Question Tag: Ethical Conduct

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  • 6 Marks

CR – Nov 2017 – L3 – Q5d – Regulatory Framework and Ethics

Discuss the implications of compliance or non-compliance with the ethical code of conduct for professional accountants.

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest, a professional accountant should observe and comply with the ethical requirements of the IFAC’s Code of Ethics. All accounting professionals are responsible for acting in the public interest, and for promoting professional ethics.

Required:
Comment on the implications of compliance or non-compliance of the ethical code of conduct by professional accountants.

Implications of Compliance with the Ethical Code of Conduct:

  1. Maintaining Public Trust:
    Compliance with the IFAC Code of Ethics ensures that professional accountants maintain the trust of the public. By adhering to the principles of integrity, objectivity, and professional behavior, accountants can foster confidence in their services, which is essential for the credibility of financial reporting.
  2. Ensuring High Standards of Professionalism:
    Accountants who comply with ethical standards uphold the highest levels of professionalism, which benefits both the profession and society. It helps to mitigate risks of unethical behavior, such as fraud or misrepresentation, and ensures that the financial information presented is accurate and reliable.
  3. Promoting Transparency and Accountability:
    Ethical compliance promotes transparency and accountability in financial reporting, which is critical for the decision-making processes of various stakeholders, including investors, regulators, and the general public.

Implications of Non-Compliance with the Ethical Code of Conduct:

  1. Loss of Public Confidence:
    Non-compliance with the ethical code can lead to a loss of public confidence in the accountant and the accounting profession as a whole. A breach of ethics can damage the reputation of the accountant and may result in the public questioning the reliability of financial statements.
  2. Legal and Disciplinary Consequences:
    Professional accountants who do not adhere to ethical guidelines may face legal consequences or disciplinary action from regulatory bodies. This can include penalties, suspension, or removal from the professional body, impacting their ability to practice.
  3. Undermining the Integrity of Financial Reporting:
    Non-compliance may result in biased, inaccurate, or misleading financial information. This undermines the integrity of financial reporting, which can lead to poor decision-making by users of financial statements and, in severe cases, financial scandals.

Conclusion:
Compliance with the ethical code of conduct is crucial for maintaining public trust, ensuring the integrity of financial reporting, and upholding the professionalism of the accounting profession. Non-compliance, on the other hand, can have serious consequences, including legal action, loss of credibility, and damage to the profession as a whole.

(6 marks)

  • 3 Marks

CR – Nov 2017 – L3 – Q5c – Regulatory Framework and Ethics

Discuss the impact of a partner’s family relationship on the objectivity and independence of the audit firm.

Mr. Odorkor Asare is a partner of Fobes Chartered Accountants, an auditing firm. Mr. Asare was informed by the other partners to take a “compulsory leave” because he was in breach of the firm’s independence rules as his wife was the Finance Director of Millenium Insurance (an audit client). He was to resume after completion of the audit. Mr. Asare was disturbed by this notice even though he was not the reporting partner.

Required:
Discuss the stance taken by the other partners of the firm and its effect on the objectivity of Fobes Chartered Accountants.

  1. Threat to Objectivity and Independence:
    The relationship between Mr. Asare and his wife, who is the Finance Director of an audit client, poses a self-interest threat to the objectivity and independence of the audit. Even though Mr. Asare is not the reporting partner, the relationship may lead to undue influence on the audit work, potentially compromising the audit’s integrity.
  2. Ethical Decision by the Firm:
    The firm’s decision to place Mr. Asare on compulsory leave aligns with the ethical standards required to maintain independence and objectivity in auditing. This approach helps to prevent any perception of bias or conflict of interest that could arise due to the close personal relationship.
  3. Impact on Firm’s Objectivity:
    By removing Mr. Asare from any involvement with the client during the audit, Fobes Chartered Accountants ensures that the audit is conducted impartially. This action strengthens the firm’s commitment to ethical practices and helps preserve its reputation for objectivity and independence.
  4. Public Perception and Compliance with Ethics:
    Ensuring auditor independence is not only about actual threats but also about perceived threats. The stance taken by the partners demonstrates a proactive approach to avoid any doubt or suspicion from external stakeholders, in line with the IFAC Code of Ethics for professional accountants.

Conclusion:
The decision to have Mr. Asare take leave is a precautionary measure to uphold the firm’s independence and objectivity. Even though he was not the reporting partner, the relationship with a key officer of the audit client warranted such action to prevent any potential compromise to the audit’s integrity.

(3 marks)

  • 6 Marks

AAA – April 2022 – L3 – Q1b – Professional responsibility and liability

Explain parties not allowed to own financial interest in a client and identify relevant safeguards.

Where an audit firm owns shares or is a trustee of a trust that holds shares in a client, there is said to be a financial interest in the client’s affairs. According to the IESBA, some selected parties are not allowed to own direct or indirect material financial interest in a client.

Required: i) Explain THREE (3) parties that are not allowed to own direct or indirect financial interest in a client. (3 marks)

ii) Identify THREE (3) safeguards that may be relevant in relation to direct or indirect financial interest in a client. (3 marks)

i) Three parties not allowed to own direct or indirect financial interest in a client:

  • The assurance firm
  • A member of the assurance team
  • An immediate family member of a member of the assurance team (3 marks)

ii) Three safeguards that may be relevant in relation to direct or indirect financial interest in a client:

  • Disposing of the interest
  • Removing the individual from the team if required
  • Keeping the client’s audit committee informed of the situation (3 marks)
  • 4 Marks

AAA – April 2022 – L3 – Q1a – Rules of professional conduct

Evaluate four factors that determine the significance of a breach of the IESBA Code of Ethics.

When a firm concludes that a breach has occurred, the firm shall terminate, suspend or eliminate the interest of the relationship that caused the breach and address the consequences of the breach.

Required: Evaluate FOUR (4) factors that determine the significance of a breach of the IESBA code of ethics. (4 marks)

  • The nature and duration of the breach
  • Any previous breaches related to the current audit engagement
  • Whether a member of the audit team had knowledge of the interest or relationship that caused the breach
  • Whether the individual who caused the breach is a member of the audit team
  • If they were on the audit team, their role
  • The impact of any relevant services on the accounting records or the amounts of the financial statements
  • The extent of any threats created by the breach (Any 4 points @ 1 mark each = 4 marks)

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