Threats and safeguards to fundamental ethical principles Flashcards
How are the five fundamental ethical principles applied and what are they applied with ? P121
- General nature - non rigid
- with code of ethics
- professional judgement - impact of compilance - before decision
What approach does the code of ethics say an accountant should take ? P121
- Principles based approach
- identify, evaluate , address - not rules
What should an accountant do if they foresee their fundamental ethical principles being threatened ? P121
- Safeguards - minimise threat
What are the advantages of taking a principle based approach ? P121
- Applicable to all circumstances
- evaluate situation = less loopholes = less excuse
Should an accountant ignore unethical behaviour going on ? P122
No - take appropriate action
Can an accountant rely solely on regulations to act ethically ? P123
- No - see example in book
What are the threats faced by an accountant working in practice ? P124
- Self interests
- self review
- familiarity
- intimidation
- advocacy
What is the self interests threat to fundamental principles when working in practice ? P124
- financial involvement - client/ client affairs / operations employer business
What are some examples self interests threats in practice ? p124
- client / employer - direct/indirect financial interests
- loans to / from - client/ employer
- joint venture - client
- potential employer
- client fees large %
- coontingent fees - assurance engagement
- significant error - accountant/ member of staff
What is an example of a direct/ indirect financial interests in a client / employer ? P125
- Shareholder - client company:
- performance interests - preparation of accounts/ tax advice
- objectivity - judgement
- close relative shareholder
What is a loan to/from a client ? P126
- Affect objectivity
- financial influence
What is financila interests in a joint venture with the client in more detail ? P126
- For financial relatiomship - compromise objectivity
What is a substantial fee income from a single client? p127
- large % gross income fee
- affects objectivity
- cannot afford to lose
- client influences accountant
What should an accountant in practice do if a client wants to make a job offer ? P127
- Inform senior member of staff
- OR
- assignment removal request
What is a self review threat ? P128
Accountant working in practice
- own work
- client > practice
- practice > client
- close family member/ colleague
What are other examples of self review threats to a practice accountant’s principles? P128
- Previous work review - not highlight erroras
- finance systems operations report - design & implementation
- service - affects assurance engagment (audit) subject matter
What should an accountant in practice do do if the self review threats are present ? P129
- Safeguard - elimination/reduction
- reviewed by other accountants
How does practice cater for self review threats of finding a significant error and not reporting it to the client ? P129
working in practice
- strong review procedures & leadership culture
What must an accountant do when providing other services (e.g. consultancy) to clients, to cater against threats to fundamental principles P129
- recommendations
- no management decisions
- no reponsibility - management decisions
- no reporting - recommended decisions
- independent advisors
What is the familiarity threat to an accountant working in practice ? P129
- Close/personal relationship - client / key member client staff
- negative effect - objectivity and independence
- too sympathetic - peron’s interests
What are exmaples of familiarity threats to an accountant working in practice ? P130
- practice partner -> client director, officer, employee - influence over subject of assignement
- client gift/ preferential treatment - unless insiginificant
- long association - senior assurance team 2 client
What is the intimidation threat to an accountant working in practice, and what is done to address this ? P130
- Accountant bullied / under pressure
- must change
- larger firm - strong personality bring in
What are examples of the intimidation threat to an accountant working in practice ? P131
- Dismissal threat
- contract not rewarded
- litigation threat
- pressure- reduction work quality = reduction in fees
- pressure - agreement client - more experience
What does the advocacy threat to an accountant working in practice mean ? P131
- support client publicly - even court of law
- beyond advisory role
- actively - speaking for / in support of
What are two examples of the advocacy threat coming into play, when in practice ? P132
- Promoting shares listed entity - audit clieent
- advocate assurance client - litigation/ disputes
What are some of the safeguards in place to protect the principle of an accountant working in practice ? P132
- Leadership culture- importance compilance
- leadership culture - act in public interests - work assurance assignment
- monitored quality control procedures 4 engagements- senior management overlooking
- documented internal policies and procedures - disciplinary mechanism
What are the threats to fundamental principles of an accountant working in business ? P133
- self interests
- self review
- familiarity
- intimidation
- advocacy
What is the self interests threat to an accountant working in business ? P134
- Financial interests - judgement & behaviour
What are circmstnaces that could create self interests threats for accountants in business ? p134
- financial interests in business - bonus financial reporting & decision making
- use of asset ( not contracted)
- security of employemtn
How can self review threaten the principles of an accountant working in business ? p134
- Data preparation - making business decisions (involvement)
- e.g. staff bonus calculation - who receives bonus
- self interests threat- client eligible
What are exmaples of familarity threats to an accountant in business ? P134
- taking on close family member responsibility - financial info preparation
- long association - supplier / customer of business
- gift/ preferential treatment - employer/ customer / supplier - conform
- under manager- long time
What are exmaples of intimidation of an accountant in busienss ? P135
- Dismissal threat - accountant/ close relation
- dominant person in business - forcing point
How does advocacy threaten an accountant working in business ? P135
- Unlikely threat:
- expected support- legitimate goals and objectives
- job to promote- ensurance statements correct
What are some of the safeguards in place to protect the principles of an accountant working in business ? P135
- Employer’s:
- corporate oversight / oversight structures
- ethics and conduct programmes
- recruitment proceudre- competent staff
- strong internal controls
What is the addition to safeguards for accountants in practice and business ? P136
- Profession, legislation , and regulation
What are exmaples of safeguards created by the accounting profession , legislations, or regulation ? P136
- educational / training requirements - entry into profession
- CPD requirements
- coporate governance regulations
- professional accounting standards
- professional / regulatory monitoring & discplinary procedures
- auditors
What must happen when safeguards are put into place to accomodate for threats to fundamental principles ? P136
- assignment continuation documented
- description of threat identified and safeguards applied
What if it’s not possible to eliminate or reduce threats to an acceptable level? P136
Refuse to accept/ continue
