Ethics Flashcards
(82 cards)
1
Q
Define Integrity
A
Straightforward and honest in all professional and business relationships. Implies fair dealing and truthfulness.
2
Q
Define Objectivity
A
Not allow bias, conflict of interest or undue influence of others to override professional or business judgements.
3
Q
Define Professional Competence and Due Care
A
A continuing duty to maintain professional knowledge and skill at the level required to provide a competent professional professional service. Act diligently in accordance with applicable technical and professional standards when providing professional services.
4
Q
Define Confidentiality
A
Not disclose confidential information to third parties without proper and specific authority unless there is a legal duty to disclose. Not use confidential information for personal advantage or third party advantage.
5
Q
Define Professional Behaviour
A
Comply with relevant laws and regulations and avoid any action that discredits the profession.
6
Q
Name the 5 Threats
A
Self-interest Self-review Advocacy Familiarity or Trust Intimidation
7
Q
What are safeguards?
A
May eliminate or reduce threats to an acceptable level.
8
Q
What are the two categories of safeguards
A
1) safeguards created by the profession, legislation or regulation
2) safeguards in the work environment
9
Q
Name some safeguards created by the profession, legislation or regulation
A
1) educational, training and experience requirements for entry into the profession
2) CPD requirements
3) corporate governance regulations
4) professional standards
5) professional or regulatory monitoring and disciplinary procedures
6) external review of reports, returns, communications or information carried out by a legally empowered third party
10
Q
Name some safeguards in the work environment
A
1) system of corporate oversight or other oversight structures
2) ethics and conduct programmes
3) recruitment procedures emphasising importance of employing high calibre competent staff
4) strong internal controls
5) appropriate disciplinary processes
6) leadership stressing the importance of ethical behaviour and the expectation that employees with act ethically
7) policies and procedures to implement and monitor the quality of employee performance
8) timely communication of policies and procedures, including updates, and training and education of such
9) policies and procedures to empower and encourage employees to communicate to seniors on ethical matters without fear of retribution
10) consultation with another appropriate professional
11
Q
Name the steps to dealing with ethical conflicts
A
1) Gather information
2) Analysis
3) Action
12
Q
What are the 3 Statutory regulated (‘reserved’) functions of accountancy
A
1) External audit
2) Investment and corporate finance advice, regulated by Financial Conduct Authority (FCA)
3) Insolvency practice
13
Q
Define public interest
A
The collective wellbeing of the community of people and institutions the professional accountant serves.
14
Q
What are the six objectives of the accountancy profession
A
- The mastering of particular skills and techniques acquired through learning and education and maintained through CPD
- Development of an ethical approach to work as well as to employers and clients, This is acquired by experience and professional supervision under training and is safeguarded by strict ethical and disciplinary guidelines.
- Acknowledgement of duties to society as a whole in addition to duties to the employer or the client.
- An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest.
- Rendering services to the highest standards of conduct and performance
- Achieving acceptance by the public that members provide accountancy services in accordance with these high standards and requirements.
15
Q
Define and explain the role of IFAC
A
IFAC is The International Federation of Accountants. Its role is to protect the public interest by developing high quality international standards, promoting strong ethical values and encouraging quality practice.
16
Q
Define and explain the role of IESBA
A
The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide.
The board also provides adoption and implementation support, promotes good ethical practices globally, and fosters international debate on ethical issues faced by accountants.
17
Q
Define and explain the role of IAASB
A
The International Audit and Assurance Standards Board (IAASB) is responsible for developing setting and promoting International Standards on Auditing (ISAs)
18
Q
Define and explain the role of FRC
A
The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.
The FRC issues UK versions of ISAs and IFRSs where appropriate.
19
Q
Define and explain the role of IASB
A
The International Accounting Standards Board (IASB) is an independent body responsible for developing, setting and promoting International Financial Reporting Standards (IFRSs).
20
Q
What is the Conduct Committee
A
The Conduct Committee is part of the FRC and provides independent oversight of professional disciplinary issues, together with oversight of the regulation of accountants and actuaries in the UK.
