exam pat 1 sec 1 (3) Flashcards
NEW CODE
Matter
Cosby plc owns a small chain of supermarkets with an emphasis on organic, local produce.
The Directors of Cosby plc are concerned that, despite having better quality produce than
rivals, it is not competing as well as it wo
uld like against national supermarket chains.
The Marketing Director has proposed that Cosb
y plc should set up a new corporate code of
ethics that could be used as part of its
marketing effort. He is convinced that many
customers will be influenced by such a code and has suggested that the following aspects
could be incorporated:
1
All products should be purchased from local farms and suppliers where appropriate.
2
All packing materials should be obtained from renewable sources where feasible.
3
All suppliers to be paid on time.
4
All suppliers to be paid fair prices as
determined by the Purchasing Manager.
Required:
Comment on EACH of the ethical values sugge
sted by the Marketing
Director, highlighting
the benefit of each, together with any reservations you may have concerning them.
5 NEW CODE
1
All products should be purchased from lo
cal farms and suppliers where appropriate.
This would have a positive impact from
a sustainability perspective as it would
reduce distribution miles and the associated
impact on fossil fuels and pollution.
The main reservation is the wording ‘where a
ppropriate’ as there is no indication as
to what ‘appropriate’ means – for example, Cosby could buy cheaper goods from
overseas suppliers and argue that th
e low cost made it ‘appropriate’.
2
All packing materials should be obtained from renewable sources where feasible.
This would also have a positive impact fr
om a sustainability perspective as it would
reduce deforestation to provide cardboard and paper packaging.
The main reservation is the wording ‘where fe
asible’ as there is no indication as to
what ‘feasible’ means – for example, Cosby could buy cheaper goods with plastic
packaging and argue that the low cost made it ‘feasible’.
3
All suppliers to be paid on time.
This should mean that suppliers are treate
d fairly. However, there is no indication
that suppliers have any say in
what constitutes ‘on time’.
4
All suppliers to be paid fair prices as
determined by the Purchasing Manager.
This should also mean that suppliers are treated fairly.
However, there is no indication that supplie
rs have any say in what constitutes ‘fair
prices’ – the price needs to be seen to be reasonable and fair by both parties.
Ye Lin, an AAT member, works for a C plc, a company that is now under investigation for
corruption. The Finance Director has told Ye
Lin not to cooperate with the investigation
team.
State whether Ye Lin should cooperate with the investigation or obey the F
State what Ye Lin could be found guilty of if she fails to cooperate with the
investigation.
Indicate which of the following disciplinary actions the AAT could apply if Ye Lin is
found guilty of damaging the reputation of
the association. (Select all that apply)
Lose her job with C plc
Be expelled from the Association
Have her membership of the Association suspended
Have her practicing licence withdrawn.
Receive a prison sentence
Have to re-sit all her professional exam
(a)
Ye Lin must cooperative fully with the investigation.
(b) If Ye Lin fails to cooperate as an AAT member she could be found guilty of
misconduct
.
(c)
The AAT could apply the following disciplinary actions:
Be expelled from the Association
Have her membership of the Association suspended
Have her practicing licence withdrawn.
Chris, an AAT member, works for HJK and Co,
a medium sized accountancy practice based
in Manchester. Chris has performed accountancy
and tax services for both Yin Ltd and Yang
Ltd for many years.
Yin Ltd is currently in negotiations with th
e Board of Yang Ltd concerning a proposed
takeover. Both Yin Ltd and Yang Ltd have requested that Chris help advise them.
Required:
(a)
State which TWO fundamental principles are threatened by the proposed takeover
This situation represents a threat
to the fundamental principles of
Objectivity – because it is difficult to act without a perception of bias when the
two clients’ interests are in such conflict because they both want a price and
terms beneficial to themselves; and
Confidentiality – because he has confidential information in respect of each
client.
Chris, an AAT member, works for HJK and Co,
a medium sized accountancy practice based
in Manchester. Chris has performed accountancy
and tax services for both Yin Ltd and Yang
Ltd for many years.
Yin Ltd is currently in negotiations with th
e Board of Yang Ltd concerning a proposed
takeover. Both Yin Ltd and Yang Ltd have requested that Chris help advise them.
Required:
Describe the ethical conflict resolution process Chris should undertake in deciding
how to act in respect of this matter. Assume that he
will be able to resolve the conflict of interest without needing to seek external professional advice
Chris should:
consider relevant facts/ethical issues
involved/his fundamental principles/any
established procedures in HJK and Co
establish alternative courses of action,
establish which is most consistent with
the fundamental principles and establish the consequences of each
seek advice about the matter within HJK and Co, and document the substance
of the issue and discussions.
