ACCA F1 – Professional Ethics

hello and welcome to a CCA f1 chapter six on professional ethics now the definition of ethics is a set of moral principles and values that guide behavior so they are your own moral principles and values now in a political and legal environment you have laws regulations and standards that are necessary for a business to flourish so the law of brand and therefore it includes contracts that must be honored and are enforceable so we looked at at common law in Chapter one bribery and corruption must not be tolerated and obeying the law is the minimum expected of a member of society so they say the law is the law and there are two key terms that do come up in the exam grease money so these are payments to secure something that we are perhaps legally entitled to and so it could be legal but is it earth and so when we say Greece were effectively smoothing someone’s palm and in some countries it is a normal practice it’s a normal custom to provide Greece money however on the other side you have bribery and these are payments to secure something that we are not legally entitled to and the bribery Act that came in in 2010 made this made bribing someone illegal so just be aware of that so there’s a thin line between Greece money and bribery now organizations contain a variety of EPCOT which implements behavior whose behavior while the stars’ behavior so pass nor FP professional athletes and organizational culture organizational systems so four elements do this and so we’ve looked at ethics and so what is the organizational culture so how are you two customers and organizational systems well tell us for instance that you have in place to stop people stealing and so profession has its own ethical standards and codes which all members are expected to adhere to and other types of occupations may have standards and codes but not for ethics okay so how does ethics how do ethics apply to accountants so ethics and accountants so accountants should consider public interest and social responsibility so for instance if you are helping Google avoid tax is that ethical you’re applying the law to minimize their tax but remember tax is collected for the benefit of the society as a whole for public welfare ethical behavior helps to maintain an image of accountants generally so we have to be seen to behave to be behaving ethically accountants must be trustworthy so there’s a reputation in society that accountants have to uphold if you’re not trustworthy then people aren’t really going to trust you with your money are they and this improves the employability of accountants so the accountancy profession has a strong reputation Society accountants a good people and therefore it helps your employability and so accountants should consider the ethical and social implications of decisions rather than restricting their input to gassing the impact of decisions on the financial statement so as I mentioned you’re helping Google avoid tax is that ethical you might you might be helping them financially but it’s not in the public interest accountants must display the following characteristics professionalism an account it should be clearly identifiable as a professional person and that’s the reason why accountants are able to sign the back of people’s

passport photos because we’re seem to be professionals at provide high quality services all services should be carried out to the highest standards of performance because clients are paying you for that service credibility information and information systems that you use must be credible and confidence users of accountants should feel confident that there is a framework of professional ethics to govern the provision of services so if everyone acts like this our profession becomes stronger now i faq the International Federation of accountants emphasizes the requirements for accountants to act in the public interest and this applies globally just be sure of that it’s international this means considering this interest of such as society as a whole as well as the interest of the accountant to their employer and i fac have issued a code of ethics that the ACCA and its members must adhere so when you’re thinking about ethics are the key workers that come to mind our bankers so as soon as a few people act in a way that seems non-ethical public lose trust in all bankers so not all bankers acted unethically but now we think of all of them being the same we tarnish them all with the same brush okay so section 2 deals with the fundamental principles of the IFAC code and a good way to remember it is by using the acronym sip up and you see these principles come up time and time again throughout all of your studies you’ll definitely see them appear again in f/8 in auditing so what are they then well the first one being confidentiality respect the confidentiality of information and do not disclose such information to third parties so if you’re privy to confidential information you shouldn’t really be discussing that with your friends you shouldn’t be discussing client information in a pub that other people can hear into your conversation integrity now this involves being straightforward and honest in all professional and business relationships professional behavior comply with laws and regulations and professional behavior 24/7 you shouldn’t do anything that brings your profession into disrepute objectivity you shouldn’t allow bias conflict of interests or undue influence of others to override the profession or with all your judgments and a key thing that you may be tested on with regard to objectivity our fees I have seen this come up again so the objectivity remember is likely to be jeopardized when the fees for audit and recurring work for one client exceeds 10% for public you are listed and Public Interest companies and 15% for other companies of the firm’s total fees should just be aware of those thresholds and finally professional competence and do you care you need to continue to maintain your professional knowledge now this is more relevant in for your role that you’re partaking in if you are a tax accountant you need to have knowledge of all the up-to-date tax laws but you perhaps may not need to know about hedging or derivative transactions complex financial transactions okay so these are examples of everything that you should think about when you take on work section 3 then the conceptual framework now the ACCA advocates a conceptual framework to guide ethical behavior rather than prescriptive rules and the reason being it’s impossible to legislate every situation that the accountant may encounter so you have a framework that you go to for advice and so it’s all about that argument of rules versus the framework so it’s more about principles rather than checklists because the attitude in the u.s. is all about taking off checklists whereas in the UK we adhere to a conceptual framework and continual personal improvement and lifelong learning are the heart of the ACCA membership that you’re you’ve embarked on and so all

