Question Tag: Ethical Issues

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  • 4 Marks

MI – May 2024 – L1 – SB – Q4e – Information Systems

Identify examples of ethical, social, and political issues raised by information systems.

e. Enumerate TWO examples in each of the following ethical, social, and political issues as raised by information systems:
i. Ethical issues
ii. Human interaction issues
iii. Relationship issues
iv. Security issues (4 Marks)

i. Ethical Issues:

  • Data privacy and confidentiality
  • Intellectual property rights violations

ii. Human Interaction Issues:

  • Loss of jobs due to automation
  • Difficulty in adapting to new technologies

iii. Relationship Issues:

  • Barriers to communication due to digital channels
  • Collaboration challenges between different departments

iv. Security Issues:

  • Unauthorized access to data
  • Cyberattacks targeting sensitive information
  • 10 Marks

AA – Nov 2023 – L2 – Q2a – Regulatory Framework and Audit Responsibilities

Identify and explain regulatory and ethical issues related to resignation, retirement, and dismissal of auditors.

Auditors play an important role in providing assurance to stakeholders on the reliability and accuracy of financial statements. However, situations may arise where an auditor may need to resign, retire, or be dismissed or removed from the audit engagement. The Auditor needs to consider regulatory, professional, and ethical issues relevant to an audit or assurance engagement.

Required:
Identify and explain the regulatory and ethical issues relating to:
i) Resignation;
ii) Retirement; and
iii) Dismissal/Removal of an auditor.
(10 marks)

i) Resignation:

  • Regulatory: The auditor must comply with regulatory requirements, such as informing the appropriate authorities and providing reasons for resignation, as per the Companies Act, 2019 (Act 992).
  • Ethical: The auditor must maintain confidentiality, avoid actions that damage the entity’s reputation or their own, and should not resign to avoid issuing an unfavorable opinion or for personal gain.

ii) Retirement:

  • Regulatory: Upon retirement, the auditor must inform authorities and ensure that a successor auditor is appointed, per the requirements of the Companies Act, 2019 (Act 992).
  • Ethical: The auditor must act with integrity, avoiding any conflicts of interest or compromise to their independence and objectivity. Retirement should not be used as a strategy to avoid issuing an unfavorable opinion.

iii) Dismissal/Removal:

  • Regulatory: In Ghana, a resolution to remove an auditor is effective only if it is passed at an annual general meeting, preceded by appropriate notice to both the company and the auditor (35 days before the meeting, 21 days before members’ notification). The auditor has the right to speak on the resolution at the meeting.
  • Ethical: The auditor must ensure confidentiality, and dismissal should not be accepted to avoid modifying their opinion without proper justification. Dismissal for refusing to alter an opinion would violate professional ethics.
  • 10 Marks

AA – Nov 2020 – L2 – Q2c – Professional and Ethical Considerations

Evaluate compliance with IFAC’s Code of Ethics in two audit scenarios.

You are an audit manager with Kwabotwe & Co, a firm of Chartered Accountants. You have been assigned to handle the firm’s quality control in the first quarter. In your first meeting, you invited staff to raise matters from their experience relating to their compliance with IFAC’s code of ethics. The following issues came up:

i) In its management letter to another audit client, Kwabotwe & Co warned the company that its computer system lacked essential controls. The company subsequently decided to install a totally new system, and Kwabotwe & Co’s management consultancy department was appointed to design the new system.
(5 marks)

ii) Kwabotwe & Co was recently approached by a large company that was not an audit client at the time, for a second opinion on the audit of the financial statements. The company was in dispute with its existing auditors, who were proposing to issue a qualified audit opinion due to disagreement over inventory valuation. Kwabotwe & Co’s technical partner reviewed the evidence provided by the company and advised that its accounting treatment was in order. Shortly afterward, Kwabotwe & Co was invited to accept nomination as auditors. However, the reply to the letter of inquiry to the existing auditors made it clear that the inventory valuation dispute was not as straightforward as the company had made it out to be.
(5 marks)

