Association of Accounting Technicians. Professional Ethics (PETH) Level 3

Transcription

1 Association of Accounting Technicians Professional Ethics (PETH) Level 3

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3 Published by: Home Learning College 1 Hammersmith Broadway London W6 9DL Home Learning College Ltd 2013 Version 1.0 aat3_peth_master_ All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, transmitted or utilised in any form or by any other means, electronic, mechanical, photocopying, recording or otherwise without the written permission of the publisher. All product names and services identified throughout this book are trademarks and registered trademarks of their respective owners. They are used throughout this book in editorial fashion only and are for the benefit of such companies. No such usage, or the uses of any trade names, is intended to convey endorsement or other affiliation with the book. Home Learning College course materials are made available in electronic format for use by students of the College. All rights, including copyright and related rights and database rights, in electronic course materials and their contents are owned by or licensed to Home Learning College. In using electronic course materials and their contents you agree that your use will be solely for the purposes of completing a Home Learning College course. Except as permitted above you undertake not to copy, store in any medium (including electronic storage or use in a website), distribute, transmit or retransmit, broadcast, modify or show in public such electronic materials in whole or in part without the prior written consent of Home Learning College or in accordance with the Copyright, Designs and Patents Act Published by: Home Learning College

4 1 Hammersmith Broadway London W6 9DL Home Learning College Ltd 2012 Version [xx] All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, transmitted or utilised in any form or by any other means, electronic, mechanical, photocopying, recording or otherwise without the written permission of the publisher. All product names and services identified throughout this book are trademarks and registered trademarks of their respective owners. They are used throughout this book in editorial fashion only and are for the benefit of such companies. No such usage, or the uses of any trade names, is intended to convey endorsement or other affiliation with the book. Home Learning College course materials are made available in electronic format for use by students of the College. All rights, including copyright and related rights and database rights, in electronic course materials and their contents are owned by or licensed to Home Learning College. In using electronic course materials and their contents you agree that your use will be solely for the purposes of completing a Home Learning College course. Except as permitted above you undertake not to copy, store in any medium (including electronic storage or use in a website), distribute, transmit or retransmit, broadcast, modify or show in public such electronic materials in whole or in part without the prior written consent of Home Learning College or in accordance with the Copyright, Designs and Patents Act 1988.

5 Contents Lesson 1 - Introduction to Professional Ethics Introduction - What are ethics?... 2 Why do we need a code of ethics?... 3 A principles based approach... 6 Integrity... 7 Objectivity... 8 Professional and technical competence and due care... 9 Confidentiality Professional behaviour Resolving ethical conflict Industry Regulation How Are Standards Maintained? Lesson 2 - Taxation Services Introduction Taxation services The general principles explained Money laundering regulations Tipping off Prejudicing an investigation Penalties Lesson 3 - The Employed Member Introduction Members in business Potential conflicts Whistle-blowing Acting with sufficient expertise Inducements... 50

6 Lesson 4 - Members in Practice: Independence Introduction Members in practice Professional relationships Independence Threats to independence Threats from self-interest Threats from self-review Threats from advocacy Threats from familiarity Threats from intimidation Conflicts of interest Ways to safeguard independence Client monies Theft Penalties Second Opinions Lesson 5 - Members in Practice: New Clients and Charging for Services Introduction Advertising professional services Accepting a new appointment Client due diligence Defamation Letters of engagement Breach of contract Fees and commissions Operational Risk... 97

7 Lesson 6 - Legal Considerations Introduction Professional liability of members Professional Indemnity Insurance The Bribery Act What is a bribe? Penalties Lesson 7 - Promoting Sustainability Introduction to Sustainability Accounting for sustainable development Environmental Sustainability Policies and Procedures Organisational Sustainability Policies and Procedures Practical steps to sustainability

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9 Introduction The AAT Level 3 Diploma in Accounting consists of six separate units which should be completed in the following order: 1. Accounts Preparation (ACPR) 2. Prepare final accounts for sole traders and partnerships (FSTP) 3. Costs and revenues (CSTR) 4. Indirect tax (ITAX) 5. Spreadsheet software (SDST) 6. Professional ethics (PETH) This is the course book for the Professional Ethics unit. It is written to the AAT s AQ2013 syllabus specifications and is designed to be used in conjunction with Home Learning College s Virtual Learning Community (VLC). This unit is about recognising the importance of the learner acting and working in an ethical manner. Learners will be able to work within the ethical code to ensure that the public has a level of confidence in accounting practices or functions, to protect their own and their organisation s professional reputation and integrity and ensure they uphold principles of sustainability. Throughout the book you will find the icons shown below. These highlight important items, reinforce essential points and provide helpful exam tips. Example this is an illustration of a learning point in the context of a real-life scenario. Key Learning Points the main items to learn and understand in a particular lesson. Exam Tip these call attention to information about potential pitfalls and essential information regarding the AAT assessment.

