Module 2 Code of Ethics part 1

Question 1

Public Interest

Answer 1

IFAC defined as : a sum of benefits received by citizens from the service provided by accountant professional, incorporating all regulatory measures designed to ensure the quality provision of such services.

Question 2

Intrest

Answer 2

IFAC defines : the responsibilities that the professional accountant have to society
The responsibilities are
1. Providing sound financial reporting to stakeholders, investors and all parties in market place
2. Facilitating the comparability of financial and audit reports across different jurisdiction
3. Accountant apply high standards for ethical behaviour and judgement
4. Specifying appropriate educational requirements and qualification to accountant professionals

Question 3

Principles of code of ethics-APESE 110Integrity

Answer 3

Integrity in accounting means honesty, trust, honorable and reliable behaviour
Integrity requires strength and courage
Members should not knowingly be associated with reports, returns, communications or other information
1. containing a materially false or misleading statement
2. contains statements or information provided recklessly
3. omits or obscures required information

Question 4

Objectivity

Answer 4

Accountants should be impartial, honest and free from conflict of interest
Accountants should exercise their professional or business judgement without being compromised by bias, conflict of interest or undue influence or undue reliance on individuals, organisation, technology or other factors.

Question 5

Professional competence and due course

Answer 5

There are 2 obligations
1. Attain and maintain professional knowledge and skills to ensure that the clients and organisation received these professional and skills based on current technical and professional standards
2. To act diligently and in accordance with applicable technical and professional standards

Question 6

Confidentiality

Answer 6

Accountant should maintain the confidentiality information acquired from third part.
The information should not be disclosed without proper and specific authority, unless there is a legal or professional right or duty to disclose it

Question 7

Professional behaviour

Answer 7

Professional accountant
1.comply with relevant laws and regulations
2. Behave in a manner to act in public interest in all professional activities
3. Avoid any conduct that a member knows or should know that discredit their profession.

Question 8

Conceptual Framework

Answer 8

The conceptual framework outlined in APES, states that the members are required to follow 3 steps when determining if there’s any threat to fundamental principles
1. Identify: if at acceptable level, continue ongoing monitoring. If not, then go to next step
2. Evaluate:
3. Address the threat by
a) eliminating the circumstances that create the threat
b) applying safeguard to reduce the threat to an acceptable level
c) declining or rejecting the specific professional activity

Question 9

Conceptual framework for ethical issues

Answer 9

Members should have inquiring mind:
Exercise professional judgement
Use the reasonable and informed 3rd party test

Question 10

APES 110 defines 5 threats

Answer 10

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

Question 11

Evaluating threats
APES 110 para. R120.7 Acceptable level

Answer 11

Acceptable level is the level at which the member using the reasonable and informed 3rd party information to evaluate the threat, conclude that the member complies with fundamental principles
The member should consider both quantitative and qualitative factors while evaluating the threat

Question 12

Form of guidance relevant to evaluating the threats

Answer 12

1. Corporate governance requirements
2. Education, training and experience of professional.
3. Effective compliance system which draws attention of members and general public regarding unethical practices
4. An explicitly stated duty to report breach of ethical principles
5. Professional and regulatory monitoring and disciplinary procedures

Question 13

Avoid conflicts of interest for members in business

Answer 13

1. restructuring or segregating the duties
2. Acting under supervision of executive or non-executive directors
3. Withdrawing from decision making process
4. consulting 3rd party like professional body, legal counsel or other members

Question 14

Avoid conflict of interest in public practice

Answer 14

1. Existence of separate practice areas
2. policies and procedures to limit the confidentiality of information
3. confidentiality agreement signed by member and parties
4. separating confidentiality information both physically and electronically
5. specific and dedicated training and communication
6. having a separate engagement team
7. having proper reviewer

Question 15

Remuneration, fee, incentives and other forms of payment

Answer 15

This is a possible self-interest threat
This arises if financial affairs are not compromised properly

