Ethics

Question 1

Intro (CIA) (3)

Answer 1

• Professional ethics are an inherent part of the profession of Accountancy and being a Director
• Ethics are a set of moral standards applicable to all professionals
• ACCA has its own ethical code of conduct and members must adhere to fundamental principles of COPIC

Question 2

Why do we have ethics as accountants (5)

Philip’s Set oF CSR Values

Answer 2

• Individuals may hold inadequate ethical values therefore it is important for principles on ethics to be set out to ensure commonality
• The profit motive can conflict with CSR and ethical principles
• This code can be used by an accountant to take the most appropriate course of action
• CSR companies are corporate citizens
• Companies must meet all needs of stakeholders which include their desire for environment, fairness etc.”

Question 3

The benefits of being ethical (1)

Answer 3

• Ethics can lead to profit maximisation i.e. attracting ethical investors and bolstering share price and avoiding penalties and fines

Question 4

Discuss the views of the director that there is no point in an accountant studying ethics and there was no ethical issue in false disclosure of accounting profits

Answer 4

• For example, it may be thought that it is acceptable to hold shares in client companies for business reasons, which, of course, is contrary to ethical guidance.”
• Compliance with GAAP is considered enough by some professionals however an accountant should apply a more realistic picture by marrying GAAP with ethical principles
• Ethical principles are useful in all walks of life including family life
• Being unethical violates the relationship of trust, which the company has with society and the professional code of ethics.

Question 5

December 2012
Bower has a property which has a carrying value of $2 million at 30 November 2012.
This property had been revalued at the year end and a revaluation surplus of $400,000 had been recorded in other components of equity.
The directors were intending to sell the property to Minny for $1 million shortly after the year end.
Bower previously used the historical cost basis for valuing property.
Discuss the ethical and accounting implications of the above intended sale of assets

Answer 5

• In short this will increase the profits of the sale from a loss of £1m to a loss of £600k.
• If the transaction meets the criteria of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations then the asset would be held in the financial statements of Bower
  in a separate category from plant, property and equipment and would be measured at the lower of carrying amount and FV less costs to sell.
• We should ask why Directors want to sell an asset at almost half its current value
• Related Party disclosures should be made if it is not an arms length transaction
• Being a director requires a high level of ethical behaviour as shareholders rely on financial statements.
• The Directors should have a justification for their action.

Question 6

June 2012
Discuss the legitimacy of Robby selling land just prior to the year end in order to show a better liquidity position for the group and whether this
transaction is consistent with an accountant’s responsibilities to users of financial statements.

Answer 6

• FS must show a fair representation of a company and if they are misinterpreted then this could be deemed unethical
• Low current ratio and gearing ratio shows that company has liquidity problems
• Accountants should seek to preserve the public interest as the profession must have trust of users
• FS must meet qualitative characteristics in FS namely Fair representations and Verifiability.

Question 7

December 2011
Segment reporting - Discuss how the ethics of corporate social responsibility disclosure are difficult to reconcile with shareholder expectations.

Answer 7

• Corporate citizens are companies acting on behalf of society
• Beneficial social actions can be in conflict with profit optimisation.
• problem for companies is how to ethically and socially disclose information while at the same time avoiding compromising the competitiveness of the company
• By offering more information companies better meet the needs of their stakeholders
• Disclosing good conduct solely for profit is unacceptable however

Question 8

June 2011
Discuss the validity of the accounting treatment proposed by Rose and whether such a proposed treatment raises any ethical issues.

Answer 8

• Rose’s accounting for cost of business is not based on FV.
• IFRS 3 requires cost of business combination (assets and liabilities AND Contingent liabilities) to be measured at FV.
• FV of intangible assets not traded in active market is based on what you would get for them in arms length transaction therefore they should not be allocated on what they are worth to Rose
• To disclose financial information which does not comply with IFRS is unethical and incorrect
• This is often done to meet market expectations or realise a bonus.
• This is in conflict of the ethical priciple of integrity