Ethics for Accountants

Transcription

1 Osborne Books Tutor Zone Ethics for Accountants Chapter activities Osborne Books Limited, 06

2 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e Principles of professional ethics. Which global body issues a code of ethics on which all the professional accounting bodies in the UK base their ethical codes?. List the fundamental principles of professional ethics Complete the following sentence by selecting the appropriate option from the list below: When a member of the accounting profession is straightforward and honest in performing professional work he/she is complying with the fundamental ethical principle of. Professional behaviour Professional competence and due care Integrity

3 c h a p t e r a c t i v i t i e s 3.4 Simone is a qualified accountant who works for a medium-sized accounting practice. The firm has recently taken on a new client that is planning to build a large supermarket directly opposite Simone s house and needs professional help completing its business plan for submission to the bank. Simone has actively campaigned against permission being given to build the supermarket. If Simone is part of the team that provides advice to this client which of her fundamental ethical principles will be most threatened? Select one option. (c) (d) Integrity Professional competence and due care Objectivity Professional behaviour.5 Which one of the following is not one of the fundamental ethical principles? Select one option. (c) (d) Confidentiality Objectivity Diligence Professional behaviour

4 4 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e Threats and safeguards to fundamental ethical principles. Brian is a professional accountant who works for a small accounting practice in Rochester. A potential new client, Overten Ltd, has recently asked him to provide professional advice on the possible take-over of Undernine Ltd. Overten Ltd are not aware of the fact that Undernine Ltd is a client of the firm that Brian works for. Explain which two of Brian s fundamental ethical principles are most threatened by this situation. Explain whether, in these circumstances, Brian should agree to provide the professional advice to Overten Ltd?. Lydia is a qualified accountant who works for Ariel & Arthur. She has recently returned from an inheritance tax training course to find the following note on her desk from Jacob Ariel, one of the partners at the firm. Hi Lydia, I hope the training course was useful and that you enjoyed the opportunity to learn new skills. As you are now the most up-to-date member of staff on inheritance tax planning I have decided to give you sole responsibility for a new client, John Reynolds. You will be expected to complete his personal tax return and also provide him with specific advice on inheritance tax planning. I have every faith in you, Lydia, and if you do a good job there may be a promotion for you in the near future. If you need any further guidance there are several tax books on the shelf in my office that you are welcome to use. Thanks Jacob

5 c h a p t e r a c t i v i t i e s 5 The course that Lydia attended on inheritance tax did not cover inheritance tax planning and Lydia has never previously done any work of this type. If Lydia takes on the sole responsibility for John Reynolds explain which of her fundamental ethical principles is most threatened by this situation. What type of threat does Lydia face to her fundamental ethical principles?.3 Grace is a professional accountant who works in practice. One of her clients, Morden Ltd, has recently launched a new product which they claim reduces the amount of washing powder needed for each washing cycle by 0%. The client has decided that initially it will market this new product locally and if it proves to be a success it will then advertise nationally. The owner of Morden Ltd has offered Grace a year s supply of the product for her and her family in return for a written testimonial for the company s website, recommending the product. Explain the two threats that Grace faces to her fundamental ethical principles. If Grace agrees to write the testimonial for the website explain which of her fundamental principles is most threatened by this situation. (c) If Grace uses the product and finds that it does reduce the amount of washing powder required, explain whether she should accept the gift of the year s supply of the product.

6 6 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e.4 Pearce works for Root & Branch, a medium-sized firm of accountants. He is currently away on a three-week holiday cycling across China. A colleague has been monitoring his s while he is away and has found one marked as high priority. The is as follows: Hi Pearce, I haven t heard from you since our discussion about the possibility of you providing me with the management accounts for one of your other clients, Rufus Pet Supplies Ltd. As you know we are in direct competition with Rufus Pet Supplies Ltd and this would be very useful information to have. The family business is not looking very healthy at the moment and your Auntie Gill and I are relying on you to help us with this so that we will have a better idea of what we are competing with. Will we see you on Sunday for lunch at your Mum and Dad s house? Auntie Gill sends her love. Best wishes (Uncle) George George Hamersley Owner Perfect Pets Ltd Explain which two of Pearce s fundamental ethical principles are most threatened by the situation detailed in George Hamersley s . Identify what type of threat Pearce faces to his fundamental ethical principles.

7 c h a p t e r a c t i v i t i e s 7.5 Damien King works for Travis & Vaughn, a medium-sized accounting practice in Westtown. Damien has recently completed an assignment for one of the firm s clients, Melissa, who is delighted with the work he has carried out. Melissa s husband is the chairman of the local football club and as a thank you to Damien for all his hard work Melissa has offered Damien two season tickets to watch Westtown United. Explain which of Damien s fundamental principles is most threatened in this situation. Explain whether Damien should accept the offer of the two season tickets from his client, Melissa.

