Ethics

Question 1

Define Integrity

Answer 1

Straightforward and honest in all professional and business relationships. Implies fair dealing and truthfulness.

Question 2

Define Objectivity

Answer 2

Not allow bias, conflict of interest or undue influence of others to override professional or business judgements.

Question 3

Define Professional Competence and Due Care

Answer 3

A continuing duty to maintain professional knowledge and skill at the level required to provide a competent professional professional service. Act diligently in accordance with applicable technical and professional standards when providing professional services.

Question 4

Define Confidentiality

Answer 4

Not disclose confidential information to third parties without proper and specific authority unless there is a legal duty to disclose. Not use confidential information for personal advantage or third party advantage.

Question 5

Define Professional Behaviour

Answer 5

Comply with relevant laws and regulations and avoid any action that discredits the profession.

Question 6

Name the 5 Threats

Answer 6

Self-interest
Self-review
Advocacy
Familiarity or Trust
Intimidation

Question 7

What are safeguards?

Answer 7

May eliminate or reduce threats to an acceptable level.

Question 8

What are the two categories of safeguards

Answer 8

1) safeguards created by the profession, legislation or regulation
2) safeguards in the work environment

Question 9

Name some safeguards created by the profession, legislation or regulation

Answer 9

1) educational, training and experience requirements for entry into the profession
2) CPD requirements
3) corporate governance regulations
4) professional standards
5) professional or regulatory monitoring and disciplinary procedures
6) external review of reports, returns, communications or information carried out by a legally empowered third party

Question 10

Name some safeguards in the work environment

Answer 10

1) system of corporate oversight or other oversight structures
2) ethics and conduct programmes
3) recruitment procedures emphasising importance of employing high calibre competent staff
4) strong internal controls
5) appropriate disciplinary processes
6) leadership stressing the importance of ethical behaviour and the expectation that employees with act ethically
7) policies and procedures to implement and monitor the quality of employee performance
8) timely communication of policies and procedures, including updates, and training and education of such
9) policies and procedures to empower and encourage employees to communicate to seniors on ethical matters without fear of retribution
10) consultation with another appropriate professional

Question 11

Name the steps to dealing with ethical conflicts

Answer 11

1) Gather information
2) Analysis
3) Action

Question 12

What are the 3 Statutory regulated (‘reserved’) functions of accountancy

Answer 12

1) External audit
2) Investment and corporate finance advice, regulated by Financial Conduct Authority (FCA)
3) Insolvency practice

Question 13

Define public interest

Answer 13

The collective wellbeing of the community of people and institutions the professional accountant serves.

Question 14

What are the six objectives of the accountancy profession

Answer 14

• The mastering of particular skills and techniques acquired through learning and education and maintained through CPD
• Development of an ethical approach to work as well as to employers and clients, This is acquired by experience and professional supervision under training and is safeguarded by strict ethical and disciplinary guidelines.
• Acknowledgement of duties to society as a whole in addition to duties to the employer or the client.
• An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest.
• Rendering services to the highest standards of conduct and performance
• Achieving acceptance by the public that members provide accountancy services in accordance with these high standards and requirements.

Question 15

Define and explain the role of IFAC

Answer 15

IFAC is The International Federation of Accountants. Its role is to protect the public interest by developing high quality international standards, promoting strong ethical values and encouraging quality practice.

Question 16

Define and explain the role of IESBA

Answer 16

The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide.
The board also provides adoption and implementation support, promotes good ethical practices globally, and fosters international debate on ethical issues faced by accountants.

Question 17

Define and explain the role of IAASB

Answer 17

The International Audit and Assurance Standards Board (IAASB) is responsible for developing setting and promoting International Standards on Auditing (ISAs)

Question 18

Define and explain the role of FRC

Answer 18

The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.
The FRC issues UK versions of ISAs and IFRSs where appropriate.

Question 19

Define and explain the role of IASB

Answer 19

The International Accounting Standards Board (IASB) is an independent body responsible for developing, setting and promoting International Financial Reporting Standards (IFRSs).