Required:
Evaluate whether Kwabotwe & Co had complied with IFAC’s Code of Ethics or had acted unprofessionally in any way with respect to each of the above scenarios.

i) Advice on controls:
Kwabotwe & Co may have breached auditor independence by designing a new system for the client. Providing non-audit services, especially system design, could create a self-review threat, where the auditors may later be required to audit the system they implemented, risking biased judgment. Though advising on weaknesses is acceptable, designing and implementing the solution threatens independence. Auditors must not make executive decisions for the client, and while providing such services is not prohibited, the fees should not exceed the 15% limit for non-audit services. In this case, Kwabotwe & Co should ensure strict separation of audit and consulting services.
(5 marks)

ii) Second opinion to non-audit client:
Kwabotwe & Co failed to comply with the ethical guidelines in this case. By providing an opinion without consulting the existing auditors, they engaged in opinion shopping, where companies seek favorable opinions to undermine their current auditors. Professional guidelines require Kwabotwe & Co to communicate with the company’s existing auditors before giving a second opinion. Additionally, they should have declined the audit nomination due to the complexity of the inventory valuation dispute, which was not fully disclosed. Their action could be seen as an attempt to secure the audit engagement, thus violating professional objectivity.
(5 marks)

  • 6 Marks

AA – Nov 2021 – L2 – Q3b – Professional and Ethical Considerations

Discusses the threats and safeguards related to a former Finance Director reviewing audit work for their former company.

Ackah Senzu had been the Finance Director of Keke Ltd for the immediate past eight years, influencing all the major financial policies of the company. Last year, he moved to Plus Associates, an audit firm, as a Partner. The Directors of Keke Ltd then appointed Plus Associates as their auditors because of the strong relationship with Ackah Senzu. The Senior Partner assumed the engagement responsibility of the audit of Keke Ltd but asked Ackah Senzu to review the audit work.

Required:
Discuss the threats and safeguards of this decision.

Threats:

  1. Self-review threat – Since Ackah Senzu was the Finance Director for the past eight years, he would be reviewing his own work if he were to review the audit. This poses a significant threat to objectivity and independence.
  2. Familiarity threat – Ackah Senzu’s strong relationship with the directors of Keke Ltd could lead to a lack of professional skepticism, making him more lenient in his review.

Safeguards:

  1. Reassigning the review – Ackah Senzu should not be allowed to review the audit file. Another independent partner or senior staff member in the firm should be assigned to review the audit work.
  2. Independent engagement partner – A different partner should be appointed as the engagement partner to avoid familiarity or self-review threats.
  • 10 Marks

AA – Nov 2018 – L2 – Q1b – Professional and Ethical Considerations

Discusses ethical issues concerning auditor independence and implications of withholding access to company records.

b)

i. Yaw Manu is a Chartered Accountant who has been appointed as an auditor of Level Ltd at the annual general meeting of the company in December 2009, which assignment Yaw Manu accepted. In April 2010, Yaw Manu joined Kwaku Assenso, also a Chartered Accountant, who is the Finance Manager of Level Ltd, as a partner.

Required:
Discuss the ethical issues raised in the above scenario. (5 marks)

ii. You are the auditor of S.K Ltd. While conducting the audit of the company for the year ended 31 December 2017, you wanted to refer to the minutes book, but the Board of Directors refused to give these books to you.

Required:
Discuss the implications of the directors’ action. (5 marks)

i. Ethical issues raised in the scenario:

  • Independence: Yaw Manu’s partnership with Kwaku Assenso, the Finance Manager of Level Ltd, compromises his independence as an auditor since the finance manager is an officer of the company.
  • Self-Review: Yaw Manu may need to review his partner’s financial work, creating a conflict of interest.
  • Confidentiality: Joining the finance manager as a partner may lead to a breach of confidentiality, as Yaw Manu could gain access to internal financial information.
  • Conflict of Interest: There is a direct conflict of interest, as Yaw Manu now holds a partnership with an officer in the same company he is auditing.
  • Objectivity: His objectivity could be compromised, impacting the reliability of the audit. (5 marks)

ii. The auditor has the legal right to access all books, accounts, and vouchers of the company, including the minutes book, as per Section 133(a) of the Companies Act. This right ensures that the auditor can express an informed opinion on the financial statements.