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11 Professional Ethics LESSON 1 Introduction to Professional Ethics On completing this lesson you should be able to: Explain the fundamental principles of ethical behaviour Outline the relevant legal, regulatory and ethical requirements affecting the accounting and finance sector Explain why individuals, organisations or industry sectors are expected to operate within codes of conduct and practice Identify opportunities for maintaining an up to date knowledge of changes to codes of practice, regulation and legislation affecting the accounting and finance sector Explain the importance of adhering to organisational and professional values, codes of practice and regulations Identify circumstances when confidential information should be disclosed and who is entitled to the information 1

12 Home Learning College Introduction - What are ethics? Ethics is a branch of knowledge concerned with the moral principles or standards of behaviour that govern and influence behaviour. It is concerned with the notion of what is socially right and acceptable and what is socially wrong and unacceptable. It is important to understand that the decision regarding what is right and what is wrong is very subjective and is heavily influenced by social context. As societies develop and mature the principles behind their ethical and moral standards of behaviour change. The notion of right and wrong behaviour also differs between different societies and cultures. For example, the employment of young children was considered perfectly ethical in the United Kingdom a century ago, but is now considered unethical and is heavily legislated. However, there are still some countries where child labour is acceptable. Codes of acceptable behaviour are reflected in the laws developed by society but alongside these other codes of ethics have also been established for a number of professions, including lawyers, doctors, teachers and accountants. This is because a certain standard of behaviour is expected from individuals operating within these environments. These professional bodies expect their members to comply with these ethical standards and impose severe penalties on those members who fail to do so. To assist accountants in applying ethics in their dealings with the public and organisations throughout the world the International Federation of Accountants (IFAC) issued a Code of Ethics for Professional Accountants in 2005 for use by its members. In its 2007 International Good Practice Guidance, Defining and Developing an Effective Code of Conduct for Organizations, IFAC provided the following working definition of a code of conduct: Principles, values, standards, or rules of behaviour that guide the decisions, procedures and systems of an organization in a way that (a) contributes to the welfare of its key stakeholders, and (b) respects the rights of all constituents affected by its operations. Ethical codes of conduct are not pieces of law, instead they are based on laws effective in the UK and members are expected to comply with this as 2

13 Professional Ethics a minimum requirement. If a member does not abide by the code, then it could lead to a claim in a civil court (cases not involving the state) or a criminal prosecution. It is important to distinguish the difference between civil and criminal law. Civil law results in a claim in a civil court by a claimant against a defendant to enforce rights that arose between them. The outcome of a claim under civil law is not a means of punishment for the party who loses, but is a means of providing compensation for the party who is successful. Compensation could be damages, enforcing a contract or many other forms. Civil law covers areas such as contracts, negligence, family matters, employment, probate and land law. Criminal law involves a breach in the law that breaks the boundaries of acceptable conduct. Those who break criminal law are regarded as having committed an office against society as a whole. Examples of breaches of law include crimes such as theft, money laundering, terrorist financing, bribery and fraud. If found guilty, the accused is punished by means of imprisonment or a fine or both. The AAT is an associate member of IFAC and produced its own Guidelines on professional ethics that, although based on the IFAC code, are designed to offer specific guidance to its own members. All members of the AAT, whether full members or student members, are required to comply with the Guidelines which are based upon the IFAC ethical code for accountants. Why do we need a code of ethics? One of the primary reasons for developing a code of ethics is protection. Protection is given to a variety of stakeholders (those having an interest in, or being affected by, the actions of a member), for example: The Association of Accounting Technicians (AAT) The accounting profession generally Employers of accountants Members The public 3