21
Q
Which accountancy bodies sponsor the AAT
A
CIPFA
ICAEW
CIMA
ICAS
22
Q
Which accountancy bodies are included in the Consultative Committee of Accountancy Bodies (CCAB)
A
ICAEW ICAS CAI ACCA CIPFA
23
Q
What are the aims of the Financial Conduct Authority (FCA)
A
- protect consumers
- ensure the financial services industry remains stable
- promote healthy competition between financial services providers
24
Q
What is the CPD cycle
A
Assess
Plan
Action
Evaluate
25
What are the disciplinary penalties of misconduct
For a Full or Fellow Member:
- Be expelled
- Have membership suspended
- Have licence withdrawn
- Be declared ineligible for a licence
- Have fellow member status removed (if applicable)
- Be reprimanded or severely reprimanded
- Give a written undertaking to refrain from continuing or repeating the misconduct
For a student or affiliate member:
- Be declared unfit to become a full member
- Have student registration withdrawn
- Be reprimanded or severely reprimanded
- Be fined, subject to a maximum level
- Be debarred from sitting assessments for a period of time
- Have a relevant assessment result declared null and void
- Give a written undertaking to refrain from continuing or repeating the misconduct
26
What is operational risk
The risk of losses resulting from inadequate or failed internal processes, people and systems, or external events.
27
Name some examples of operational risk
Reputational Risk
Litigation Risk
Process Risk
28
Define money laundering
The process by which criminally obtained money or other assets are exchanged for 'clean' money or other assets with no link to their criminal origins.
29
Define criminal property
Property which was obtained as a result of criminal conduct and the person knows or suspects that it was obtained from such conduct.
30
What does UK anti-money laundering legislation (AMLL) consist of
- The Proceeds of Crime Act 2002 as amended (POCA)
- The Money Laundering Regulations 2007 (MLR)
- The Terrorism Act 2000 as amended (TA)
31
What are the specific money laundering and terrorist financing offences
- s327 - Concealing, disguising, converting, 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
32
What is the penalty for money laundering
Up to 14 years imprisonment and/or an unlimited fine
33
What additional offences are punishable under anti-money laundering legislation and their penalties
Failure to Report
Tipping off
Both punishable by up to 5 years imprisonment and/or an unlimited fine
34
What must be included in a Suspicious Activity Report (SAR)
- The identity of the suspect (if known)
- The information or other matter on which the knowledge or suspicion of money laundering is based
- The whereabouts of the criminal property (if known)
- Additional information that identifies other parties involved or connected
35
What are the 3 elements of Customer Due Diligence (CDD)
1 Find out who the client claims to be – name, address, and date of birth – and obtain evidence to check that the client is as claimed.
2 Obtain evidence so the accountant is satisfied that he or she knows who any beneficial owners are. This means beneficial owners must be considered on an individual basis. Generally, a beneficial owner is an individual who ultimately owns 25% or more of the client or the transaction property.
3 Obtain information on the purpose and intended nature of the transaction.
36
When must CDD be applied
* When establishing a business relationship.
* When carrying out an occasional transaction (i.e. involving €15,000 or the equivalent in sterling or more). •Where there is a suspicion of money laundering or terrorist financing.
* Where there are doubts about previously obtained customer identification information.
37
What is whistleblowing
Whistleblowing means disclosing information that a worker believes is evidence of illegality, gross waste, gross mismanagement, abuse of power, or substantial and specific danger to the public health and safety.
38
What is the Public Interest Disclosure Act (PIDA) 1998
The Act (which has also been referred to as ‘the Whistleblowers’ Charter’) gives protection where you have made a ‘qualifying disclosure’ (i.e. disclosure of information which you reasonably believe shows that a criminal offence, breach of a legal obligation, miscarriage of justice, breach of health and safety legislation or environmental damage has occurred, is occurring or is likely to occur).
39
What are the four offences under The Bribery Act (2010)
1 Bribing a person to induce or reward them to perform a relevant function improperly (active bribery).
2 Requesting, accepting or receiving a bribe as a reward for performing a relevant function improperly (passive bribery).
3 Using a bribe to influence a foreign official to gain a business advantage.
4 Failing to prevent bribery on behalf of a commercial organisation.
40
What is the penalty for bribery?
Up to 10 years imprisonment and/or and unlimited fine.
41
What defence can a commercial organisation supply if prosecuted under The Bribery Act (2010)
That it ‘had in place adequate procedures designed to prevent persons associated [with the company] from undertaking such conduct’
42
What is fraud?
Fraud is an intentional act involving the use of deception to obtain an unjust or illegal advantage – essentially ‘theft by deception’.
43
What are the three offences under The Fraud Act (2006)
* Fraud by false representation - Is defined by Section 2 of the Act as a case where a person makes 'any representation as to fact or law ... express or implied' which they know to be untrue or misleading.
* Fraud by failing to disclose information - Is defined by Section 3 of the Act as a case where a person fails to disclose any information to a third party when they are under a legal duty to disclose such information.
* Fraud by abuse of position - Is defined by Section 4 of the Act as a case where a person occupies a position where they are expected to safeguard the financial interests of another person, and abuses that position.