Question 20

What is the Conduct Committee

Answer 20

The Conduct Committee is part of the FRC and provides independent oversight of professional disciplinary issues, together with oversight of the regulation of accountants and actuaries in the UK.

Question 21

Which accountancy bodies sponsor the AAT

Answer 21

CIPFA
ICAEW
CIMA
ICAS

Question 22

Which accountancy bodies are included in the Consultative Committee of Accountancy Bodies (CCAB)

Answer 22

ICAEW
ICAS
CAI
ACCA
CIPFA

Question 23

What are the aims of the Financial Conduct Authority (FCA)

Answer 23

• protect consumers
• ensure the financial services industry remains stable
• promote healthy competition between financial services providers

Question 24

What is the CPD cycle

Answer 24

Assess
Plan
Action
Evaluate

Question 25

What are the disciplinary penalties of misconduct

Answer 25

For a Full or Fellow Member:
- Be expelled
- Have membership suspended
- Have licence withdrawn
- Be declared ineligible for a licence
- Have fellow member status removed (if applicable)
- Be reprimanded or severely reprimanded
- Give a written undertaking to refrain from continuing or repeating the misconduct
For a student or affiliate member:
- Be declared unfit to become a full member
- Have student registration withdrawn
- Be reprimanded or severely reprimanded
- Be fined, subject to a maximum level
- Be debarred from sitting assessments for a period of time
- Have a relevant assessment result declared null and void
- Give a written undertaking to refrain from continuing or repeating the misconduct

Question 26

What is operational risk

Answer 26

The risk of losses resulting from inadequate or failed internal processes, people and systems, or external events.

Question 27

Name some examples of operational risk

Answer 27

Reputational Risk
Litigation Risk
Process Risk

Question 28

Define money laundering

Answer 28

The process by which criminally obtained money or other assets are exchanged for ‘clean’ money or other assets with no link to their criminal origins.

Question 29

Define criminal property

Answer 29

Property which was obtained as a result of criminal conduct and the person knows or suspects that it was obtained from such conduct.

Question 30

What does UK anti-money laundering legislation (AMLL) consist of

Answer 30

• The Proceeds of Crime Act 2002 as amended (POCA)
• The Money Laundering Regulations 2007 (MLR)
• The Terrorism Act 2000 as amended (TA)

Question 31

What are the specific money laundering and terrorist financing offences

Answer 31

• s327 - Concealing, disguising, converting, transferring or removing criminal property
• s328 - Taking part in an arrangement to facilitate the acquisition, use or control of criminal property
• s329 - Acquiring, using or possessing criminal property

Question 32

What is the penalty for money laundering

Answer 32

Up to 14 years imprisonment and/or an unlimited fine

Question 33

What additional offences are punishable under anti-money laundering legislation and their penalties

Answer 33

Failure to Report
Tipping off
Both punishable by up to 5 years imprisonment and/or an unlimited fine

Question 34

What must be included in a Suspicious Activity Report (SAR)

Answer 34

• The identity of the suspect (if known)
• The information or other matter on which the knowledge or suspicion of money laundering is based
• The whereabouts of the criminal property (if known)
• Additional information that identifies other parties involved or connected

Question 35

What are the 3 elements of Customer Due Diligence (CDD)

Answer 35

1 Find out who the client claims to be – name, address, and date of birth – and obtain evidence to check that the client is as claimed.
2 Obtain evidence so the accountant is satisfied that he or she knows who any beneficial owners are. This means beneficial owners must be considered on an individual basis. Generally, a beneficial owner is an individual who ultimately owns 25% or more of the client or the transaction property.
3 Obtain information on the purpose and intended nature of the transaction.

Question 36

When must CDD be applied

Answer 36

• When establishing a business relationship.
• When carrying out an occasional transaction (i.e. involving €15,000 or the equivalent in sterling or more). •Where there is a suspicion of money laundering or terrorist financing.
• Where there are doubts about previously obtained customer identification information.

Question 37

What is whistleblowing

Answer 37

Whistleblowing means disclosing information that a worker believes is evidence of illegality, gross waste, gross mismanagement, abuse of power, or substantial and specific danger to the public health and safety.