Chris, an AAT member, works for HJK and Co,
a medium sized accountancy practice based
in Manchester. Chris has performed accountancy
and tax services for both Yin Ltd and Yang
Ltd for many years.
Yin Ltd is currently in negotiations with th
e Board of Yang Ltd concerning a proposed
takeover. Both Yin Ltd and Yang Ltd have requested that Chris help advise them.
Required:
Assuming he decides he can act for one of the clients, explain TWO issues Chris
must consider when carrying out his work.
In acting for one of the clients Chris should consider instituting appropriate
safeguards so that his familiarity with the ot
her client does not affect his professional
judgement/objectivity, and so that he does
not breach confidentiality re the other
party.
Simon, a member in practise, inherits from his Grandfather shares in a company that his
firm audits.
Required:
(a)
State which threat this situation represents.
(b)
Outline what Simon’s best course of action is.
(a)
This situation represents a self-interest threat.
(b)
Simon’s best course of action is to se
ll the shares or, failing that, to ask to be
removed from the audit engagement.
Jason is an AAT member in practice
. The following matter arose this week:
Matter
One evening Jason had a drink with an old friend, Brian, an AAT member currently working
as an accountant for a large manufacturing company.
Brian was extremely worried about events in the company he works for. He had been asked
by one of the directors to become involved in
an arrangement that would lead to personal
financial gain for the director at the expense of the company. Brian had been offered
financial reward for this, and it had been made
clear to him that he would lose his job if he
didn’t comply.
(a)
State which ethical principle Brian has
already breached by talking about this
situation?
(b)
Explain what course of action is most appropriate for Brian to take immediately.
(a)
This situation displays a breach of Confidentiality.
(b)
Jason’s friend, Brian, should talk to the
director concerned and explained that to act
in the way suggested would be unethical.
(
Note:
you could have answered that he should get advice without breaching
confidentiality, say by ringing the AAT ethics helpline
Jason is an AAT member in practice
. The following matter arose this week:
Matter
One evening Jason had a drink with an old friend, Brian, an AAT member currently working
as an accountant for a large manufacturing company.
Brian was extremely worried about events in the company he works for. He had been asked
by one of the directors to become involved in
an arrangement that would lead to personal
financial gain for the director at the expense of the company. Brian had been offered
financial reward for this, and it had been made
clear to him that he would lose his job if he
didn’t comply.
If the situation cannot be resolved via
internal action, explain what Brian should
do.
Brian should resign and state the reas
on for the resignation. Then report the
situation to the external regulators.
Matter A
The director of Company W, a listed company,
sold a substantial shareholding prior to the
announcement of worse than expected results for the company.
, identify the ethical threat to the client and recommend
an ethical safeguard, explaining why that safeguard is appropriate
Matter A
The ethical threat is basically one of self-interest.
The director is using price sensitive informatio
n to ensure that a loss is prevented by selling
shares now rather than after the announce
ment of poor results for the company.
One ethical safeguard would be a professional code of conduct that requires directors to
carry out their duties with integrity and therefore in the best interests of the shareholders.
The director would recognise that selling the shares would start the share price falling
already and this would not benefit the shareholders.
As a code it may not be effective – the direct
or could argue that selling shares prior to the
results was designed to warn shareholders of
the imminent fall in share price and was,
therefore, in their best interests.
An alternative course of action is to ban trading in shares a given number of weeks prior to
the announcement of company results (as ha
ppens in the USA where directors are not
allowed to sell shares during ‘blackout periods’).
This would be effective as share sales can
be identified and the directors could incur a penalty for breach of legislation.
Matter B
Mike is CEO of Company X and is also a non-executive director of Company Y and sits on the
remuneration committee of that company.
Graham is CEO of Company Y and is also a non-
executive director of Company X and sits on
the remuneration committee of that company.
Mike and Graham are good friends and play golf together every Saturday.
, identify the ethical threat to the client and recommend
an ethical safeguard, explaining why that safeguard is appropriate
The ethical threat appears to be a lack of independence and self-interest regarding the
setting of remuneration for these directors.
Not only do they have common directorships,
but they are also good friends. They could
easily vote for higher than normal remune
ration packages for each other on the
remuneration committees knowing that the other director will reciprocate on the other
remuneration committee.
