Ethics and law

Question 1

State the 10 safeguards available to reassure clients in relation to the work of ICAEW Chartered Accountants.

Answer 1

• Continuing professional development requirements
• ICAEW professional standards
• Regulatory monitoring
• ICAEW complaints procedure which will be detailed in the engagement letter
• ICAEW also requires members to hold professional indemnity insurance
• Education, training and experience required for entry into the profession
• Corporate governance regulations
• Monitoring and disciplinary procedures
• External review
• Explicitly stated duty to report breaches of ethics

Question 2

State the 6 actions to be taken by your firm in relation to clients paying taxes wrongly.

Answer 2

• My firm should ask the directors to treat the payments correctly going forward.
• My firm should check whether the engagement letter allows them to disclose the issue to HMRC.
• If the engagement letter does not give the power to disclose, the directors should be asked to advise HMRC of the incorrect treatment and pay the PAYE due.
• If the directors refuse to disclose this matter, my firm should cease to act for the client. My firm should inform HMRC that they are ceasing to act but give no reason.
• A written record of all advice given to the client should be kept by my firm.
• As this amounts to tax evasion it falls within the definition of money laundering, my firm’s MLRO should consider completing a SAR and submitting it to NCA.

Question 3

Identify 7 actions your firm should take in line with the guidance given in ‘Professional Conduct in Relation to Taxation’ if they think HMRC have made an error.

Answer 3

• My firm should check the engagement letter to ensure that it gives authority to advise HMRC of the error.
• If the amount involved is not immaterial, my firm should refer the matter to the client.
• The client should be asked to advise HMRC of the error (or to authorise my firm if authority is not given in the engagement letter).
• The client should be asked to return the money to HMRC.
• The client should be warned of the possible legal consequences of refusal to give authority (including interest and penalties and possible criminal prosecution).
• The client should be advised that if consent is not given or HMRC are not advised by the client, my firm will cease to act for the client
• A written record of all advice given to the client should be kept by my firm.

Question 4

What are the 4 implications of the money laundering act if HMRC have made an error and provided your client with an inappropriate tax refund?

Answer 4

• If the tax is not returned, it amounts to theft, and the refund becomes the proceeds of crime.
• I should report this to my firm’s money laundering reporting officer on an internal report.
• The MLRO should take all matters into account and decide whether to report the suspicions to the National Crime Agency using a suspicious activity report.
• I must take care not to tip off members of staff at the client.

Question 5

What are 4 defences against a charge of failure to report a suspicion of money laundering?

Answer 5

• I did not actually know or suspect money laundering had occurred and I had not been provided by my employer with the training required.
• An accountant who suspects or has reasonable grounds for knowing or suspecting that another person is engaged in money laundering is exempted from making a money laundering report where their knowledge or suspicion comes to them in privileged circumstances (the privilege reporting exception).
• I had a reasonable excuse for not making the report. This only applies in extreme circumstances such as duress and threats to safety.
• It is known or reasonably believed that the money laundering is occuring outside the UK, and is not unlawful under the criminal law of the country where it is occurring.

Question 6

Explain the differences between tax evasion and tax avoidance.

Answer 6

• Tax evasion is the deliberate intention to mislead HMRC and is illegal.
• Tax evasion takes place where information is suppressed (hiding), or false information is provided (lying).
• Tax avoidance is any legal method of reducing one’s tax burden.

Question 7

Outline the 5 fundamental principles.

Answer 7

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

Question 8

Define integrity.

Answer 8

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

Question 9

Define objectivity.

Answer 9

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

Question 10

Define professional competence and due care.

Answer 10

• Members must exercise sound judgement in applying professional knowledge and skill.
• Members should not undertake work 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 11

Define professional behaviour.

Answer 11

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

Question 12

Define confidentiality.

Answer 12

• Members should respect the confidentiality of information acquired as a result of professional and business relationships.
• 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.
• Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of members or third parties.

Question 13

Outline the five threats to compliance with the fundamental principles.

Answer 13

1. Self-interest
2. Self-review
3. Advocacy
4. Familiarity
5. Intimidation

Question 14

Explain self-interest.

Answer 14

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 matter.

Question 15

Explain self-review.

Answer 15

May occur when a previous judgement needs to be re-evaluated or reviewed by the same member responsible for that judgement.

Question 16

Explain advocacy.

Answer 16

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

Question 17

Explain familiarity.

Answer 17

May occur when, because of a close relationship, a member becomes too sympathetic to the interests of a client.

Question 18

Explain intimidation.

Answer 18

May occur when a member is deterred from acting objectively by actual or perceived pressures from others.

Question 19

What 2 things should accountants do if appropriate safeguards cannot be implemented?

Answer 19

• Decline or discontinue the specific service

- Resign where necessary

Question 20

5 PCRT standards

Answer 20

1. Client specific
2. Lawful
3. Disclosure and transparency
4. Advising on tax planning arrangements
5. Professional judgement and appropriate documentation

Question 21

Define agent

Answer 21

• A professional accountant who acts on behalf of their clients by completing tax returns.
• The client retains responsibility for submitting correct and complete returns to the best of their knowledge and makes the final decision on disclosures.
• The accountant is not required to audit the figures provided by a client or third party.

Question 22

What 7 steps should be taken to comply with anti-money laundering regulations?

Answer 22

1. Appoint a Money Laundering Reporting Officer (MLRO).
2. Implement internal reporting procedures.
3. Train staff to ensure they are aware of the relevant legislation, know how to recognise and deal with potential money laundering, how to report suspicions to the MLRO and how to identify clients.
4. Establish appropriate internal procedures relating to risk assessment and management to deter and prevent money laundering and make relevant individuals aware of the procedures.
5. Carry out customer due diligence on any new client and monitor existing clients to ensure the client is known and establish areas of risk.
6. Verify the identity of new clients and maintain evidence of identification and records of any transactions undertaken for or with the client.
7. Report suspicions of money laundering to the National Crime Agency (NCA), using a Suspicious Activity Report (SAR).

Question 23

Identify 8 actions you should take if a client misrepresents figures in their tax return.

Answer 23

1. Explain to client that she should disclose the misrepresented figures to HMRC or give me authorisation to disclose.
2. Explain the client will be required to pay the tax due.
3. If the deadline has not passed, disclose the misrepresentations in an amendment to the tax returns.
4. Check if the engagement letter gives automatic authority to disclose.
5. Set down in writing the likely consequences of the failure to disclose, including interest, penalties and possible criminal prosecution.
6. Do not inform HMRC yet as there is no duty to disclose.
7. Cease to act for the client if they refuse to authorise full disclosure or disclose themselves and inform the client and HMRC in writing.
8. Consider disclosure under anti-money laundering regulations.