44
How can a company employ a fraud strategy
* An anti-fraud culture - Where minor unethical practices are overlooked, for example, expenses or time recording, this may lead to a culture in which larger frauds occur. High ethical standards bring long term benefits as customers, suppliers, employees and the community realise they are dealing with a trustworthy organisation. •Risk awareness - Fraud should never be discounted, and there should be awareness among all staff that there is always the possibility that fraud is taking place. It is important to raise awareness through training programmes. Particular attention should be given to training and awareness among those people involved in receiving cash, purchasing and paying suppliers. Publicity can also be given to fraud that has been exposed. This serves as a reminder to those who may be tempted to commit fraud and a warning to those responsible for the management of controls.
* Whistleblowing - Fraud may be suspected by those who are not personally involved. People must be encouraged to raise the alarm about fraud.
* Sound internal control systems - Sound systems of internal control should monitor fraud by identifying risks and then putting into place procedures to monitor and report on those risks.
45
What is the Theft Act 1968
Someone is guilty of theft if he/she ‘dishonestly appropriates property belonging to another with the intention of permanently depriving them of it’.
46
What are the principles of Data Protection
* Data should be processed fairly and lawfully.
* Data should be obtained only for specified and lawful purposes.
* Data should be adequate, relevant and not excessive. •Data should be accurate and, where necessary, kept up to date.
* Data should not be kept longer than is necessary.
* Data should be processed in accordance with your rights.
* Data should be kept secure.
* Data should not be transferred to other countries without adequate protection.
47
all users of computers who are intending to hold personal data are required to register and supply which details:
* Name and address of data user.
* Description of, and purpose for which, data is held. •Description of source data.
* Identification of persons to whom it is disclosed.
* Names and non-UK countries to which transmission is desired.
* Name of persons responsible for dealing with data subject enquiries.
* If an organisation fails to register, this is a criminal offence, although compensation is through a civil action.
48
Which organisation maintains a public register of data controllers.
The Information Commissioner’s Office (ICO)
49
What safeguards can an accountant implement when taking on new clients
* Obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance.
* Securing the client’s commitment to improve corporate governance practices or internal controls.
* Ensuring that any concerns are addressed by way of a letter of engagement.
50
Give some examples of personal self-interest threats
* Holding a financial interest in a client, such as owning shares
* Having undue dependence on total fees from a client •Receiving excessive hospitality and gifts from a client.
51
Give some examples of familiarity threats to independence
•Having a close business relationship with a client •Having personal and family relationships with a client.
52
Name some threats to objectivity due to conflict of interest
* A member in practice competes directly with a client.
* A member in practice has a joint venture with a major competitor of a client.
* A member in practice performs services for clients whose interests are in conflict.
* A member in practice performs services for clients who are in dispute with each other in relation to the matter or transaction in question.
53
What steps can members take to assist them in managing their liability.
•Identifying the terms of the engagement
Before carrying out any work for a client a member should ensure that the exact duties to be performed and in particular any significant matters to be excluded. •Defining the specific tasks to be undertaken
A member should make clear in the letter of engagement the extent of the responsibilities he or she agrees to undertake, making particular reference to any information supplied by the client and relied on as a basis for the work, for which the client or others are responsible. Members should guard against the situation where they undertake to perform particular tasks, then during the course of the work find that it is impossible or unnecessary to perform all the tasks originally envisaged but do not agree with the client the change in the scope of the work.
•Defining the responsibilities to be undertaken by the client A member should make it clear in the engagement letter where responsibilities are to be undertaken by the client. For example, the client could reasonably be expected to check reports prepared by the member for completeness or accuracy before any use is made of it involving third parties.
•Specifying any limitations on the work to be undertaken In giving informal advice at the request of a client, or advice which must necessarily be based on incomplete information, a member should make it clear that such advice is subject to limitations and that consideration in depth may lead to a revision of the advice given.
•Liability disclaimers - A member may find it advantageous to include in documents a clause disclaiming liability. Such a clause cannot however be relied on in all circumstances. For example, a court might hold that such a disclaimer represented an unreasonable exclusion of liability.
•Professional Indemnity Insurance - All members in practice need to maintain an adequate level of Professional Indemnity Insurance cover. Professional Indemnity Insurance is also strongly recommended for student members who undertake self-employed work.
54
Name the key ethical issues when undertaking tax clients
* A member should not hold out to a client or an employer the assurance that any tax return prepared and tax advice offered are beyond challenge.