Question 38

What is the Public Interest Disclosure Act (PIDA) 1998

Answer 38

The Act (which has also been referred to as ‘the Whistleblowers’ Charter’) gives protection where you have made a ‘qualifying disclosure’ (i.e. disclosure of information which you reasonably believe shows that a criminal offence, breach of a legal obligation, miscarriage of justice, breach of health and safety legislation or environmental damage has occurred, is occurring or is likely to occur).

Question 39

What are the four offences under The Bribery Act (2010)

Answer 39

1 Bribing a person to induce or reward them to perform a relevant function improperly (active bribery).
2 Requesting, accepting or receiving a bribe as a reward for performing a relevant function improperly (passive bribery).
3 Using a bribe to influence a foreign official to gain a business advantage.
4 Failing to prevent bribery on behalf of a commercial organisation.

Question 40

What is the penalty for bribery?

Answer 40

Up to 10 years imprisonment and/or and unlimited fine.

Question 41

What defence can a commercial organisation supply if prosecuted under The Bribery Act (2010)

Answer 41

That it ‘had in place adequate procedures designed to prevent persons associated [with the company] from undertaking such conduct’

Question 42

What is fraud?

Answer 42

Fraud is an intentional act involving the use of deception to obtain an unjust or illegal advantage – essentially ‘theft by deception’.

Question 43

What are the three offences under The Fraud Act (2006)

Answer 43

• Fraud by false representation - Is defined by Section 2 of the Act as a case where a person makes ‘any representation as to fact or law … express or implied’ which they know to be untrue or misleading.
• Fraud by failing to disclose information - Is defined by Section 3 of the Act as a case where a person fails to disclose any information to a third party when they are under a legal duty to disclose such information.
• Fraud by abuse of position - Is defined by Section 4 of the Act as a case where a person occupies a position where they are expected to safeguard the financial interests of another person, and abuses that position.

Question 44

How can a company employ a fraud strategy

Answer 44

• An anti-fraud culture - Where minor unethical practices are overlooked, for example, expenses or time recording, this may lead to a culture in which larger frauds occur. High ethical standards bring long term benefits as customers, suppliers, employees and the community realise they are dealing with a trustworthy organisation. •Risk awareness - Fraud should never be discounted, and there should be awareness among all staff that there is always the possibility that fraud is taking place. It is important to raise awareness through training programmes. Particular attention should be given to training and awareness among those people involved in receiving cash, purchasing and paying suppliers. Publicity can also be given to fraud that has been exposed. This serves as a reminder to those who may be tempted to commit fraud and a warning to those responsible for the management of controls.
• Whistleblowing - Fraud may be suspected by those who are not personally involved. People must be encouraged to raise the alarm about fraud.
• Sound internal control systems - Sound systems of internal control should monitor fraud by identifying risks and then putting into place procedures to monitor and report on those risks.

Question 45

What is the Theft Act 1968

Answer 45

Someone is guilty of theft if he/she ‘dishonestly appropriates property belonging to another with the intention of permanently depriving them of it’.

Question 46

What are the principles of Data Protection

Answer 46

• Data should be processed fairly and lawfully.
• Data should be obtained only for specified and lawful purposes.
• Data should be adequate, relevant and not excessive. •Data should be accurate and, where necessary, kept up to date.
• Data should not be kept longer than is necessary.
• Data should be processed in accordance with your rights.
• Data should be kept secure.
• Data should not be transferred to other countries without adequate protection.

Question 47

all users of computers who are intending to hold personal data are required to register and supply which details:

Answer 47

• Name and address of data user.
• Description of, and purpose for which, data is held. •Description of source data.
• Identification of persons to whom it is disclosed.
• Names and non-UK countries to which transmission is desired.
• Name of persons responsible for dealing with data subject enquiries.
• If an organisation fails to register, this is a criminal offence, although compensation is through a civil action.

Question 48

Which organisation maintains a public register of data controllers.

Answer 48

The Information Commissioner’s Office (ICO)

Question 49

What safeguards can an accountant implement when taking on new clients

Answer 49

• Obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance.
• Securing the client’s commitment to improve corporate governance practices or internal controls.
• Ensuring that any concerns are addressed by way of a letter of engagement.