14 Home Learning College If an accounting technician acts unethically then there is a possibility that this will reflect not only on them but also on their employer and the profession as a whole. This could impact on the ability of both the accounting technician and their employer to secure further accountancy work. The member is also protected legally because a defendant can offer the reason of acting ethically as a defence in law. Although there is a common perception that work and personal life should be kept separate, when dealing with ethical conduct and the maintenance of the reputation of a professional body such as the AAT, members must consider their behaviour both inside and outside the workplace. The following examples illustrate how behaviour within the workplace and outside the workplace could affect the reputation of not only the member but also of their employer and the AAT. Members are required to treat their colleagues, superiors and subordinates in an ethical, even-handed way. This could cause conflict in the workplace. Example behaviour within the workplace A member who has been drinking heavily the night before work may be unable to fulfil their duties to the standard expected without the assistance of colleagues. This could be due to a hangover where the alcohol level remaining in the blood impairs performance. Those colleagues are being ethical in helping to ensure that the necessary work is completed to a high standard. They are being evenhanded. However, it is unethical of the member to expect assistance when their illness is self-inflicted. If faced with a similar situation the member should also be prepared to act in an ethical and even-handed manner and assist their work colleagues. 4

15 Professional Ethics Members should understand that actions outside of work may also damage their reputation or that of the profession. Certain actions could lead to blackmail or intimidation which could compromise the technician s work. For example, excessive gambling often leads to blackmail and intimidation. An organisation will apply business ethics within the way it operates. Also known as corporate ethics, this applies to all aspects of business conduct. If the organisation demonstrates how the ethical environment is to be conducted and maintained from the very top of the organisation, this will be seen to filter down throughout the organisation, leading the way business should be conducted. This is known as tone at the top. This principle only works if the senior management and directors of the organisation are also seen to be abiding by the same standards by which they expect those beneath them in the organisational structure to act. The tone of business ethics and commitment to the standards set can be demonstrated through policies and procedures, a code of ethics, having supportive internal controls and effective governance, and recruiting employees based on competency and supporting the on-going development of employees through continuous professional development (CPD) and keeping their skills and knowledge up to date. Example behaviour outside the workplace Consider the member who has been drinking heavily the night before while out with friends. After a few drinks the following events occur: The member is sick at the roadside and this is witnessed by an employee of a customer of the member s employer Having seen the witness, the member talks about the customer to their friends in a disparaging way. The first event may get the member s employer a bad name as an employer of drunks. This will certainly happen if there is more than one instance. The second event breaches confidentiality. 5

16 Home Learning College A principles based approach The approach of the Ethical Code for Accountants (IFAC) is based on principles rather than on rules. Key Learning Point A rules based approach establishes a set of rules for every situation and requires absolute adherence to those rules. Key Learning Point A principles based approach recognises that it is impossible to foresee every type of ethical conflict that might arise and therefore offers a set of guiding principles that can be applied by members to their own particular set of circumstances. The code offers a conceptual framework which members can apply to enable them to identify, evaluate and address threats to compliance with the fundamental ethical principles and assist them to respond to any threats in an appropriate manner and apply safeguards where possible. The conceptual framework approach assists members in complying with the ethical requirements of the ethical code of accountants and meeting the responsibility to act in the public interest, thus encompassing the principles based approach. Example rules based approach versus principles based approach A member discovers that one of his clients has failed to prepare P11D s for three of their staff for the last two years, having misunderstood relevant requirements. Under a rules based approach the member would report the client to Her Majesty s Revenue and Customs (HMRC). Under a principles based approach, the member would explain to the client that P11D s should have been filed and that they should now be completed and filed with HMRC. 6

17 Professional Ethics The code sets out five fundamental principles which its members are required to follow. These apply equally to student members and full members. These principles are: Integrity Objectivity Professional (and technical) competence and due care Confidentiality Professional behaviour Exam tip: These fundamental principles are the core basis of professional ethics and therefore you must be able to identify and explain them in the CBP and recognise threats to a member s compliance with them. Each of these fundamental principles will now be examined in more detail. Integrity Key Learning Point Integrity is the quality of being honest and truthful and not being prepared to compromise one s principles. The ethical code for accountants requires that members must be straightforward and honest in professional and business relationships. Members must conduct themselves with integrity at all times. They should not be associated with any reports or returns that are misleading through false statements or omissions. Example a matter of integrity A company is located in an area where grants are available for employing people who would otherwise be unemployed. The authorities will pay 30% of employment costs. These employees must receive at least the national minimum wage, but their hourly rate and total earnings are capped by the authority. The company employs two such people. The managing director brings the completed quarterly claim form to the member accountant for signature. On checking the figures the accountant discovers that the two employees have been paid a bonus and that the bonus takes their total 7