* A member should only undertake taxation work on the basis of full disclosure by the client or employer. The member, in dealing with the tax authorities, must act in good faith and exercise care in relation to facts or information presented on behalf of the client or employer.
55
When should a member not be associated with a tax return
When there is reason to believe that it:
•contains a false or misleading statement
•contains statements or information furnished recklessly or without any real knowledge of whether they are true or false
•omits or obscures information required to be submitted and such omission or obscurity would mislead the tax authorities.
56
What happens when a client dishonestly underpays tax
Funds dishonestly retained after discovery of an error or omission become criminal property and their retention amounts to money laundering by the client or employer.
57
What are client monies
Client monies are any funds, or form of documents of title to money, or documents of title which can be converted into money that an accountant in practice holds on behalf of his or her client.
58
When can client monies not be held by an accountant
* Where an accountant in practice knows or suspects the monies represent criminal property or are to be used for illegal activities.
* Where there is no justification for holding the monies, for example the monies do not relate to a service the accountant in practice provides.
* Where a condition on the accountant in practice’s licence or registration prohibits dealing with client monies.
59
What conditions apply when holding client monies
* The monies must be kept separately from personal monies or monies belonging to the practice.
* The monies must only be used for the purpose for which they were intended.
* The monies must be held in the same currency that it was received unless the client has given instructions to exchange into another currency.
* The accountant must ensure that the client has been identified and verified on a risk-sensitive basis before holding monies on their behalf.
* The accountant must be ready at all times to account for those monies or any income, dividends or gains generated on them, to the client or any persons entitled to such accounting.
60
When may disclosure of confidential information be appropriate
(a) where permitted by law and authorised by the client or the employer
(b) where required by law, for example:
(i) provision of evidence in the course of legal proceedings or
(ii) disclosure to the appropriate public authorities (for example, HMRC) of infringements of the law that come to light or
(iii) disclosure of money laundering or terrorist financing.
(c) where there is a professional duty to disclose, which is in the public interest, and is not prohibited by law. Examples may include:
(i) to comply with the quality review of an IFAC member body
(ii) to respond to an inquiry or investigation by the AAT (iii) to protect the member’s professional interests in legal proceedings
(iv) to comply with technical standards and ethics requirements.
61
What points should you consider when deciding whether to disclose confidential information
(i) whether the interests of all parties, including third parties, could be harmed by disclosure even though the client consents to the disclosure
(ii) whether all the relevant information is known and substantiated, to the extent that this is practicable
(iii) the type of communication or disclosure that may be made and by whom it is to be received; in particular, members should be satisfied that the parties to whom the communication is addressed are appropriate recipients.
62
What should the setting of fees take into account
* the skill and knowledge required
* the level of training and experience required to perform the services
* the time required by each person engaged in performing the services, and
* the degree of responsibility that it entails.
63
When advertising what should be taken into account
```
that comparisons to other firms:
•are objective and not misleading
•relate to the same services
•are factual and verifiable, and
•do not discredit or denigrate the practice or services of others.
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64
What is The UN’s Bruntland Report's definition of sustainability
Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
65
What is The Sustainable Business Network's definition of sustainability
A sustainable business is a business that offers products and services that fulfil society’s needs while placing an equal emphasis on people, planet and profits.
66
What is the European Union (EU) website's definition of sustainability
Sustainable trading is a trading system that does not harm the environment or deteriorate social conditions while promoting economic growth.
67
List some unsustainable business practices
Environmental
• deforestation
•the use of non-renewable resources including oil, gas and coal
•long term damage from carbon dioxide and other greenhouse gases.
Social
•anything contributing to social injustice
•rich consuming countries and poorer manufacturing countries
•rich companies exploiting third world labour as cheap manufacturing.
Economic
•strategies for short term gain (e.g. cutting staff costs to increase reported profits)
•paying bribes (also unethical and often illegal) •underpayment of taxes.
68
Name some risks of unsustainable business practices
Environmental
•Deterioration of the environment and loss of some resources.
•Climate change – one of the greatest threats facing mankind.
Social
•Social sustainability encompasses human rights, labour rights, social justice and supporting the capacity of current and future generations to create healthy and liveable communities.
•Failure results in social injustice, infringement of human rights and a widening gap between the world’s richest and poorest countries.
Economic
•There are limits to economic growth as the earth is a finite system.
•Only through sustainable development can a firm ensure long term growth.
69
How can sustainability boost profits
* Sustainability may help directly increase sales of products and services. For example, some customers may buy your product because a label on it says it has been manufactured using extra-safe working conditions for the labour force, or because it is Fair-trade.