8 8 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 3 Objectivity and the resolution of ethical conflict 3. The Code of Ethics issued by the International Ethical Standards Board for Accountants (IESBA), which is followed by all the professional accounting bodies in the UK, sets out strict rules that govern the ethical decisions made by professional accountants. Explain whether this statement is true or false. 3. Nadine is an accountant who works for Upwell Ltd. She is currently training Freddie who has recently joined the firm as a trainee accountant. Nadine explains to Freddie that on occasions there may be a conflict between his own personal values and the way in which Upwell Ltd acts. Nadine asks Freddie what particular personal values he has. He replies fairness and transparency. For each of the following examples identify whether there is a conflict between the behaviour of Upwell Ltd s management and Freddie s personal values. Example of behaviour by Upwell Ltd s management Management are given two weeks extra holiday compared to other staff. Customers can view the supply chain for all products sold on Upwell Ltd s website. Freddie s personal value Fairness Transparency Is there a conflict to resolve? Yes/No Yes/No

9 c h a p t e r a c t i v i t i e s Toni is a professional accountant who works for Maddox & McGarry, a medium-sized firm of accountants. She has recently finished an assignment for a client, Dan Seagrave, who owns a very expensive restaurant in the local town. Toni has received the following from Dan: Hi Toni, I hope all is well with you and that you have recovered from all your hard work on our end of year accounts; as you know the bank was very keen to get those figures. I would like to offer you and your team at Maddox & McGarry a complimentary meal at the restaurant as a thank you. If you enjoy the meal then perhaps we can have a chat about whether you would like to have your wedding reception here. As I said I would happily offer you a 50% reduction on the price in recognition of our excellent business relationship. I look forward to seeing you at the restaurant soon. Best wishes, Dan Explain which of Toni s fundamental ethical principles may be threatened by these offers. In this situation explain the best course of action for Toni to take.

10 0 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 3.4 Sandeep is a professional accountant who has worked for Passandra & Co for several years. Sandeep is generally seen as the firm s expert on the retail sector and is the manager of the assignments for several retail businesses in the local area. A large retail premises in a prime location on the high street has recently become vacant and two of Sandeep s clients are keen to acquire it. Each client has asked Sandeep to advise on the acquisition. They are each aware of the fact that the other is interested in the premises. Neither of the clients are happy for Sandeep to advise both firms in relation to the bid and each one is prepared to pay a premium for exclusive advice. Explain which two of Sandeep s fundamental principles are most threatened by the fact that both clients wish to acquire the vacant premises. Explain what process Sandeep can go through to resolve the ethical conflict he has in deciding how to deal with this situation. (c) If Sandeep decides to act for one of the clients explain two issues that he must consider when carrying out the assignment.

11 c h a p t e r a c t i v i t i e s 3.5 List the four key Bribery Act 00 offences. 3 4 What is the maximum penalty if a person is found guilty of the criminal offence of bribery? 3.6 Boyd is a professional accountant who works in the finance department of Whizzy Interactive Ltd, a firm that develops and copyrights innovative interactive computer games for children. Due to a mix up with names, Boyd has been copied in on an conversation between Josh, one of the partners in the business, and another member of staff, Lloyd. In the s Josh appears to be encouraging Lloyd to carry out industrial espionage with the intention of copying a very successful new game that is being developed by a competitor. Explain the conflict of loyalties that Boyd faces in this situation. Explain what options Boyd has to deal with this conflict of loyalties.

12 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 4 Professional and technical competence 4. State the three main ways that a professional accountant can keep up-to-date with technical changes Charmaine has recently qualified as a professional accountant. She works in the accounts department of Realgo Ltd. She has been asked by the financial controller to prepare some complex goodwill calculations on a recent takeover that the business has carried out. Charmaine has not carried out work like this before. State two safeguards that Charmaine should consider to reduce the threats to her fundamental ethical principle of professional competence and due care.

13 c h a p t e r a c t i v i t i e s Lucy is a professional accountant in practice. Her client, Hughie, believes that Lucy has acted outside her professional competence when providing him with specific accounting advice. Hughie believes that as a direct result of this advice he has incurred significant costs that could have been avoided had he been advised correctly. If it is proved that Lucy has acted outside her professional competence, Hughie may be able to sue Lucy for this loss. State the two grounds on which Hughie can sue Lucy. 4.4 Rhiannon is a professional accountant with her own small accounting practice. She employs two additional members of staff. The practice has a wide range of small clients that are mostly sole traders and partnerships. Rhiannon s accounting practice prepares sets of accounts and tax returns for these clients. Given her practice s client profile, explain two areas of technical knowledge that Rhiannon and her staff must keep up-to-date.

14 4 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e Pettini & Floyd is a large firm of accountants in Salttown. Its main business is providing external auditing services and preparing financial statements for medium and large companies in and around Salttown. Given its client profile, explain two critical areas of technical knowledge in which the staff at Pettini & Floyd must keep up-to-date. 4.5 State the type of insurance that a professional accountant should have to cover against legal liability to compensate a client who has sustained a loss through a breach in the accountant s duty of care.