18 Home Learning College earnings for the quarter above the cap imposed by the authority. The member also knows that other staff were paid the bonus. On pointing this out to the managing director, the member is informed that the bonus was wrongly recorded - it should be called expenses. What should be the member s reaction? To maintain his integrity, the member should explain that changing the description of the payment would be dishonest, as it would be obtaining money from the authority whilst breaking the rules. Objectivity Key Learning Point Objectivity is not being influenced by personal feelings or opinions in considering and representing facts. The principle of objectivity imposes an obligation on all members not to compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others. A member must remain objective at all times. This means decisions made should use real facts and should not be influenced by beliefs or feelings. Example a matter of objectivity The owner of a business wants the business to make a payment to a political party that he supports. He asks his accountant, who is a member of the AAT, about the accounting and tax implications of the business in doing so. The member does not support the political party in question however they should give the advice without being prejudiced by their personal opinions and beliefs. Members should also ensure that they do not place themselves in a situation which could result in others being able to exert pressure on the member resulting in the compromising of their standard of work or their ethical beliefs. 8

19 Professional Ethics Professional and technical competence and due care Members should not undertake any work that they are not competent to carry out, unless they can obtain appropriate advice and assistance. There is an obligation on members to maintain professional knowledge and skill at the level required for their work. Example a matter of professional competence A client company is contemplating a new product that has specific taxation implications VAT on imports and exports, duties etc. The member may have general knowledge in these areas, but the specific knowledge needed for decision-making on the product may be lacking. If the member feels that they are not competent to deal with this matter then they have three choices: 1. Learn about the specific taxes either through a course or by reading appropriate documentation and books. 2. Seek advice from another accountant with the expertise. 3. Not to work on the new product. The third choice may not be practical and may not be fair to the employer, therefore the member must take the course of action that gives them the relevant level of knowledge and skill required to undertake the work. Once members have achieved professional competence, usually displayed through the passing of exams, they then have to maintain that level of competence. The obligation to keep up to date, i.e. maintaining knowledge and skills, requires the accountant to have continuing professional development (CPD). Members are required to regularly assess, plan, action and evaluate their learning and development needs. 9

20 Home Learning College Keeping up to date can be achieved in a number of ways including: Attendance at workshops, training courses and conferences. Attendance at relevant AAT or other professional body branch meetings. Planned coaching from colleagues or specialists. Study towards further qualifications including: the AAT NVQ/SVQ in Payroll Administration; chartered or certified accountancy qualifications; specialist taxation or audit qualifications. Use of audio, video, online or CD-ROM learning resources. Planned reading/research. Special project work or job secondment. Discussions or training with colleagues. Practical development of skills, for example by using IT applications or giving presentations to improve your communication skills. Reading journals. Updating qualifications and knowledge on changing topics, for example, law, taxation and audit. Some of these activities can be undertaken through the AAT while others will be through alternative professional bodies. Members are also required to act diligently in accordance with applicable technical and professional standards when providing professional services. This diligence is referred to as taking due care. Due care means taking the appropriate amount of care when undertaking assignments so that it meets the high standards expected of the accountancy profession. Members have a duty to undertake an assignment carefully and thoroughly and in a timely manner. This means that the work should be completed as quickly as is reasonably possible, but not so quickly that it adversely affects the quality of that work. If a member is also an employer, then they must take steps to ensure that those working under the member s authority have appropriate training and supervision. Specific care may need to be exercised where the client has little or no knowledge of accounting and taxation. This may involve explaining more fully the work that has been done. 10

21 Professional Ethics Confidentiality All professions need to maintain their clients and employers affairs in a confidential manner. This means that members must not pass on information to others about their client or employer. In general terms, there is a legal obligation to maintain the confidentiality of information which is given or obtained in circumstances giving rise to a duty of confidentiality. There are some situations where the law allows a breach of this duty. Members should refrain from disclosing any information regarding their employer or clients that has been obtained during the normal course of their business dealings unless the employer or client gives the member their express permission to make that disclosure. The only exception to this is where there is a legal duty to disclose confidential information. This might be under a Taxes Act or money laundering regulations. Members should also refrain from using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties. This includes insider dealing or passing on information to unrelated third parties that they could then use to their own advantage. Information about a past, present, or prospective client's or employer's affairs, or the affairs of clients or employers acquired in a work context, is likely to be confidential if it is not a matter of public knowledge. Example a matter of confidentiality An employed member working for a firm of accountants has a friend who has applied for a job with one of their clients. The friend asks some questions about them and wonders if it is likely to be a good career move for him. The principle of confidentiality means that the member cannot discuss information acquired through working at the firm of accountants unless it 11