* It may result in cost savings. For example, lower energy usage may reduce costs and increase profit.
* It may create positive PR and thus contribute to business in the long run. While sustainability may not enhance product sales right away, if it enhances the image of a company which in turn contributes to better business in the long-term, then it’s worth it.
* Avoiding fines for pollution. The Deepwater Horizon oil spill in 2006 resulted in BP being fined $4.5 billion by the US Department of Justice. However, it is estimated that the total cost to date is in excess of $42 billion in terms of criminal and civil settlements and payments to a trust fund
70
What is Corporate Social Responsibility (CSR)
CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.
71
What is Triple Bottom Line (TBL) reporting
TBL accounting expands the traditional company reporting framework to take into account environmental and social performance in addition to financial (economic) performance.
72
How can a company implement TBL
Planet
•A TBL company will try to reduce its 'ecological footprint' by managing resource consumption and energy usage and limiting environmental damage. For example, production processes will be efficient in terms of resource use and environmentally-damaging outputs such as toxic waste eliminated.
•The drive for environmental sustainability also means that TBL companies will not be involved in resource depletion. For example, fish stocks are maintained at sustainable levels and timber use is balanced by replanting to retain the resource into the future.
People
•A TBL business will ensure workers’ rights are respected. For example, pay its workers fair wages, maintain a safe working environment and not use child labour.
•Similarly, the company would promote its surrounding community, for example by providing educational opportunities or a safe community to live in. For example, the Bourneville estate established by Cadbury the chocolate maker in England.
Profit
•A TBL company will try to balance the profit objective with the other two elements of the TBL.
73
What are two problems with TBL reporting
- It can be difficult to measure the three factors concerned.
- There are limits how far firms allow sustainability to impact decision making across the organisation.
74
What are the roles and responsibilities of a finance professional in relation to sustainability (4)
Creating an ethics-based culture: Finance professional can help in creating and promoting an ethics-based culture that discourages unethical or illegal practices, including money laundering, terrorist financing, fraud, theft, bribery, non-compliance with applicable regulations, bullying and short-term decision-making.
Championing sustainability: Finance professionals should take the initiative in raising awareness of social responsibility and the need to consider the impact of decisions and actions on sustainability. However, they need to remain objective while doing this.
Risk management: Risk management is a key aspect of good corporate governance. For many firms this includes assessing risks such as the actions of competitors, the risk of machine breakdown, bad publicity, terrorist attacks and so on. However, this needs to be extended to include evaluating and quantifying reputational and other ethical risks. In particular accountants can help highlight the risks of not acting sustainably.
Performance management: Performance management and decision making are areas that traditionally involve accountants and other finance professionals. As discussed above, accountants could encourage the firm to switch to ‘triple bottom line reporting’ or TBL.
75
Which International Accounting Standard deals with the subsequent expenditure on assets
IAS 16: Items should only be capitalised
1) Where it enhances the value of the asset
2) Where a major component of the asset is replaced or restored
3) Where it is a major inspection or overhaul of the asset
76
What is the accruals concept
Income and expense should be recognised as and when it is earned or incurred not when the cash is received or paid
77
What is the prudence concept
An organisation should recognise future losses as soon as it becomes aware of their existence
78
Who/what are the primary users of final accounts
```
Shareholders
Lenders
Employees
Other Creditors
Government agencies i.e. HMRC
Management
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79
What are the underlying assumptions (Conceptual Framework) of accounting principles
Going concern basis: Assumes that the entity will continue in operation for the foreseeable future
Accruals basis: Transactions should be reflected in the financial statements for the period in which they occur.
80
What are the two fundamental qualitative characteristics of useful information
Relevance: Capable of influencing the decisions of users
| Faithful representation: Complete, neutral and free from error
81
What are the four enhancing qualitative characteristics of useful information
Comparability: It should be possible to compare an entity over time and with similar information about other entities
Verifiability: If information can be verified, this provides assurance that it is both credible and reliable
Timeliness: Information should be provided within a timescale suitable for decision-making purposes
Understandability: Information should be understandable to those who may want to review and us it. This can be facilitated through appropriate classification, characterisation, and presentation of information.
82
What are the main sources of regulation governing company accounts
Companies Act 2006: Applies to all UK companies
International Accounting Standards Board (IASB) and its associated bodies who issue International Financial Reporting Standards (IFRS Standards)
IAS 1: overall requirements for financial statements for organisations adopting IFRS standards, including structure and minimum requirements
IAS 2: Inventory is valued at lower of cost and net realisable value
IAS 16: Outlines accounting treatment for most types of property, plant and equipment.