15 c h a p t e r a c t i v i t i e s 5 5 Confidentiality 5. Lorna is a professional accountant who works for Oldroyd & Vaughn, a small firm of accountants in Greentown. She has recently received the offer of a new role working for Bell & Bosen, a much larger firm of accountants in the town. For each of the following explain whether Lorna can disclose the information requested: One of the partners at Oldroyd & Vaughn asks Lorna if she can explain why she has decided to move to Bell & Bosen. Lorna s new manager at Bell & Bosen asks her to provide him with a list of the clients she worked on at Oldroyd & Vaughn. (c) While working at Oldroyd & Vaughn Lorna was responsible for preparing the accounts of clients in the building industry which required specific specialist technical knowledge. The partners at Bell & Bosen have asked Lorna to run a training course on this area for the staff. 5. List the three circumstances when it is acceptable for a professional accountant to disclose confidential information. 3

16 6 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 5.3 José is a junior member of the accounting staff at a small firm of accountants in Towstone. While opening the post he finds a letter addressed to his manager from a local printing firm. The letter asks for financial information about one of the firm s clients who has requested to trade on credit terms with them. José is aware that the information they have requested is confidential however his manager is on holiday so he will have to make the decision as to whether to provide the information himself. Explain what José should do in these circumstances. 5.4 State the name of the process by which the person in an organisation who controls data informs the Information Commissioner s Office (ICO) about the way in which the organisation handles data.

17 c h a p t e r a c t i v i t i e s 7 6 Codes of conduct and organisational values 6. Nigel is the Finance Manager at Toross Ltd. He is a qualified accountant who has worked for the business for four years. The Sales Director has asked him to re-issue an invoice to one of the business s larger clients, increasing the discount level the client receives from 0% to 40%. Toross Ltd has a policy of never giving more than 5% to any customer and requires any discount of this level to be authorised by the Managing Director. Nigel has raised this issue with the Sales Director who has told him there is no need for the Managing Director to be involved in this decision. Explain the ethical issues that Nigel faces in this situation and what he should do to address them.

18 8 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 6. If a professional accountant fails to comply with applicable regulations and codes of practice he/she may face disciplinary action. State the two main categories of misconduct for which a professional accountant may be disciplined. State two bodies that can bring the disciplinary action identified in Seth is a professional accountant who has his own accounting practice; he employs one additional member of staff. One of the services the practice offers is payroll. The practice has recently taken on a new client, Coxpenny Ltd and Seth personally carried out the appropriate customer due diligence procedures on this client. Seth s colleague has just started working on an assignment for Coxpenny Ltd and has realised that the client has been paying some of the temporary staff in its warehouse in cash. This means that the business has not been paying the correct national insurance (NI) or PAYE income tax to HMRC. When Seth raises this issue with the Managing Director of Coxpenny Ltd she tells Seth that this is one of the reasons she has employed him. Seth explains that she must declare the amounts she has paid to the temporary staff to HMRC and pay the outstanding tax and NI. The Managing Director says that she is happy to do this for future payments but does not wish to declare any previous amounts. Explain what Seth must do in this situation.

19 c h a p t e r a c t i v i t i e s 9 Explain what the consequences are for Seth s practice if he does not take any action in this situation. (c) Explain what action Seth should take regarding Coxpenny Ltd s refusal to disclose the issue to HMRC. 6.4 Money laundering in the UK is covered by three key pieces of legislation and regulations. State these three legislation and regulations. 3 Money laundering must be reported to two different parties depending on the size of an organisation. () In a small organisation state to whom a suspicion of money laundering should be reported.

20 0 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e () In a larger organisation state to whom a suspicion of money laundering should be reported. (c) State the maximum penalties that an individual could face if found guilty of money laundering.

21 c h a p t e r a c t i v i t i e s 7 Sustainability 7. State the definition of sustainable development as set out in the Brundtland report. State the three key objectives of sustainability and sustainable development that are set out in this report Organisations publish reports detailing their success in supporting and promoting sustainability. Explain what a business might include in a Corporate Social Responsibility (CSR) Report. Organisations in the UK are not legally obliged to produce CSR reports. Explain why a business might choose to produce one. (c) Explain what is meant by the term reputational risk and how this is potentially affected by an organisation s attitude to Corporate Social Responsibility.

22 e t h i c s f o r a c c o u n t a n t s t u t o r z o n e 7.3 Syrus works for Prosser & Fitch Ltd, a medium-sized accountancy practice. One of its clients, Edulink Ltd, has contacted Syrus to discuss sustainability and sustainable development. They have explained that as part of their Corporate Social Responsibility (CSR) they need to improve their understanding of this area. Increasingly, the businesses that they trade with are insisting that they can demonstrate a progressive approach to sustainability. Explain what is meant by the phrase the triple bottom line in relation to sustainability. Explain the professional accountant s obligation to uphold the values of sustainability.