Question 50

Give some examples of personal self-interest threats

Answer 50

• Holding a financial interest in a client, such as owning shares
• Having undue dependence on total fees from a client •Receiving excessive hospitality and gifts from a client.

Question 51

Give some examples of familiarity threats to independence

Answer 51

•Having a close business relationship with a client •Having personal and family relationships with a client.

Question 52

Name some threats to objectivity due to conflict of interest

Answer 52

• A member in practice competes directly with a client.
• A member in practice has a joint venture with a major competitor of a client.
• A member in practice performs services for clients whose interests are in conflict.
• A member in practice performs services for clients who are in dispute with each other in relation to the matter or transaction in question.

Question 53

What steps can members take to assist them in managing their liability.

Answer 53

•Identifying the terms of the engagement
Before carrying out any work for a client a member should ensure that the exact duties to be performed and in particular any significant matters to be excluded. •Defining the specific tasks to be undertaken
A member should make clear in the letter of engagement the extent of the responsibilities he or she agrees to undertake, making particular reference to any information supplied by the client and relied on as a basis for the work, for which the client or others are responsible. Members should guard against the situation where they undertake to perform particular tasks, then during the course of the work find that it is impossible or unnecessary to perform all the tasks originally envisaged but do not agree with the client the change in the scope of the work.
•Defining the responsibilities to be undertaken by the client A member should make it clear in the engagement letter where responsibilities are to be undertaken by the client. For example, the client could reasonably be expected to check reports prepared by the member for completeness or accuracy before any use is made of it involving third parties.
•Specifying any limitations on the work to be undertaken In giving informal advice at the request of a client, or advice which must necessarily be based on incomplete information, a member should make it clear that such advice is subject to limitations and that consideration in depth may lead to a revision of the advice given.
•Liability disclaimers - A member may find it advantageous to include in documents a clause disclaiming liability. Such a clause cannot however be relied on in all circumstances. For example, a court might hold that such a disclaimer represented an unreasonable exclusion of liability.
•Professional Indemnity Insurance - All members in practice need to maintain an adequate level of Professional Indemnity Insurance cover. Professional Indemnity Insurance is also strongly recommended for student members who undertake self-employed work.

Question 54

Name the key ethical issues when undertaking tax clients

Answer 54

• A member should not hold out to a client or an employer the assurance that any tax return prepared and tax advice offered are beyond challenge.
• A member should only undertake taxation work on the basis of full disclosure by the client or employer. The member, in dealing with the tax authorities, must act in good faith and exercise care in relation to facts or information presented on behalf of the client or employer.

Question 55

When should a member not be associated with a tax return

Answer 55

When there is reason to believe that it:
•contains a false or misleading statement
•contains statements or information furnished recklessly or without any real knowledge of whether they are true or false
•omits or obscures information required to be submitted and such omission or obscurity would mislead the tax authorities.

Question 56

What happens when a client dishonestly underpays tax

Answer 56

Funds dishonestly retained after discovery of an error or omission become criminal property and their retention amounts to money laundering by the client or employer.

Question 57

What are client monies

Answer 57

Client monies are any funds, or form of documents of title to money, or documents of title which can be converted into money that an accountant in practice holds on behalf of his or her client.

Question 58

When can client monies not be held by an accountant

Answer 58

• Where an accountant in practice knows or suspects the monies represent criminal property or are to be used for illegal activities.
• Where there is no justification for holding the monies, for example the monies do not relate to a service the accountant in practice provides.
• Where a condition on the accountant in practice’s licence or registration prohibits dealing with client monies.

Question 59

What conditions apply when holding client monies

Answer 59

• The monies must be kept separately from personal monies or monies belonging to the practice.
• The monies must only be used for the purpose for which they were intended.
• The monies must be held in the same currency that it was received unless the client has given instructions to exchange into another currency.
• The accountant must ensure that the client has been identified and verified on a risk-sensitive basis before holding monies on their behalf.
• The accountant must be ready at all times to account for those monies or any income, dividends or gains generated on them, to the client or any persons entitled to such accounting.

