Chapter 9 - Applying ethical principles

Question 1

Define fraud

Answer 1

The deliberate act of gaining an advantage by knowingly breaking the law

Question 2

What are the conditions for fraud to exist?

Answer 2

• Pressure - motivation
• Opportunity - they are able to
• Rationalisation - justify to self

Question 3

How can fraud risks be responded to?

Answer 3

• Segregation of duties
• Authorisation
• Performance review

Question 4

Define bribery

Answer 4

Influencing someone to behave inappropriately by means of money, goods or services

Question 5

Define corruption

Answer 5

Deviation from prescribed behaviour in conjunction with other gains

Question 6

What can bribery and corruption lead to?

Answer 6

• Reputation suffers
• Lack of honesty
• Conflicts of interest
• International risk management - should you operate where legal?
• Economic issues - costs higher

Question 7

What can be done to combat bribery and corruption?

Answer 7

• Culture
• Code of conduct
• Risk assessment
• Reporting and whistleblowing

Question 8

What does Tucker’s 5 questions do?

Answer 8

Provides a benchmark against which to test the ethical credentials of a decision. Ask is the decision:

• Profitable
• Legal
• Equitable and fair
• Right (subjective judgement)
• Sustainable

PLERS

Question 9

Define public interest

Answer 9

The collective wellbeing of the community of people and institutions the professional accountant serves

Question 10

What are the advantages of a principles based framework for accountancy ethics?

Answer 10

• Think about relevant issues rather than a checklist
• Prevents interpreting legalistic requirements narrowly to get around ethical requirements
• Allows for variations
• Accommodates rapidly changing environment

Question 11

What are the disadvantages of a principles based framework for accountancy ethics?

Answer 11

• Ethical codes cannot include all circumstances
• Good understanding needed
• International codes cannot fully capture regional cultural variations
• Difficult to enforce legally

Question 12

What are the fundamental ethical principles for accountants?

Answer 12

PIPCO

• Professional competence and due care - maintain professional skill
• Integrity
• Professional behaviour - comply with relevant laws
• Confidentiality - do not abuse info
• Objectivity - avoid bias

Question 13

What are the threats to independence for accountants?

Answer 13

ASIFS

• Advocacy - representing a client in two different capacities
• Self-interest - benefit you not client
• Intimidation - forced into action against will
• Familiarity - personal connection
• Self-review

Question 14

What are the safeguards for advocacy threat?

Answer 14

• Different departments to carry out work
• Full disclosure to client audit committee
• Withdraw from engagement if risk too great

Question 15

What are the safeguards for self-interest threat?

Answer 15

• Discuss issues with audit committees
• Reduce dependency on client
• Consult third party such as ACCA

Question 16

What are the safeguards for intimidation threat?

Answer 16

• Disclosure of threats to audit committee
• Review of work
• Remove affected individuals

Question 17

What are the safeguards for familiarity threat?

Answer 17

• Rotate affected individuals

- Quality control review

Question 18

What are the safeguards for self-review threat?

Answer 18

• Quality control review
• Remove individual from team
• Use non-audit staff if needed
• Resign