Chapter 8 - Ethics

Question 1

List fundamental ethical principles and describe each.

Answer 1

1. Integrity - fair dealing and truthfulness
2. Objectivity - accountants need to ensure that their business/professional judgement is not compromised because of bias or conflict of interest.
3. Professional competence and due care - Accountants are required to have the necessary professional knowledge and skill to carry out work for clients. Also, accountants must follow applicable technical and professional standards when providing professional services
4. Confidentiality - information obtained in a business relationship is not disclosed outside the firm unless there is a proper and specific authority or unless there is a professional right or duty to disclose. Also, confidential information acquired during the provision of professional services is not used to personal advantage.
5. Professional behaviour - accountants must comply with all relevant laws and regulations

Question 2

List and describe ethical threats

Answer 2

1. The self-interest threat - may occur due to financial or other self-interest conflict
2. The self-review threat - may occur when previous judgement needs to be re-evaluated by the member responsible for that judgement
3. The advocacy threat - may occur when a member promotes a position or opinion to the point that subsequent objectivity may be compromised
4. The familiarity or trust threat - may occur when, because of close personal relationship, a member becomes too sympathetic to the interests of others.
5. The intimidation threat - may occur when a member may be deterred from acting objectively by threats, whether real or perceived.

Question 3

What are ethical safeguards? List down types with examples.

Answer 3

Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level.

There are two basic types of safeguards:

1. Safeguards created by the profession, legislation or regulation
   
   • educational, training and experience requirements for entry into the profession;
   • CPD requirements
   • Corporate governance regulations
   • Professional or regulatory monitoring and disciplinary pprocedures
   • external review by legally empowered third party of the reports, returns, communications or information produced by a professional accountant
2. Safeguards in the work environment
   
   • firm-wide safeguards
   • engagement-specific safeguards

Question 4

When ethical dilemma may occur?

Answer 4

Ethical dilemma will only occur if there are two or more interests at stake, even if it is only an ethical duty to oneself.

An ethical dilemma exists when one or more principles of the core are threatened.

Question 5

What are the steps n Ethical conflict resolution?

Answer 5

1. Check facts
2. Escalate internally
3. Escalate externally
4. Refuse to remain associated with the conflict

Question 6

CIMA’s code of ethics identifies five categories of common threat. Which of the following are part of the five threats? (Select all that apply):

A   Self interest
B   Self review
C   Familiarity
D   Confidentiality
E   Advocacy

Answer 6

A, B, C, E

Question 7

When you form a close relationship with others so that your professional judgement becomes compromised this is considered to the which threat?

Answer 7

Familiarity

Question 8

Safeguards against ethical threats might include: (select all that apply)

A   Intimidation
B   Disciplinary actions
C   Disclosure of confidential information
D   Training
E   Internal control systems
F   Inducement

Answer 8

B, D, E