Ethics Ch 2 Flashcards
Self-interest threat to fundamental principles
Threat caused by a financial relationship between the accountant and a client or an employer
Self-review threat
Threat caused by an accountant having to review or evaluate a previous judgement he/she has made
Familiarity threat
Threat caused by a close family relation or close friend of the accountant being a key member of the client staff or a supplier, customer of the accountants employer
Intimidation threat
Real or perceived threat caused by a client exerting undue pressure on an accountant in practice or a dominant employer attempting to influence an accountant in business
Advocacy threat
Threat caused by an accountant going beyond an advisory role and publicly supporting the client in some way
These may occur where a financial or other interest will inappropriately influence the accounts judge ment or behaviour
Self interest threat
These may occur when an accountant has to reevaluate a judgement or date that they have previously made
Self review threat
Occurs when, because of a close or personal relationship, an accountant becomes too sympathetic to the interests of others
Familiarity threats
Occur when an accountant may be deterred from acting objectively because of real or perceived threats
Intimidation threats
Occur when an accountant promotes a position or opinion (normally of a client) to the point that their objectivity maybe be compromised in the future
Advocacy threat.
Financial interest
(Self interest threat) where an accountant is a shareholder in a client company they would have a direct financial interest.
If it was the clients close relative or husband/wife this is an indirect financial interest
This is a threat to his/her objectivity.
Loan to or from the client
(Self interest threat) Affects objectivity as they will be financially involved with the client.
Financial interest in a joint venture with the client
(Self interest) this effects the accountants objectivity as they are financially involved with the client.
Substantial fee income from a single client
(Self interest threat) if a fee is a large percentage of the total gross fee, this threatens the accountants objectivity as the accountant may feel they can’t afford to lose the client.
Contingent fees relating to an assurance client
(Self interest) a contingent fee could influence the accouant. For example if the accountant is offered more for manipulating the profits to be less than a certain amount. This could effect their objectivity
Finding significant errors.
(Self interest threat) Sometimes an account will have to review their/ member of their staffs work. If an error is found and highlight this could make them self’s seem incompetent and effect the future relationship with the client. However if the error is not highlighted and is not reported to the client, this will threaten the accountants professional behaviour and professional competence and due care
Where an accountant discovers a significant error when revising work they have carried out. They may decide not to highlight the error.
Self review
Where an accountant is asked to report on the operation of financial systems after being involved in the design and implementation of these systems
Self review
How can a self review threat be prevented
Ensure that work is reviewed by another accountant in the practice
what is Consultancy services
Management consultancy (help on how to run a company more effectively) and tax advice
What should you do when giving tax advise and management consultancy
- make recommendations
- do NOT make management decisions
- do NOT take responsibility for management decisions
Accountants should avoid reporting on management decisions which they have recommended
You are see to support the clients point of view publicly. Even in a court of law
Advocacy threat.
If an accountant has been involved in the prep of staff bonus calculations and the involved with the decision making who should receive them
Self review plus if the accountant is eligible for a bonus this could be a self interest threat too,
If an accountant is offered a gift, this could make them feel obliged to act a certain way to confirm their wishes as a thank you gift
Familiarity threat
What is a consultancy service
Professional practice that gives expert advice within a particular field
Independence
Auditors should be independent at all times. Not subject to anybody else’s authority
Should gifts be accepted
The difference between what constitutes a gift and what constitutes bribery.
If work with a client has ended the a small gift is acceptable. The gift should really be modest, ie not money/ gift voucher. Not a gift that would bring your independence into question.
If a gift is not modest, it should be returned with a thank you and explanation as to why it cannot be accepted.
Eg; Receiving tickets for a game is a gift. Being offered to go to the game with a client is seen as entertainment
Integrity can pose which threats
Self interest and familiarity threat
Objectivity can pose which threats
All. Self interest, familiarity, intimidation, self review, advocacy
Professional behaviour poses which threats
Self interest, familiarity, and self review
Professional competence and due care poses which threats
Self interest, familiarity, and self review
Confidentiality poses which threats
Self interest, familiarity, and intimidation
