1. Aims
Identify the 6 objectives of the Accounting Profession 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

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

3. AAT Level 3 Diploma
Professional Ethics

4. Objectives of the Accounting Profession
1. The mastering and maintenance of particular skills and techniques
2. Development of an ethical approach to work
Acknowledgement of duties to society
An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest
5. Rendering services to the highest standards of conduct and performance achieving acceptance by the public that members provide accountancy
6. Services in accordance with these high standards and requirements.

5. Objectives of the Accounting Profession
1. The mastering and maintenance of particular skills and techniques
2. Development of an ethical approach to work
Acknowledgement of duties to society
An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest
5. Rendering services to the highest standards of conduct and performance achieving acceptance by the public that members provide accountancy
6. Services in accordance with these high standards and requirements.

6. Objectives of the Accounting Profession
1. The mastering and maintenance of particular skills and techniques
2. Development of an ethical approach to work
Acknowledgement of duties to society
An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest
5. Rendering services to the highest standards of conduct and performance achieving acceptance by the public that members provide accountancy
6. Services in accordance with these high standards and requirements.

7. Objectives of the Accounting Profession
1. The mastering and maintenance of particular skills and techniques
2. Development of an ethical approach to work
Acknowledgement of duties to society
An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest
5. Rendering services to the highest standards of conduct and performance achieving acceptance by the public that members provide accountancy
6. Services in accordance with these high standards and requirements.

8. Objectives of the Accounting Profession
1. The mastering and maintenance of particular skills and techniques
2. Development of an ethical approach to work
Acknowledgement of duties to society
An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest
5. Rendering services to the highest standards of conduct and performance achieving acceptance by the public that members provide accountancy
6. Services in accordance with these high standards and requirements.

9. Objectives of the Accounting Profession
1. The mastering and maintenance of particular skills and techniques
2. Development of an ethical approach to work
Acknowledgement of duties to society
An outlook which is essentially objective, obtained by being fair minded and free from conflicts of interest
5. Rendering services to the highest standards of conduct and performance achieving acceptance by the public that members provide accountancy
6. Services in accordance with these high standards and requirements.

10. 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.

11. What are the threats to the Professional Accountant?

12. What are the threats to the Professional Accountant?
Self Interest
Self Review
Familiarity
Intimidation
Advocay

13. Conceptual framework v 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.
CONCEPTUAL FRAMEWORK APPROACH
The AAT’s guidelines on Professional ethics operates within a ‘conceptual framework’. This means; Taken from the AAT Guidelines on Ethics (section100.5)
The circumstances in which members operate may give rise to specific threats to compliance with the fundamental principles. It is impossible to define every situation that creates such threats and specify the appropriate mitigating action. In addition, the nature of engagements and work assignments may differ and consequently different threats may exist, requiring the application of different safeguards.
A conceptual framework that requires a member to identify, evaluate and address threats to compliance with the fundamental principles, rather than merely comply with a set of specific rules which may be arbitrary, is, therefore, in the public interest.
This conceptual framework approach requires members to identify, evaluate and respond to threats to compliance with the fundamental principles. It also requires that if identified threats are not clearly insignificant, a member must, where appropriate, apply adequate safeguards to eliminate the threats or reduce them to an acceptable level, so that compliance with the fundamental

14. 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?

15. Rule Based Approach
Report the client to HMRC for failing to register for VAT
Conceptional Framework Approach
Discuss with client and instruct them to contact HMRC in order to register and resolve outstanding VAT monies due.

16. Independence
A member in practice who provides an assurance service is required to be independent of the assurance client
Independence means
... Freedom from control or influence of others
Independence – Definition ‘freedom from control or influence of others
Independence of mind – In addition to being objective the accountant must be able to come to an opinion without his/her professional judgement being compromised
Independence in appearance – Any reasonable person who comes into contact with an accountant must be confident that he/she always behaves independently and has avoided doing anything that may bring that independence into question.

17. Independence
A member in practice who provides an assurance service is required to be independent of the assurance client
Independence of mind
... To be able to come to a decsion only considering the points and issues which are relevent to the current assignment
Independence – Definition ‘freedom from control or influence of others
Independence of mind – In addition to being objective the accountant must be able to come to an opinion without his/her professional judgement being compromised
Independence in appearance – Any reasonable person who comes into contact with an accountant must be confident that he/she always behaves independently and has avoided doing anything that may bring that independence into question.

18. Independence
A member in practice who provides an assurance service is required to be independent of the assurance client
Independence in appearance
.... Seen to be independant
Independence – Definition ‘freedom from control or influence of others
Independence of mind – In addition to being objective the accountant must be able to come to an opinion without his/her professional judgement being compromised
Independence in appearance – Any reasonable person who comes into contact with an accountant must be confident that he/she always behaves independently and has avoided doing anything that may bring that independence into question.

19. Should Ashton & Groves take on Ashton Motors?
Example
Ashton & Groves is a small firm of Accountants in Broom Town. One of the partners, Jemima Ashton is married o Frank, who owns a local car dealership Ashton Motors.
Ashton Motors have always used Edwards & Co to prepare their year end accounts. Jim Edwards has now retired and Edwards & Co have ceased to trade.
Frank has suggested that the most logical solution would be for Ashton & Groves to take on the preperation of their accounts. After all Frank would be able to keep up date date with progress as he is married to Jemima.
Should Ashton & Groves take on Ashton Motors?
No. As Jemima is one of the partners of Ashton & Grove it would not be appropriate for them to act on behalf of Ashton Motors. Even if she did not do the accounts herself there would be the appearance of a conflict of interest.

20. 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

21. 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
Champagne – unlikey to impact on the objectivity of the staff at Podesta & Co.
Meal – higher value so Podesta would save a substantial amount if they did not have to pay for the office party.

22. 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.

23. 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

24. Inducements - Example
Debbie works as a management Accountant for Greens Ltd. She has been asked to attend a meeting with her manager about the companys year end results. They are not as good as he had hoped and his salary depends on him achieiving a certain level of profit. He has asked Debbie to put through a number of ficticious invoices just before the year end so it boosts the revenue for the year. Credit notes will be issued after the end of the finacial year. Her manager will give her £1000 if she does issue the invoices.
Debbie could go to the Finance Director and tell him/her what the manager has said. It has to be considered that the FD may, himself have asked your manager to do this.
Debbie could advise their professional body – although this would be a very serious step and Debbie may need to take legakl advise before hand.

25. Bribery
Definition:
Giving or receiving something of value with the intention of influencing the recipient to do something favourable to the giver of the bribe

26. The Bribery Act
Bribery Act 2010 covers criminal law. Giving or receiving something of value with the intention of influencing the recipient to do something favourable to the giver of the bribe. 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.
Definition – Giving or receiving something of value with the intention of influencing the recipient to do something favourable to the giver of the bribe

27. 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

28. Conflict between different clients
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!!!

29. Example
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?
Potentially a conflict of interests but there are safeguards which he could apply to mitigate the risk
Needs to discuss with both firms of builders and advise them of the situation and the proposed measures.
May have to consider not taking additional builder or terminating the relationship with the existing client.

30. 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 expected to be loyal to their employer, but they also have a duty of loyalty to the accounting profession.

31. 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

32. 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

33. 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
Seeking professional advice – either legal advice or AAT Ethics Advice Line

34. 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
Print this slide for class to use as a reference

35. Example 1
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?

36. Example 2
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?

37. 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

38. Activity Conflict of Interest
Conflicts of Interest
Answers to AAT Conflict Tutorial
Scenario 1
Q1 – B
Q2 – B
Q3 – C
Scenario 2
Q2 – C
Q3 - B