Question 60

When may disclosure of confidential information be appropriate

Answer 60

(a) where permitted by law and authorised by the client or the employer
(b) where required by law, for example:
(i) provision of evidence in the course of legal proceedings or
(ii) disclosure to the appropriate public authorities (for example, HMRC) of infringements of the law that come to light or
(iii) disclosure of money laundering or terrorist financing.
(c) where there is a professional duty to disclose, which is in the public interest, and is not prohibited by law. Examples may include:
(i) to comply with the quality review of an IFAC member body
(ii) to respond to an inquiry or investigation by the AAT (iii) to protect the member’s professional interests in legal proceedings
(iv) to comply with technical standards and ethics requirements.

Question 61

What points should you consider when deciding whether to disclose confidential information

Answer 61

(i) whether the interests of all parties, including third parties, could be harmed by disclosure even though the client consents to the disclosure
(ii) whether all the relevant information is known and substantiated, to the extent that this is practicable
(iii) the type of communication or disclosure that may be made and by whom it is to be received; in particular, members should be satisfied that the parties to whom the communication is addressed are appropriate recipients.

Question 62

What should the setting of fees take into account

Answer 62

• the skill and knowledge required
• the level of training and experience required to perform the services
• the time required by each person engaged in performing the services, and
• the degree of responsibility that it entails.

Question 63

When advertising what should be taken into account

Answer 63

that comparisons to other firms: 
•are objective and not misleading 
•relate to the same services 
•are factual and verifiable, and 
•do not discredit or denigrate the practice or services of others.

Question 64

What is The UN’s Bruntland Report’s definition of sustainability

Answer 64

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Question 65

What is The Sustainable Business Network’s definition of sustainability

Answer 65

A sustainable business is a business that offers products and services that fulfil society’s needs while placing an equal emphasis on people, planet and profits.

Question 66

What is the European Union (EU) website’s definition of sustainability

Answer 66

Sustainable trading is a trading system that does not harm the environment or deteriorate social conditions while promoting economic growth.

Question 67

List some unsustainable business practices

Answer 67

Environmental
• deforestation
•the use of non-renewable resources including oil, gas and coal
•long term damage from carbon dioxide and other greenhouse gases.
Social
•anything contributing to social injustice
•rich consuming countries and poorer manufacturing countries
•rich companies exploiting third world labour as cheap manufacturing.
Economic
•strategies for short term gain (e.g. cutting staff costs to increase reported profits)
•paying bribes (also unethical and often illegal) •underpayment of taxes.

Question 68

Name some risks of unsustainable business practices

Answer 68

Environmental
•Deterioration of the environment and loss of some resources.
•Climate change – one of the greatest threats facing mankind.
Social
•Social sustainability encompasses human rights, labour rights, social justice and supporting the capacity of current and future generations to create healthy and liveable communities.
•Failure results in social injustice, infringement of human rights and a widening gap between the world’s richest and poorest countries.
Economic
•There are limits to economic growth as the earth is a finite system.
•Only through sustainable development can a firm ensure long term growth.

Question 69

How can sustainability boost profits

Answer 69

• Sustainability may help directly increase sales of products and services. For example, some customers may buy your product because a label on it says it has been manufactured using extra-safe working conditions for the labour force, or because it is Fair-trade.
• It may result in cost savings. For example, lower energy usage may reduce costs and increase profit.
• It may create positive PR and thus contribute to business in the long run. While sustainability may not enhance product sales right away, if it enhances the image of a company which in turn contributes to better business in the long-term, then it’s worth it.
• Avoiding fines for pollution. The Deepwater Horizon oil spill in 2006 resulted in BP being fined $4.5 billion by the US Department of Justice. However, it is estimated that the total cost to date is in excess of $42 billion in terms of criminal and civil settlements and payments to a trust fund

Question 70

What is Corporate Social Responsibility (CSR)

Answer 70

CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.

Question 71

What is Triple Bottom Line (TBL) reporting

Answer 71

TBL accounting expands the traditional company reporting framework to take into account environmental and social performance in addition to financial (economic) performance.

