed that the accountant as a close personal relationship with a client i.e. a family member or personal friend.
The accountant may be will trust their friend or relative to not make mistakes and therefore not review their work as thoroughly as they should and as a result on our material errors to go undetected in the financial statements, or offer preferential treatment to one particular client.
This could also rise after a long association with a client.
Describe the following threat: Intimidation
This can occur when the client is seen to harass or body the accountant into giving preferential treatment.
For example:
a large client may threaten to use another auditor should potential treatment not be given.
Dealing with ethical problems
Convince the client not to break the law. If this doesn’t work, report them to the relevant authorities
How to answer a question on ethics
- Consider the relevant facts- state the issue at play. What situation is the accountant currently facing?
- The ethical issues involved? How does the situation compromise ethics, are there legal implications ?Consider ASSIF
- Which of the following ethical principles should be considered? It may be all five or at least an argument may be made for each, but you should try and narrow it down to 2 or 3 of the principles. Explain how the situation compromises each of your stated principles.
- Who is impacted by the ethical dilemma? the accountant , the directors, the firm as a whole, corporate social responsibility.
- How can the situation be resolved? Are there established internal procedures? Who should be told? Are laws broken and the situation should be passed onto HMRCA ?
Illegal? -Try to persuade employer to change to a legal way of doing things
Unethical? - Try to persuade your management to change internal practice
Unsuccessful? -Consider: resigning ,consulting professional body, whistleblowing.