members have an obligation to ensure that you are competent in the role that you’re partaking in ok the next section section 4 on personal qualities required of an accountant and the way to remember it CTR to the power 3 now these two come up you might need to distinguish between personal quantities sorry not quantity of qualities and professional qualities so just be aware of the difference so the first one being courtesy accountant should conduct themselves with courtesy and consideration towards all that they come into contact with during the course of performing their work be it the senior partner or the receptionist in the role timeliness produce work on time arrive on time for work and meetings be reliable take on responsibility for your own work and respect develop constructive relationships and respect other people’s perspectives and again these parcel quantity are quantized keep saying quantity of qualities you should hit here too 24/7 and professional qualities required again an easy way to remember them savvy savvy skepticism accountants should question information supply to them or where is it from is it this supporting the evidence who supplied it why was it supplied so acting like a watchdog professional skepticism so this is for information that the client gives you so provisions budgets and so on accountability the account isn’t accountable for his own actions and decisions he should not pass on the buck so when you produce work you must stand by it as if it had your name written all over it social responsibility be aware of the work that may affect the public for example accounting profits may be used by a wide range of users investors employees suppliers and so on so the work that you’re producing other people rely on it and independence have an independent mind produce work that is free from Bryce and Prejudice so take into account the fundamental principles of the I flat code that we looked at at the top here and accountants are required to identify evaluate and address threats to compliance with the fundamental principles ok the consequentialist approach to ethics this focuses on the consequences which any action might have in order to make the correct moral or ethical choices so when we make choices which result in correct consequences we are acting morally and when we make choices that result in incorrect consequences we are acting immorally so there are a couple of approaches again they could be tested in the exam you utilitarianism this measures the quality of outcome in terms of the greatest happiness for the greatest number what is best for the majority it’s about everyone it’s about war now egoism this is where you’re looking out for yourselves what is best for me it’s all about me me me and finally I have seen this come up as an exam question ethical relativism relates to the concept that there are relative rights or wrongs rather than absolutes so this means that some things are wrong ethically are less important than others which can lead to the acceptance of the practice that anything goes so perhaps I donate stealing chocolate from the supermarket is less wrong perhaps than murdering someone okay we move on to section 6 organizational values or promoting ethical behavior so companies are starting well they don’t start it they have introduced ways in which to promote ethical behavior so think about where you work how do they promote ethical behavior so companies promote openness open and clear disclosure of relevant information to stakeholders perhaps in the financial statements or perhaps other reports they might produce honesty tell the truth and avoid misleading the stakeholders so people that have an interest in your organization accountability individuals have to be accountable for their actions and subject themselves to scrutiny when

carrying out their duties our respect be respect forth to people at all levels trust the organization should ensure that it is in a position to be trusted by its stakeholders and empowerment empower staff to allow them to behave ethically in all situations so if perhaps in an organization you see someone behaving unethically and you empower employees to report that behavior by having different means in the organization to be able to do so okay section seven ethical cons conflicts and dilemmas now these you will see come up again in your f8 paper for auditing and but they are important for you to be aware of at this stage in your studies as well so threats to compliance with the fundamental principles now just a quick reminder what are these fundamental principles we saw them at the top here the fundamental principles of the IFAD code the sip op and so these are the key threats the threat of self-interest having shares in the company so largely these apply to auditors but they could apply to different and roles as well so if your auditor you have to be seen to be independent and you have to be seen to be giving an objective view on the statements financial statements and therefore you shouldn’t have shares in the company that you’re auditing and so I know the big four they make you find an annual declaration of independence I do not have shares in any of the clients that I audit self review for instance preparing the financial statements and auditing them you shouldn’t do that because you’re effectively reviewing your own work you won’t be able to give a honest objective view on it advocacy promoting a supplier company run by a family member so you shouldn’t be seen to be an advocate perhaps a client is involved in stock listing now you shouldn’t be seen to be advocating that you have to be independent from the client familiarity not appointing the family member as a non exec director they need to be independent from the organization and intimidation not threatening an employee with the FAC if they don’t perhaps agree with your opinion on something or as if the auditors refused to sign the audit opinion give me your true and fair view or I’ll break your legs so you shouldn’t allow intimidation and to it prevent you from being independent safeguards so these are the threats so what do I do about them well provide education and training to accountants and this is what you have to do when you apply for ACCA membership at CPD requirements CPD stands for continuous professional development and this fulfills that requirement fundamental principles of IFAC professional competence and do you care what else have we got have professional standards in place that people have to adhere to and maybe have your work reviewed externally by a third party so just be aware of these at this point in your studies you just need to have an idea about what these are later on in your studies you’ll have to be able to write about them okay section 8 conflict resolution on ethical dilemmas so there are examples given in the notes of ethical conflicts so being expected to care to act contrary to lik your professional requirements lying or misleading others issuing reports that misrepresent the facts so your misstating results you’re misleading the auditors so what do you do about it so if you are faced with an ethical question what do you do or steps 1 to 4 consider the facts and the ethical issues involved consider the fundamental principles related to the situation consider any establish internal procedures and consider alternative courses of actions so this is what you do and then take action so consult with the line manager or a board or an audit committee so in an accountancy department you have a technical department or you have somebody like the

money-laundering reporting officer if unresolved obtain advice from your Institute the ACCA seek legal advice we draw from the assignment or resign and these aren’t given in the order of the actions that you should take so if you work in a company for instance it’s quite hard to push back which is why you have whistleblowing but you also have these steps that you should take out in response to ethical dilemmas okay well done that brings us to the end of chapter six what I would do now what I would recommend is go into your question banks and have a look at a whole load of questions that test you on professional ethics well done that this brings us to the end of the f1 course if you have any questions please contact your tutor but all the very best for your exam thank you very much