Question 72

How can a company implement TBL

Answer 72

Planet
•A TBL company will try to reduce its ‘ecological footprint’ by managing resource consumption and energy usage and limiting environmental damage. For example, production processes will be efficient in terms of resource use and environmentally-damaging outputs such as toxic waste eliminated.
•The drive for environmental sustainability also means that TBL companies will not be involved in resource depletion. For example, fish stocks are maintained at sustainable levels and timber use is balanced by replanting to retain the resource into the future.
People
•A TBL business will ensure workers’ rights are respected. For example, pay its workers fair wages, maintain a safe working environment and not use child labour.
•Similarly, the company would promote its surrounding community, for example by providing educational opportunities or a safe community to live in. For example, the Bourneville estate established by Cadbury the chocolate maker in England.
Profit
•A TBL company will try to balance the profit objective with the other two elements of the TBL.

Question 73

What are two problems with TBL reporting

Answer 73

• It can be difficult to measure the three factors concerned.
• There are limits how far firms allow sustainability to impact decision making across the organisation.

Question 74

What are the roles and responsibilities of a finance professional in relation to sustainability (4)

Answer 74

Creating an ethics-based culture: Finance professional can help in creating and promoting an ethics-based culture that discourages unethical or illegal practices, including money laundering, terrorist financing, fraud, theft, bribery, non-compliance with applicable regulations, bullying and short-term decision-making.
Championing sustainability: Finance professionals should take the initiative in raising awareness of social responsibility and the need to consider the impact of decisions and actions on sustainability. However, they need to remain objective while doing this.
Risk management: Risk management is a key aspect of good corporate governance. For many firms this includes assessing risks such as the actions of competitors, the risk of machine breakdown, bad publicity, terrorist attacks and so on. However, this needs to be extended to include evaluating and quantifying reputational and other ethical risks. In particular accountants can help highlight the risks of not acting sustainably.
Performance management: Performance management and decision making are areas that traditionally involve accountants and other finance professionals. As discussed above, accountants could encourage the firm to switch to ‘triple bottom line reporting’ or TBL.

Question 75

Which International Accounting Standard deals with the subsequent expenditure on assets

Answer 75

IAS 16: Items should only be capitalised

1) Where it enhances the value of the asset
2) Where a major component of the asset is replaced or restored
3) Where it is a major inspection or overhaul of the asset

Question 76

What is the accruals concept

Answer 76

Income and expense should be recognised as and when it is earned or incurred not when the cash is received or paid

Question 77

What is the prudence concept

Answer 77

An organisation should recognise future losses as soon as it becomes aware of their existence

Question 78

Who/what are the primary users of final accounts

Answer 78

Shareholders
Lenders
Employees
Other Creditors
Government agencies i.e. HMRC
Management

Question 79

What are the underlying assumptions (Conceptual Framework) of accounting principles

Answer 79

Going concern basis: Assumes that the entity will continue in operation for the foreseeable future
Accruals basis: Transactions should be reflected in the financial statements for the period in which they occur.

Question 80

What are the two fundamental qualitative characteristics of useful information

Answer 80

Relevance: Capable of influencing the decisions of users

Faithful representation: Complete, neutral and free from error

Question 81

What are the four enhancing qualitative characteristics of useful information

Answer 81

Comparability: It should be possible to compare an entity over time and with similar information about other entities
Verifiability: If information can be verified, this provides assurance that it is both credible and reliable
Timeliness: Information should be provided within a timescale suitable for decision-making purposes
Understandability: Information should be understandable to those who may want to review and us it. This can be facilitated through appropriate classification, characterisation, and presentation of information.

Question 82

What are the main sources of regulation governing company accounts

Answer 82

Companies Act 2006: Applies to all UK companies
International Accounting Standards Board (IASB) and its associated bodies who issue International Financial Reporting Standards (IFRS Standards)
IAS 1: overall requirements for financial statements for organisations adopting IFRS standards, including structure and minimum requirements
IAS 2: Inventory is valued at lower of cost and net realisable value
IAS 16: Outlines accounting treatment for most types of property, plant and equipment.