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

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

AAT Level 3 Diploma Professional Ethics

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.

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.

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.

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.

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.

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.

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.

What are the threats to the Professional Accountant?

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

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

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?

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.

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.

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.

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.

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.

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

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.

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

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.

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

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

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

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!!!

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.

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.

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

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

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?

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?

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

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