Professional Ethics

Aims Review threats to a professional accountant Discuss the AAT guidelines on threats to the fundamental principles and to a professional accountant Discuss conflicts that may arise for a accounting professional

Learning Outcomes By the end of the session learners will be able to 1.Explain the conceptual framework approach 2.Explain what an inducement is and identify at least 2 examples of an inducement 3.List the 4 key Bribery Act offences 4.Explain the different types of conflicts that may arise

What are the threats to the Professional Accountant??

Conceptual Framework Code of ethics says that accountants should take the conceptual framework approach to ethics. This requires an accountant to identify, evaluate and address threats to his/her compliance with the fundamental principles rather than applying a set of rules exactly.

Conceptual framework vs rule-based approach What does this mean? Principle-based (integrity) approach You look at the objective to be achieved and focus on it. The AAT states the fundamental principles that must be observed. They are the profession’s firm guideposts. Rule-based (compliance) approach You apply the rules exactly as stated, regardless of the circumstances. The law defines the minimum ethical standards in a given area of practice and government regulations outline what is acceptable and what is not.

Example Your firm has recently taken on James Roberts, who is a self employed painter and decorator, as a client. When preparing the end of year accounts you realise that the turnover has exceed the VAT limit. This means that James should have registered for VAT and charging VAT. What should you do?

Independence A member in practice who provides an assurance service is required to be independent of the assurance client In groups of 3/4 write a definition on the following (in accounting in terms)  Independence  Independence of mind  Independence in appearance 5 mins

Gifts and hospitality An accountant in practice may have a possible threat to their objectivity by accepting gifts, services or hospitality from a client. This is because these gifts could influence the work performed and decisions made by the accountant. The issue here is whether all gifts should be refused or whether it is acceptable to accept small gifts

Inducements For an accountant in business there are similar issues An inducement is something that is offered to encourage or motivate a person to do something. Inducements may take various forms, including gifts, hospitality, preferential treatment or even friendship.

Inducements Objectivity or confidentiality of an accountant can be threatened when an inducement is made in an attempt to: –Influence actions or decisions –Encourage the accountant to act dishonestly or illegally –Obtain confidential information

It’s a gift???? You work for Podesta & Co. Gino from the local Italian restaurant (who are clients) turns up with a case of champagne and a seasonal greeting card. He suggests giving a bottle to each member of staff. He adds that he has arranged a table for the firm on Friday compliments of the restaurant What do you do? Accepting gifts | AAT Ethics

The Bribery Act Bribery Act 2010 covers criminal law. The person offering the inducement is guilty of the offence of bribery. Equally the person accepting the inducement can also be prosecuted under the act.

The Bribery Act The four key Bribery Act offences are: Bribing another Receiving a bribe Bribing a foreign official Failing to prevent a bribery

Conflict of interest Two issues that give particular cause for concern:-  Pressure to act illegally - If you are asked to do something that is against the law, false or dishonest you must refuse.  Pressure to act contrary to technical or professional standards. Here we mean:  accounting standards  professional standards  ethical guidelines Conflict of Interest – YouTube

You could have clients in the same market sector all competing with each other, so the success with one customer increasing their sales may be detrimental to your other clients so……… You could give advice to one client knowing that it will adversely effect another/ you have information about one client that would be useful to the other!!! Conflict between different clients

Jim is an AAT member who runs Kirk & Co a successful firm of accountants. He has recently been approached by a local firm of builders to do accounting work for them. One of his existing clients is another local firm of rival builders. What should Jim consider before taking on this new client? Example

Conflict of Loyalties Loyalty ‘being firm and not changing in your support for a person or an organisation, or in your belief in your principles’ Employed accountants are expectec to be loyal to their employer, but they have a duty of loyalty to the accounting profession.

Conflict of loyalties May face pressure to : break the law breach rules and standards of the profession be part of a plan for unethical or illegal earnings lie or mislead auditors or regulators

Difference of Opinion There can be an honest difference of opinion which may not be an ethical conflict. The viewpoint of both sides will be valid. And that the action nor the opinion is unethical or unlawful

Action that you can take to resolve an ethical conflict – employed accountant Obtaining advice from employer/professional advisor or a professional body Offer to resign or ‘whistleblow’ if necessary Consider resignation

Conflict resolution Consider the following points : The relevant fact relating to the conflict Assess all the ethical issues involved The fundamental principles that are involved by ethical conflict to the matter in question Whether there are established internal procedures to deal with the conflict and if so how they can be applied to situation What alternative courses of action are available to be accountant

Example You and the Financial Controller are discussing the valuation of stock at the end of year. He believes that the stock should be valued using the AVCO however you prefer the FIFO approach. Is this an ethical conflict?

Example 1 You are covering your boss who is away for two weeks on holiday and it has become apparent to you that he has been making unauthorised payments from the company’s bank account to his personal one. What do you do?

Keeping written records If you are faced with an ethical dilemma you should keep a written record Including:- All meetings and discussions Who attended What was discussed Decisions reached Action points Can be used as proof in a Court of Law Conflicts of Interest