Question 16

How to evaluate this self-interest threat

Answer 16

1. Nature of engagement
2. range of possible fees
   3 basis of determining the fee
3. disclosure of nature of work by members in public practice and the basis of remuneration
4. quality management policies and procedures
5. whether the independent 3rd part to review the outcome or results of transactions
6. whether the level of fee is set by independent 3rd party

Question 17

Commission and soft-dollar benefits

Answer 17

Those who provide financial advice must follow the provision of APES 230 financial planning services
A minimum acceptance of commission or other incentives must be clearly disclose the nature and extent of such fee.
Soft-dollar benefits include both monetary and non-monetary benefits like fund management, sale or recommendation of certain product
CPA Australia, through APES 230 has banned wide range of benefits, gifts or other incentives, commission based on sales volume, preferential commission linked to in-house financial products, fee or subsidised office equipments, computer of software and gift over $300 in value.

Question 18

Inducements, including gifts and hospitality

Answer 18

Various forms of inducements like
gifts, hospitality, entertainment, political or charitable donations, appeals to friendship and loyalty, employment, or other commercial opportunities and treatment
This leads to different threats
1. Self-interest - a member of public practice has been offered hospitality by this client
2. Familiarity - if a member has been taken to sporting event regularly by client
3. Intimidation - If a member of public practice accepts hospitality by client which is not accepted by the board community

Question 19

NOCLAR - Non-compliance with law and regulations

Answer 19

Steps to apply NOCLAR
1. Obtain an understanding of matter
2. Address the matter
3. Determine if matter needs further action
4. Determine whether to disclose the matter to appropriate authorities.

Question 20

Special purpose financial statement

Answer 20

Special purpose financial statements are prepared in accordance with financial reporting requirements, used by special users
They need not comply with accounting standards
The users must be informed of the limitation of these reports and explicitly agree the modifications to independent requirements

Question 21

Factors influencing decision making

Answer 21

1. Individual factor: Some ppl may act out of fear and other act out of self-benefits
   The person should have ethical courage to be straightforward and honest in all professional and business relationship
2. Organizational factors: It is defined as pattern and rules that govern the organization behaviors and its employee.
   The culture of organisation is defined in written rules and codes of ethics
   Top-tier management is considered the most influential factor in setting organizational values
3. Professional factors:
4. Social factors: the decision making is based on the world we live in. These include the law which govern our behaviour and culture.

Question 22

Ethical climate and culture affecting various organizational outcomes

Answer 22

1. Instrumental climate: egoistic and opportunistic behaviour predominates. This has associated with low job satisfaction to employees and managers, low employee commitment and high turnover, low moral reasoning, unethical behaviour, organisational misconduct and bulling
2. Principle-based climate: rules and regulations are faithfully adhered to
3. Benevolent climates: decisions are made mindful of the interest and needs of all affected organisational accountants. This climate generally perform the best.

Question 23

Heuristics decision-making

Answer 23

Set of decision-making rules or approaches based on past experiences, intuition and mental short-cut.
Dealing with problems by using decision rules or using ‘rules of thumb’
A broadly accurate guide or principle, based on practice rather than theory
But, this is limited to individual’s background, experience, memory, knowledge and perception.

Question 24

Decision making module that can be applied to conceptual framework

Answer 24

1. The philosophical module: this represents the combination of normative ethical principles like egoism, utilitarianism, rights and justice
2. The American Accounting Association module

Question 25

7 steps of American Accounting Association model AAA

Answer 25

1. What are the facts of the case: identify the problem
2. What are the ethical issues in the case: 1st, the primary stakeholders are identified, 2nd, the ethical issues are clearly defined
3. What are the norms, values and principles of the case: norms, principles and values relating to all stakeholders including corporation, individuals and accountants
4. What are the alternative courses of action: Major alternative courses of action should be identified
5. What is the best course of action that is consistent with the norms, principles and values identified:
6. What are the consequences of each possible course of action
7. What is the decision