Ethics Ch 2

Question 1

Self-interest threat to fundamental principles

Answer 1

Threat caused by a financial relationship between the accountant and a client or an employer

Question 2

Self-review threat

Answer 2

Threat caused by an accountant having to review or evaluate a previous judgement he/she has made

Question 3

Familiarity threat

Answer 3

Threat caused by a close family relation or close friend of the accountant being a key member of the client staff or a supplier, customer of the accountants employer

Question 4

Intimidation threat

Answer 4

Real or perceived threat caused by a client exerting undue pressure on an accountant in practice or a dominant employer attempting to influence an accountant in business

Question 5

Advocacy threat

Answer 5

Threat caused by an accountant going beyond an advisory role and publicly supporting the client in some way

Question 6

These may occur where a financial or other interest will inappropriately influence the accounts judge ment or behaviour

Answer 6

Self interest threat

Question 7

These may occur when an accountant has to reevaluate a judgement or date that they have previously made

Answer 7

Self review threat

Question 8

Occurs when, because of a close or personal relationship, an accountant becomes too sympathetic to the interests of others

Answer 8

Familiarity threats

Question 9

Occur when an accountant may be deterred from acting objectively because of real or perceived threats

Answer 9

Intimidation threats

Question 10

Occur when an accountant promotes a position or opinion (normally of a client) to the point that their objectivity maybe be compromised in the future

Answer 10

Advocacy threat.

Question 11

Financial interest

Answer 11

(Self interest threat) where an accountant is a shareholder in a client company they would have a direct financial interest.

If it was the clients close relative or husband/wife this is an indirect financial interest

This is a threat to his/her objectivity.

Question 12

Loan to or from the client

Answer 12

(Self interest threat) Affects objectivity as they will be financially involved with the client.

Question 13

Financial interest in a joint venture with the client

Answer 13

(Self interest) this effects the accountants objectivity as they are financially involved with the client.

Question 14

Substantial fee income from a single client

Answer 14

(Self interest threat) if a fee is a large percentage of the total gross fee, this threatens the accountants objectivity as the accountant may feel they can’t afford to lose the client.

Question 15

Contingent fees relating to an assurance client

Answer 15

(Self interest) a contingent fee could influence the accouant. For example if the accountant is offered more for manipulating the profits to be less than a certain amount. This could effect their objectivity

Question 16

Finding significant errors.

Answer 16

(Self interest threat) Sometimes an account will have to review their/ member of their staffs work. If an error is found and highlight this could make them self’s seem incompetent and effect the future relationship with the client. However if the error is not highlighted and is not reported to the client, this will threaten the accountants professional behaviour and professional competence and due care

Question 17

Where an accountant discovers a significant error when revising work they have carried out. They may decide not to highlight the error.

Answer 17

Self review

Question 18

Where an accountant is asked to report on the operation of financial systems after being involved in the design and implementation of these systems

Answer 18

Self review

Question 19

How can a self review threat be prevented

Answer 19

Ensure that work is reviewed by another accountant in the practice

Question 20

what is Consultancy services

Answer 20

Management consultancy (help on how to run a company more effectively) and tax advice

Question 21

What should you do when giving tax advise and management consultancy

Answer 21

• make recommendations
• do NOT make management decisions
• do NOT take responsibility for management decisions

Accountants should avoid reporting on management decisions which they have recommended

Question 22

You are see to support the clients point of view publicly. Even in a court of law

Answer 22

Advocacy threat.

Question 23

If an accountant has been involved in the prep of staff bonus calculations and the involved with the decision making who should receive them

Answer 23

Self review plus if the accountant is eligible for a bonus this could be a self interest threat too,

Question 24

If an accountant is offered a gift, this could make them feel obliged to act a certain way to confirm their wishes as a thank you gift

Answer 24

Familiarity threat

Question 25

What is a consultancy service

Answer 25

Professional practice that gives expert advice within a particular field

Question 26

Independence

Answer 26

Auditors should be independent at all times. Not subject to anybody else’s authority

Question 27

Should gifts be accepted

Answer 27

The difference between what constitutes a gift and what constitutes bribery.

If work with a client has ended the a small gift is acceptable. The gift should really be modest, ie not money/ gift voucher. Not a gift that would bring your independence into question.
If a gift is not modest, it should be returned with a thank you and explanation as to why it cannot be accepted.

Eg; Receiving tickets for a game is a gift. Being offered to go to the game with a client is seen as entertainment

Question 28

Integrity can pose which threats

Answer 28

Self interest and familiarity threat

Question 29

Objectivity can pose which threats

Answer 29

All. Self interest, familiarity, intimidation, self review, advocacy

Question 30

Professional behaviour poses which threats

Answer 30

Self interest, familiarity, and self review

Question 31

Professional competence and due care poses which threats

Answer 31

Self interest, familiarity, and self review

Question 32

Confidentiality poses which threats

Answer 32

Self interest, familiarity, and intimidation