Fundamental Ethical and Professional Principles

Question 1

What are the five principals of ethical behaviour?

Answer 1

Professional competence and due care
Integrity
Professional behaviour
Confidentiality
Objectivity

Question 2

What is the acronym for the five ethical principles?

Answer 2

PIPCO

Question 3

Explain professional competence and due care

Answer 3

Follow the relevant accounting standard and apply the concept of substance over form

Question 4

Explain objectivity

Answer 4

Do not allow bias or conflicts of interest or undue influence of others to override judgement

Question 5

Explain professional behaviour

Answer 5

Comply with relevant laws and regulations and do not do anything that would discredit the profession

Question 6

Explain confidentiality

Answer 6

Do not disclose confidential information to third parties without permission and do not use confidential information for personal gain

Question 7

Explain integrity

Answer 7

Be straightforward and honest

Question 8

Explain the criteria for why a person is a related party

Answer 8

• have control or joint control over the reporting entity
• have significant influence
• are a key member of the management personnel

Question 9

What is the objective of IAS 24?

Answer 9

IAS 24 Related Party Disclosures is to ensure that an entity’s financial statement contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with these parties

Question 10

What does IAS 24 explain?

Answer 10

The existence of a related party relationship can affect the performance of a company even if there are no transactions between the related parties. For example a parent can instruct a subsidiary to not engage in a particular activity

Question 11

How does IAS 24 define a related party transaction?

Answer 11

Transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged

Question 12

When is an entity a related party?

Answer 12

• they are members of the same group
• one is an associate or a joint venture of the other
• both entities are joint ventures of the same third party
• The entity is a post employment benefit plan
• The entity is controlled, jointly controlled or significantly influenced by a person who controls the reporting entity or is a member of the key management personnel

Question 13

Give 5 examples where they may not necessarily be related parties

Answer 13

• two entities simply because they have a director in common
• two joint venturers simply because they share control of a joint venture
• providers of finance
• government department and agencies
• customers, suppliers

Question 14

What does IAS 24 require disclosure of?

Answer 14

• the name of the entity’s parent and if different, the ultimate controlling party irrespective of whether there have been any transactions
• where there have been transactions between related parties:
  Nature of the relationship
  Information about the transaction
  
  • Amount, outstanding balance, provisions for bad debt

- Key management compensation
     Short term employee benefits
     Post employment benefits
     Other long term benefits
     Termination benefits
     Share based payments

Question 15

What may local legislation require?

Answer 15

Disclosure of individual director’s earnings