TC ethics Flashcards
5 fundamental principles
Professional behaviour
Confidentiality
Professional competence and due care
Integrity
Objectivity
5 threats to compliance with fundamental principles
self interest
self review
advocacy
intimidation threat
familiarity
Safeguards against threats (10)
The following reduce the above threats:
Education/training/experience required for entry into profession
CPD requirements
Corporate governance regulations
Professional standards
Monitoring/disciplinary procedures
External review
Complaints systems
Explicitly stated duty to report breaches of ethics.
If appropriate safeguards cannot be implemented the accountant should:
decline/discontinue the specific service
resign where necessary.
What standards has professional conduct in relation ton taxation (PCRT) developed? (5)
Client specific
Lawful
Disclosure and transparency
tax planning arrangements
professional judgement and appropriate documentation
Define the PCRT standard of Lawful.(4)
Members must act so and expect the same from their clients
-tax planning should be baed on a realistic assessment of all facts on a creidble view of law,
members should draw their clients attention to material uncertainties (eg if HMRC is known to view th elaw differently)
-members should consider taking further advice appropraite to the risks and circumstances of the particular case, for exmaple where litigation is likely.
Define PCRT client specific.(1)
tax planning must be specific to a particular client facts and circumstances. Clients must be alerted to any risks and implicatons of any courses of action
Define PCRT disclosure and transparency.(1)
tax advice must not rely for its
effectiveness on HMRC having less than the relevant facts. Any
disclosure must fairly represent all the relevant facts.
Define PCRT tax planning arrangements.(2)
members must not create, encourage
or promote tax planning arrangements or structures that:
set out to achieve results that are contrary to the clear intention
of Parliament in enacting relevant legislation,
are highly artificial or highly contrived and seek to exploit
shortcomings within the relevant legislation.
Define PCRT professional judgement and approp documentation.(1)
applying these requirements to particular client advisory situations
requires members to exercise professional judgement on a number
of matters. Members should keep notes on a timely basis of the
rationale for the judgements exercised in seeking to adhere to these
requirements.
What should a member do if they encounter an ethical conflict? (4)
1) Consider the following factors:
the relevant facts and parties
the ethical issues involved
the fundamental principles relating to the matter in question
any established internal procedures
possible alternative courses of action.
2) If the conflict remains unresolved, the member should then seek advice within the member’s own firm and document the advice given.
3) If the member is a sole practitioner or cannot resolve the matter internally, the member should seek legal advice or advice from the ICAEW.
4) If the ethical conflict cannot be resolved, the member should consider withdrawing from the engagement/conflict situation.
What should members do if they identify conflict of interest?(3)
Notify relevant parties of any actual/potential conflicts of interest.
Obtain consent of relevant parties to act.
If consent is refused, cease acting for one party involved in the conflict.
If consent to act what safeguards should be put in place for conflict of interest?(6)
Use separate engagement teams.
Impose procedures to prevent access to information.
Issue guidelines to team members re: security and confidentiality.
Use confidentiality agreements for partners/employees.
Regularly review safeguards; this should be done by senior not involved with
engagements.
If the conflict cannot be resolved consider not accepting/resigning from one
engagement
Secondments to HMRC and PCRT.(2)
The secondee should serve the interests of HMRC whilst on secondment and avoid
any situation where there is scope for a conflict of interest between HMRC and the
employer. In particular:
The secondee should not be involved in matters relating to his, her or their
employer or employer’s clients whilst working for HMRC.
After the secondment, the secondee should not be involved in the affairs of any
taxpayer the secondee was involved with at HMRC for a significant period
What should an engagement set out.(2)
Any services provided should be subject to an engagement letter.
This is the contract between the accountant and client, which sets
out each party’s responsibilities.
The engagement letter should explain whether the accountant is
acting as agent or principal in respect of this engagement.
There should be an engagement letter covering each separate
contractual relationship (e.g. one per spouse or civil partner).
Professional indemnity insurance cover as per ICAEW as well as how long cover should maintain if they cease in public practise.(3)
According to the ICAEW’s PII Regulations the minimum amount of indemnity is:
-if the gross fee income of a firm is less than £600,000: 2.5 times its gross fee
income, with a minimum of £100,000.
-otherwise: £1.5 million.
When a member ceases to be in public practice the member should ensure the cover continues for at least two years.
Who over sees data protection? what happens for non compliance?(3)
ICO must be informed within 72 hours of any breach
Non compliance can lead to:
cirminal conviction as per breach of data protrction act
fine of 20million euros or 4% firms global turnover (higher of)
The Data Protection Act 2018 enacts the principles set down in the EU’s General Data Protection Regulation (GDPR). These are: (6)
Lawfulness, fairness and transparency: there must be valid grounds for holding the data. The data must be processed fairly and there must be openness about how it is used from the start.
Purpose limitation: the purpose for holding the data must be specified from the start. It must be a legitimate purpose.
Data minimisation: data should be adequate, relevant and not excessive for the stated purpose.
Accuracy: data should be accurate and up to date.
Storage limitation: data should not be kept for longer than is necessary. The firm should have a data retention policy which can be justified.
Integrity and confidentiality: when processing data the firm must take appropriate security measures.
Professional Conduct in Relation to Taxation advises that precautions should be taken to prevent unauthorised access to client information, such as: (5)
Computers should be kept physically secure.
Access credentials (e.g. passwords) should be kept safe from unauthorised
use.
Passwords should be changed regularly; the HMRC recommendation is once
every three months.
Any unusual or unexpected activity on a client’s online HMRC records should
be reported to HMRC immediately.
Suspicious emails claiming to be from HMRC should be forwarded to HMRC’s
phishing team.
What is an abusive tax arrangement?
One that contains contrived steps which exploit shortcomings in the tax provisons. The general anti-abuse rule (GAAR) enables HMRC to challenge these.
What does PCRT state about aggressive tax planning?(1)
PCRT states that ‘a member should always advise the client that there may be wider
reputational issues’ associated with aggressive tax planning and warns members to
always ‘consider the potential negative impact of their actions on the public
perception of the integrity of the tax profession more generally’.
Aggressive tax planning could lead to:
significantly greater compliance requirements in the future
significantly greater scrutiny of the member’s work/the client’s tax affairs
investigation of the member’s work/the client’s tax affairs
criticism from the media, government and other stakeholders
difficulties in obtaining PII cover (for the member).
The main forms of tax evasion are: (2)
suppressing information e.g. failing to declare taxable income to HMRC
submitting false information e.g. claiming expenses that have not been incurred.
Businesses need to have robust procedures in place to reduce exposure to tax evasion, including: (6)
undertaking a risk assessment to ascertain weaknesses in the control
environment.
introducing any further controls found to be needed following the risk
assessment.
securing top level commitment from senior management concerning the risks
and setting out procedures for minimising those risks.
performing due diligence.
communicating the offences to staff and providing training.
monitoring and reviewing any procedures introduced.
What is the tax gap? How does HMRC try to minimise this? (2)
The tax gap is the difference between the total amount of taxes
owed to the government and the actual amount received by the
government.
HMRC uses data sets drawn from a variety of sources to reduce the tax gap. For
instance, Real Time Information (RTI) for PAYE has given HMRC more accurate
information about a large number of taxpayers (e.g. current home date addresses),
making it easier for HMRC to find taxpayers who have underpaid their income tax
