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- 6 Marks
Question
You recently qualified as a professional accountant and received promotion in your company. One of your key responsibilities is to prepare management accounts to facilitate management decision making. You require important sales information from the sales department to incorporate into the final figures. Unfortunately, due to staff sickness and other inefficiencies, the sales report for the month has been delayed. Thus, you will not receive the information until few hours before the accounts are due for presentation to the Chief Finance Officer.
In a related situation, while on lunch break, you overhead the marketing manager asking another employee in the finance department to advise her on some investment decisions she has to make. She has recently inherited a considerable sum of money and would like your colleague to calculate her inheritance tax as well as capital gains tax liabilities.
Required: Identify the fundamental ethical principle(s) that could be in breach and justify why they may constitute a breach. (6 marks)
Answer
Fundamental ethical principles
In the first instance, the ethical issue at stake is integrity. Integrity ensures that professional accountants are straightforward and honest in all professional and business relationships. It also implies that accountants fair dealing and truthfulness. In this regard, presenting wrong or erroneous information that can misinform and mislead management will be a breach of the accountant’s integrity.
While you, as a professional accountant, may have time to include the information in the management accounts, it is unlikely that you will be able to check its accuracy as well since you are constrained with time. Therefore, you risk misinforming the finance director of the month’s sales which will constitute a breach of integrity.
In the second instance, the ethical issues at stake are professional competence and due care. Accountants have a continuing duty to maintain professional knowledge and skill at a level required to ensure that clients or employers receive competent professional service. It is expected of professional accountants to act diligently in accordance with applicable technical and professional standards when providing professional services.
With reference to the scenario, unless the employee is a tax expert, it is unlikely that he would have sufficient competence to calculate the tax liabilities. Providing financial advice may be a minefield, and one may need to be qualified under the financial services regulations before one could do so.
Even if the employee did have the required competence, it is probable that he could not offer due care as any advice he gives would be on-the-spot, and thus not have been able to look into the matter in enough detail.
- Tags: Accounting principles, Due care, Integrity, Professional competence, Professional Ethics
- Level: Level 2
- Series: MAY 2016
- Uploader: Theophilus