22 Home Learning College is already public knowledge. The obvious accounting information that may be public knowledge is the accounts filed at Companies House. This only applies to limited companies. These can be downloaded from the Companies House website for a fee. The website is and it lists all companies operating within the UK. However, not all companies have their information available on the site. For companies registered in Northern Ireland, for example, you are referred to Companies House in Belfast. In order to maintain confidentiality the member should refer their friend to this website. It is not sufficient only that a member has not used or passed on confidential information, but that it does not appear as though they might have done so. Confidentiality does not end when the member/client or member/employer relationship has ended. There is an ongoing duty of confidentiality to be observed. There are three main areas where it is acceptable for members to disclose confidential information: 1. When authorised to do so by the client or employer, 2. When the law requires that the information be disclosed, and 3. Where there is a professional duty to disclose. There may be occasions where the member is requested to pass on information regarding a client to a third party. Providing that the member obtains permission to do so, then any information passed on will not breach confidentiality. Example authorised disclosure A member is approached by the bank of a sole trader client who has applied for a mortgage. The bank requires the member to give a statement of the client s earnings for the past three years. The member should contact the client and ask for permission to pass this confidential financial information to the bank. It is preferable to obtain permission in writing. 12

23 Professional Ethics There are two instances where a member has a legal requirement to disclose confidential information. The first is where the information requested is needed as evidence in a court of law. The member might be required to actually appear in court to give evidence or just to provide documentary evidence. The member has a legal obligation to comply with any such request, irrespective of whether the client gives their permission. Example legal disclosure A member has been summoned to appear in court to give evidence in the trial of a client accused of insider dealing and to provide copies of share transactions undertaken by the client. Providing that the member does not pass on any information or make any statements until after they have received the summons, then they will not have breached their duty of confidentiality. The second instance is where the law has been broken and the information needs to be disclosed to the relevant authorities. An example of this is money laundering, which is discussed in more detail in lesson 2. Members may also have a professional duty to disclose information where, even though disclosure is not required by law, it is in the public interest. The ethical code for accountants provide four examples of where this might apply to a member: 1. To comply with the quality review of an IFAC member body or other relevant professional body. 2. To respond to an enquiry or investigation by the AAT or a relevant regulatory or professional body. 3. Where it is necessary to protect the member s professional interests in legal proceedings, or 4. To comply with technical standards and ethics requirements. 13

24 Home Learning College This is a difficult and complex area and members are advised to seek professional advice before disclosing confidential information. Professional behaviour The final fundamental principle is professional behaviour. The principle of professional behaviour imposes an obligation on members to comply with relevant laws and regulations and avoid any action that may bring disrepute to the profession. This includes actions which a reasonable and informed third party, having knowledge of all relevant information, would conclude might negatively affect the good reputation of the profession. Members should note that conduct reflecting adversely on the reputation of the AAT is a ground for disciplinary action under the AAT's Disciplinary Regulations. Application of a membership body disciplinary procedure can result in the following potential actions: Expulsion from the membership body Membership suspended The withdrawal of the practicing licence A declaration of ineligibility for a practising licence Reprimand Fine Formal warning regarding the behaviour and a statement of intent to refrain from continuing or repeating the misconduct in question Where the member is also employed, this may result in the application of the internal disciplinary procedures by the employer, which may have further consequences for the member, including suspension and perhaps even dismissal. The accountancy profession is respected for its high standards, so members should not act in such a way as to bring the profession into disrepute. This means complying with all laws and regulations. Unprofessional behaviour ranges from sending inappropriate s from the office to giving advice that does not agree with the current law. 14

25 Professional Ethics A member must consider whether any of their activities could impair their integrity, objectivity or independence and would thus be incompatible with the normal activities of the accounting profession. Examples of inappropriate or incompatible activities: a. Approaching assignments with a lack of care including failing to obtain sufficient accounting records or document the work undertaken in a clear manner. This could lead to errors or incorrect conclusions being drawn from the results of the work completed. This reflects on the profession as a whole and calls into question the integrity of the member. b. Over-charging or under-charging clients. While a member is free to set their own level of fees, it would be unethical to over-inflate the fees for a client or to set the fee level so low that the standard of work would be compromised. This reflects on the member s integrity. c. If a member were to run up large gambling debts with a client company then their independence could be impaired. d. Members should ensure that their own financial affairs are up to date. This includes filing tax returns and paying tax bills in a timely manner. If the member is in public practice then they should also ensure that the practice settles its liabilities by the due date. Failure to do so questions the member s integrity. e. A member should not participate in any illegal activities. Although the member might feel very strongly about animal rights, to be seen to openly participate in such activities could result in criminal prosecution and would not be in accordance with the good reputation of the profession. f. The member would also be in danger of damaging the reputation of the accountancy profession if they were seen supporting a political party that had links to terrorism or were racist in their beliefs. 15