In corporate governance terms, one ethical sa
feguard is to ban these cross-directorships.
The ban would be enforceable as the director
s of companies must be stated in annual
accounts, hence it would be easy to identify
cross-directorships. The ban would also be
effective as the conflict of interest would be removed.
In professional terms, the directors clearl
y have a conflict of interest. While their
professional code of ethics may mention this
precisely as an ethical threat, Graham and
Mike should follow the spirit of the code and resign their non-executive directorships.
This again would remove the threat
Matter C
The chairman of Company Z does
not like conflict on the board.
When a new director is appointed, the chairman
always ensures that the director’s family
members obtain highly paid jobs in the company
and, in the case of children, that they are
sponsored by Company Z through college.
Company Z is very profitable, although the board appears to be ineffective in querying the
actions of the chairman.
Required:
For each of the situations above, identify th
e ethical threat to the client and recommend
an ethical safeguard, explaining why that safeguard is appropriate
There is a clear ethical threat to the directors of Company Z.
They appear to be being bribed so that th
ey do not query the management style of the
chairman. The threat is that the directors w
ill simply accept the benefits given to them
rather than try to run Company Z in the interest
s of the shareholders. It is clearly easy to
accept that option.
Ethical safeguards are difficult to identify and their application depends primarily on the
desire of the directors to take ethical actions. In overall terms, the chairman does not
appear to be directly breaching ethical or
governance codes. The main safeguard is
therefore for the directors not to accept appo
intment as director to Company Z or resign
from the board if already a director.
The director could attempt to get the matter disc
ussed at board level, although it is unlikely
the chairman would allow this. Taking any other action is in effect ‘whistle blowing’ on all
the directors and has the negative impact that the director would also have to admit to
receiving ‘benefits’ from the company.
21 FREE HOLIDAYS
Sarah works for a firm of accountants called
B & Sons LLP and has recently introduced a
new client to the firm called Leigh Davis. Sh
e has also been appointed as the audit manager
for the client’s company A Tours Limited which specialises in luxury holidays in the
Caribbean. Leigh Davis was keen for Sarah to be appointed the audit manager for his
company as he has known Sarah for a long time
. He has recently offered Sarah free holidays
in the Caribbean in return for her not asking questions about some irregularities in his
company’s financial statements.
Required:
Analyse the above scenario from the perspective
of the law relating bribery. In particular,
explain which criminal offences the various parties have committed or are at risk of
committing.
21 FREE HOLIDAYS
The Bribery Act 2010 creates four offences:
1
bribing a person to induce or reward them to perform a relevant function improperly
2
requesting, accepting or receiving a bribe as a reward for performing a relevant
function improperly
3
using a bribe to influence a foreign official to gain a business advantage
4
a new form of corporate liability for fa
iling to prevent bribery on behalf of a
commercial organisation.
Leigh Davis is guilty of bribery (offence 1 above) under the Act as he is bribing Sarah by
offering her free holidays in return for her performing her function as an audit manager
improperly.
Sarah is guilty of receiving a bribe (offence 2 above) from Leigh Davis.
B & Sons LLP could also be guilty of bribery of
the Act for failing to prevent bribery (offence
4 above) unless they can show that they had in place ‘adequate procedures’.
Both Leigh and Sarah could receive a maximum jail sentence of up to ten years.
If B & Sons LLP is found guilty they could be liable for an unlimited fine.
KEN
Ken is involved in illegal activities, from whic
h he makes a considerable amount of money.
In order to conceal his gains from the illegal ac
tivities, he bought a bookshop intending to
pass off his illegally gained money as profits from the legitimate bookshop business.
Ken employs Los to act as the manager of the bookshop and Mel as his accountant to
produce false business accounts for the bookshop business.
Required:
(a)
Explain what is meant by money laundering, the different categories of offence and
possible punishments.
(b)
Analyse the above scenario from the perspective of the law relating to money
laundering. In particular, explain which criminal offences may have been
committed by the
various parties.
(a)
Money laundering is the process by which the proceeds of crime, either money or
other property, are converted into assets, wh
ich appear to have
a legitimate rather
than an illegal origin. The aim of the process is to disguise the source of the property,
in order to allow the holder to enjoy it free from suspicion as to its source.
The Proceeds of Crime Act 2002 (POCA)
seeks to control money laundering by
creating three categories of criminal
offences in relation to the activity.