26 Home Learning College Resolving ethical conflict During the course of a member s career, whether in business or as a member in practice, there may be times when the member has to resolve a conflict over the application of these fundamental principles. The conflict resolution may be formal or informal, but the member must ensure that any solution considers the relevant facts of the situation, identifies the ethical issues and the fundamental principles related to the matter and has regard for any established internal procedures and alternative courses of action. The consequences of each possible course of action should be considered. If the member cannot resolve the issue themselves then they should refer to a senior member of staff or to those persons charged with the good governance of the organisation such as the board of directors. The member should document the facts of the issue, details of any discussions held and any decisions taken concerning that issue following the organisational policies for such events. By doing so the member can have safeguards in place to prevent ethical conflict arising from their perspective. If the issue remains unresolved then the member should seek legal advice from an independent legal firm or contact their professional body. However, care must be taken to ensure that confidentiality is not breached. The final course of action would be for the member to disassociate themselves from the issue that created the conflict thereby preserving their own compliance with the fundamental ethical principles. Industry Regulation Regulation occurs in various forms throughout the industry. In the UK the Government has established an independent regulator, the Financial Reporting Council (FRC), with responsibility for creating a framework for the finance function. The FRC also oversees the regulatory activities of the professional accountancy bodies and operates independent disciplinary arrangements for public interest cases involving accountants and actuaries. 16

27 Professional Ethics The FRC operates through a number of separate bodies: Accounting Standards Board (ASB) The ASB has responsibility for establishing and improving standards of financial accounting and reporting for the benefit of users, preparers, and auditors of financial information. Auditing Practices Board (APB) The APB is responsible for setting standards and guidance for the performance of external audit and other activities undertaken by accountants that result in reports or other output that is published, required by law or otherwise relied upon in the operation of the financial markets ('assurance services'). The APB also operates in relation to the independence, objectivity and integrity of external auditors and the providers of assurance services. Board for Actuarial Standards (BAS) The BAS sets standards for the actuarial profession. Professional Oversight Board (POB) The POB provides: Independent oversight of the regulation of the auditing profession by the recognised supervisory and qualifying bodies. Monitoring of the quality of the auditing function in relation to economically significant entities. Independent oversight of the regulation of the accountancy profession by the professional accountancy bodies. Independent oversight of the regulation of the actuarial profession by the professional actuarial bodies and promoting high quality actuarial work. Financial Reporting Review Panel (FRRP) The FRRP: Carries out its responsibilities on behalf of the Secretary of State in relation to annual accounts and other documents falling within its remit. 17

28 Home Learning College Maintains a Panel body that includes a wide and balanced representation at the most senior level of business people, accountants, lawyers and preparers and users of accounts so that those who come before the Panel know that they are judged by their peers within the financial reporting community. Develops and operates a programme of review of annual accounts based on risk assessment. Enquires into accounts falling within its remit which come to its attention, whether through selection for review or through complaints. Ensures that any published findings of the Panel are brought to the attention of other authorities so that they can decide whether disciplinary or other sanctions should be applied. Liaises with the Financial Services Authority and other authorities in the United Kingdom and internationally to foster the consistent application of accounting requirements and to improve the compliance of financial information with reporting requirements. Contributes to and seeks to sustain a European Union approach to enforcement that is vigorous, consistent and cost-effective. Seeks an appropriate level of recognition within the financial reporting community so as to maximise the Panel s deterrent effect. The Accountancy & Actuarial Discipline Board (AADB) The AADB: 18 Safeguards the public interest by maintaining and enhancing the standards of conduct of members and member firms of the accountancy and actuarial professions, as represented by the participating members of the Consultative Committee of Accountancy Bodies (the Participants) and by the Faculty & Institute of Actuaries. Provides a demonstrably fair, independent and expert system for investigating and, where appropriate, hearing significant public interest disciplinary cases.

29 Professional Ethics Proceeds expeditiously with a view to sanctions being imposed on those found guilty of misconduct, including removal of their eligibility to audit. Seeks to deter future acts of misconduct through its work. How Are Standards Maintained? Members of professional bodies are subject to the disciplinary code of their organisation. In the case of the AAT all Members in Practice are required to renew their registration every year, ensuring that they continue to meet all the requirements of their licenced status. Standards are also maintained as a result of the rigorous professional and ethical standards the regulatory scheme requires the Members to comply with. The AAT's CPD scheme provides all Members with the opportunity to ensure that their skills and knowledge are kept fully up to date. Membership of a professional accountancy body is not required for a person to offer services as an accountant in the UK, however it is recommended, as not only does it bring additional benefits to the member, but it also provides opportunities to keep their skills and knowledge up to date and in line with current standards as well as providing them with help, assistance and guidance when needed. By using an accountant who is a member of a professional body, clients should be able to recognise the accountant as someone who has the relevant skill and knowledge to be able to conduct the work to the standard expected of someone in the profession. There are some areas of work for which an accountant must have a practicing licence and these are the statutory regulated functions of audit, investment business and insolvency. These reserved areas are specifically licenced and monitored by the membership bodies due to the externally imposed regulatory requirements attached to each type of work. As well as a practicing licence, the member will also need relevant authorisation, for example an insolvency permit. In addition to the regulatory framework and the professional disciplinary requirements, accounting technicians must also be aware of and adhere to other forms of regulation that may apply to their work environment. Health and Safety regulations and Environmental regulations are common, and there may be others that are industry specific. 19

30 Home Learning College Codes of conduct, or codes of practice, are designed to permit members to function in a professional and ethical manner. Generally they do not carry legal force but students should be aware that there may be a legislative background to the requirements. For example, the AAT Guidelines deal with inducements and contravention of the requirements may leave the member open to disciplinary action by the AAT. At the same time, however, the member may also be in contravention of the Bribery Act 2010, with all the problems that transgressing the criminal law brings. 20

31 Professional Ethics LESSON 2 Taxation Services On completing this lesson you should be able to: Explain the role of professional bodies in relation to the accounting and finance sector Identify circumstances when confidential information should be disclosed and who is entitled to the information Identify the relevant authorities and internal departments to which unethical behaviour, breaches of confidentiality, suspected illegal acts or other malpractice should be reported Identify the appropriate action to take in instances when requests for work are beyond the employee s competence Identify inappropriate client behaviour and how to report it 21

32 Home Learning College Introduction Although accountants offer a range of professional services to their clients, one of the key areas of their expertise is the field of taxation. Tax legislation is complex and subject to frequent changes and therefore clients rely on their accountant to offer accurate and timely advice. This lesson considers the guidance offered by AAT to its members in respect of this specialist area of accountancy, and applies equally to members in practice and employed members. It also outlines the key points relating to money laundering that all members are expected to be aware of. Taxation services Taxation legislation and the administrative authorities who deal with it can vary from country to country and therefore the member should ensure that they are aware of the rules that relate to the country where they and their client(s) operate. Because of the complex nature of tax, only general guidance is offered on the provision of taxation advice to clients and employers. Members are also referred to the ethical guidelines of the Chartered Institute of Taxation. Advice may also be available from the ethical guidelines of AAT sponsoring bodies or other bodies involved in the accountancy industry. Detailed below are some of the bodies in existence and their relationship to the AAT: International Federation of Accountants IFAC is the global organisation for the accountancy profession. It works with its 167 members and associates in 127 countries and jurisdictions to protect the public interest by encouraging high quality practices by the world's accountants. IFAC members and associates, which are primarily national professional accountancy bodies, represent 2.5 million accountants employed in public practice, industry and commerce, government, and academia. 22