ANSWERS TO EXAM – PART I PRACTICE TASKS
: SECTION 3
KAPLAN PUBLISHING
79
Laundering
Under the POCA, the three money laundering offences are
•
s327 – Concealing, disguising, converti
ng, transferring or removing criminal
property.
•
s328 – Taking part in an arrangement to facilitate the acquisition, use or
control of criminal property.
•
s329 – Acquiring, using or possessing criminal property.
These offences are punishable on conviction by a maximum of 14 years’
imprisonment and/or a fine.
Failure to report
The second category of offence relates to
failing to report a knowledge or suspicion
of money laundering.
It is an offence for a person who knows or
suspects that another person is engaged in
money laundering not to report the fact to the appropriate authority.
However, the offence only relates to indivi
duals, such as accountants, who are acting
in the course of business in the regulated sector.
The offences set out in these sections are punishable on conviction by a maximum of
five years’ imprisonment and/or a fine.
Tipping off
The third category of offence relates to ti
pping off. It is an offence to make a
disclosure which is likely to prejudice
any investigation under the Act.
The offences set out in these sections are punishable on conviction by a maximum of
five years’ imprisonment and/or a fine.
(b) Ken would therefore be guilty of the primary offence of money laundering as
explained in the section above.
Los is also guilty of an offence in relation
to the Proceeds of Crime Act as he is clearly
assisting Ken in his money laundering procedure. He is actively concealing and
disguising criminal property, and his arra
ngement with Ken facilitates the retention
of criminal property.
Mel is equally guilty under the same provisions
as Los, in that he is actively engaged
in the money laundering process,
by producing false accounts.
4 ADAM
Adam, an AAT member within the UK, works for
a firm of accountants, LOFT and Co, with a
range of clients.
Matter 1
Adam has found an error in a client’s tax affair
s. The client has refused to disclose this
known error, even after Adam has given notice of this error and an appropriate amount of
time has been allowed to take action.
Required:
State to whom Adam is obliged to report th
is refusal to and the information surrounding
it.
Matter 2
LOFT and Co recently billed a client, H Ltd,
£5,000 and were very surprised when they
received a cheque for £50,000 in
settlement of the invoice.
The Finance Director of H Ltd explained that it
was a mistake on his part but asked whether
LOFT and Co could send a cheque for the overpayment of £45,000 to Q Ltd, a different
company and not one of LOFT’s clients.
Required:
Discuss whether or not LOFT and Co
should agree to the payment.
ADAM
Matter 1
Adam is obliged to report this refusal to di
sclose and the information surrounding it to the
firm’s Money Laundering Reporting Officer (MLRO).
Matter 2
This scenario also gives grounds for suspicio
n of money laundering. Why doesn’t the client,
H Ltd, simply want LOFT to repay them and then it up to them whether they want to pay
anything to Q Ltd? Is it to make funds difficult
to trace, so ‘dirty cash’ becomes a nice clean
cheque from a reputable accounting firm?
Any overpayment by a customer should be th
oroughly investigated by a senior member of
finance function staff and only repaid to the cust
omer once it has been established that it is
right/legal to do so.
Similarly the request to pay a third party should be scrutinised before any payment is
agreed to. Without further information the tr
ansaction does not make commercial sense.
Unless investigations satisfy any concerns rais
ed, then LOFT should refuse the payment and
the MRLO should fill in a Suspicious Activity Re
port (SAR) to be sent to the NCA (previously
known as SOCA).
DONNA
Donna, an accountant in practice, has recently
been working on the tax computations for a
client, Stoppard plc.
In preparing this year’s tax returns Donna realised that she made an error preparing the last
tax returns which resulted in an underpayment
. She told the Finance Director of Stoppard
plc about the error but he is refusing to tell the HMRC, claiming ‘she made the mistake, not
him’.
Indicate whether the following statements are true or false.
Funds retained after discovery of a tax error amount to money
laundering by Stoppard plc
Donna should report the matter to the National Crime Agency
(NCA)
Donna needs to make an authorised disclosure to the National
Crime Agency NCA
all true
Funds dishonestly retained after discovery of a tax error become criminal property so their
retention amounts to money laundering by Stoppard plc.
As she is now aware of the error, Donna should
report to the National Crime Agency (NCA)
that she suspects Stoppard plc of money la
undering because it has refused to notify the
matter to HMRC. She will be protected from a
claim for breach of confidentiality when
making this report.
Knowing she may have been involved in money laundering, Donna needs to make an
authorised disclosure to NCA which may help pr
otect her from a charge that she herself, in
making the error, was engaged in money laundering.