33 Professional Ethics International Ethics Standards Board for Accountants (IESBA) IFAC s IESBA is responsible for setting the basic ethical code for accountants that underlies the ethical codes of the various accounting bodies. It develops high quality ethical standards and guidance for use by professional accountants around the work, regardless of what industry they work in, be it business, education, practice or public sector. It consists of 18 volunteer board members from around the world, made up of 9 practitioners and 9 individuals who are not members or employees of an audit firm, i.e. non-practitioners, at least 3 of which are public members. By providing a single set of ethical standards which form the minimum standards expected of someone representing the profession, the IESBA require quality and consistency to serve the public interest. Public Interest Oversight Board (PIOB) The PIOB oversees the public interest activities of IFAC and its purpose is to increase confidence of investors and others in the fact that the activities carried out by IFAC and IESBA are responsive to the public interest. When the IESBA is developing standards, it has to adhere to due process as approved by the PIOB. The process is very transparent and the board meetings are open to the public and agenda details can be found on its website, emphasising the purpose of the PIOB in protecting the public interest. Association of Accounting Technicians Professional membership organisation providing recognised training and continuing professional development for accounting technicians. Supported by CIPFA, ICAEW, CIMA and ICAS. Association of Chartered Certified Accountants (ACCA) International accountancy body for chartered accountants providing advice and accountancy courses to students as well as accountancy regulations and tax accountant advice to small businesses. Chartered Institute of Management Accountants (CIMA) Represents accountants in business such as financial managers and accountants who work in industry, commerce, not-for-profit and public sector organisations. 23

34 Home Learning College Chartered Institute of Public Finance and Accountancy (CIPFA) Body for public services providing education and training in accountancy and financial management. Commissioning Joint Committee (CJC) Sponsored by CIPFA, the CJC is an organisation comprising representatives from all local authorities' associations in the UK and over 40 officers' organisations. Covers all aspects of Best Value and competition in local authorities. Consultative Committee of Accountancy Bodies (CCAB) Umbrella organisation representing the five major accountancy bodies in the UK and the Republic of Ireland (ICAEW, ACCA, CIPFA, ICAS and Chartered Accountants Ireland). ICAEW The largest professional accountancy body in Europe, representing chartered accountants. Institute of Chartered Accountants of Scotland Professional body for chartered accountants in Scotland. If a member requires specific advice then they should contact the Ethics Advice line on from the UK or +44 (0) from outside of the UK. The guidelines provide general principles that apply to both direct and indirect taxation. Key Learning Point Direct taxation relates to taxes on income, gains and profits. Indirect taxation relates to Value Added Tax (VAT). Members are expected to apply these general principles to any specific circumstances that they might encounter, and therefore it is important to understand the ethical points associated with each of the principles highlighted in the ethical code for accountants. 24

35 Professional Ethics The general principles explained The next section of this lesson looks at each of the principles and offers some further explanation and guidance. Exam tip: Candidates will not be expected to memorise the specifics of the AAT s guidance, however they will be expected to have an understanding of the general principles and be able to apply these to any given set of circumstances in the assessment. A member providing professional tax services has a duty to put forward the best position in favour of a client or an employer. However, the service must be carried out with professional competence, must not in any way impair integrity or objectivity and must be consistent with the law. Some clients expect their accountant to reduce their tax bill. While the accountant should ensure that the client does not pay more tax than is required under the law, they cannot guarantee a reduction in tax and this should be explained to the client. 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. Instead the member should ensure that the client or the employer is aware of the limitations attaching to tax advice and services so that they do not misinterpret an expression of opinion as an assertion of fact. When an accountant prepares a tax return it is an expression of that accountant s opinion and their interpretation of the law; it is therefore open to challenge by the authorities. Many employers or clients do not understand this and believe that if they have paid a professional accountant to undertake the work then it must be right and beyond further questioning. It is important that the member explains this to their client or employer. 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 25

36 Home Learning College employer. It will normally be assumed that facts and information on which business tax computations are based were provided by the client or employer as the taxpayer, and the latter bears ultimate responsibility for the accuracy of the facts, information and tax computations. The member should avoid assuming responsibility for the accuracy of facts, etc. outside his or her own knowledge. Although the member will prepare a tax return using technical skill and expertise, the ultimate accuracy of that return is based upon the facts and information provided by the client or employer. Therefore if the client or employer does not disclose some aspect of the business, or provides false or misleading information, then the accountant s opinion and calculations will be based upon incorrect data. It is essential that the client or employer understands they are fully responsible for the information provided. There is no defence in law for the client to blame the accountant if the authorities identify facts or information that were not provided to the accountant or were misreported to the accountant. When a member submits a tax return or tax computation for a taxpayer client or employer, the member is acting as an agent. The nature and responsibilities of the member's duties should be made clear to the client or employer, in the case of the former by an engagement letter. When the accountant deals with the tax authorities on behalf of their client or employer, including submitting tax returns, they act as the agent of the client or employer. The client or employer is the principal in the relationship under agency law and is responsible and liable for all information that is supplied to the authorities. The duties of the accountant should be clarified in the engagement letter at the start of the relationship, or in the job description attached to the contract of employment. Engagement letters are covered later in this text in lesson 5. 26