  • Denying access to the minutes book constitutes a limitation on the scope of the audit.
  • Such limitations prevent the auditor from performing their duties effectively, leading to an incomplete audit.
  • As a result, the auditor may be forced to extend audit procedures or issue a qualified opinion or even a disclaimer of opinion, indicating that the financial statements cannot be audited properly due to the lack of access to necessary records. (5 marks)

(Total: 10 marks)

  • 10 Marks

CR – May 2019 – L3 – Q5b – Regulatory framework and ethics

The question requires identifying and discussing the ethical issues arising from conflicts of interest, board dynamics, and related party transactions within Bolgatanga Ltd and how to address them appropriately.

Bolgatanga Ltd (Bolgatanga), currently operating in the biotechnology research and healthcare sector, is a Ghanaian listed company which prepares financial statements in accordance with International Financial Reporting Standards (IFRS) up to 31 December each year. On 1 January 2015, Bolgatanga acquired 80% interest in Wa Ltd (Wa). You are a newly qualified accountant at Bolgatanga and report directly to Mr. Dominic Atubiga, the Financial Controller (FC). Early 2017, Bolgatanga acquired Sissala Ltd (Sissala), a private company, and has recently had an application for additional funds rejected from its current bankers on the basis that there are insufficient assets to offer security.

You have been reviewing the minutes of Bolgatanga’s last board meeting, dated 28 December 2017. The minutes indicate that the sales director resigned on 1 December 2017. In her resignation letter to the board, the sales director states that she can no longer work with Dominic Atubiga, who is dominating the board and allowing a close friendship with, and advice from, Salifu Adams (Managing Director of Sissala) to compromise his judgement.

The Human Resources department is currently in the process of recruiting a new sales director. Dominic Atubiga tells the board that, in the interim, the marketing department will just have to cope until a replacement sales director is appointed. Speaking to other staff in Bolgatanga, you have become aware that the wife of the Managing Director of Bolgatanga is a partner in Brother and Co., a firm of solicitors which the company uses to provide legal advice in relation to the market development activities of Wa. However, Brother and Co. has confirmed that the FC’s wife works in a different division and that she has no involvement in the services provided. It is your understanding that legal fees of GH¢500,000 (included in administration expenses) were paid by Bolgatanga to Brother and Co. during the year ended 31 December 2017.

Required:
Discuss the ethical issues arising from the information provided, and the appropriate steps to address them.

Ethical Issues Arising:

  1. Conflict of Interest (Friendship Influence on Board Decisions):
    The relationship between the Financial Controller, Dominic Atubiga, and Salifu Adams, the Managing Director of Sissala Ltd, raises a potential conflict of interest. The sales director’s resignation letter suggests that Atubiga’s judgment may be compromised due to his close friendship with Adams. The conflict arises because decisions regarding Sissala might be influenced by personal relationships rather than what is best for Bolgatanga Ltd.

    Step to Address:

    • The board should review the governance structure to ensure decisions are made objectively, free from personal biases. A formal policy on conflicts of interest should be implemented or strengthened, requiring disclosure of personal relationships that may affect decision-making.
  2. Leadership and Board Governance Issues:
    The resignation of the sales director indicates governance issues, particularly with how Dominic Atubiga’s leadership is perceived. His statement that the marketing department will have to “cope” until a new sales director is appointed suggests a lack of strategic leadership and disregard for potential operational risks due to the vacancy.

    Step to Address:

    • The board needs to ensure that leadership changes are handled strategically to avoid operational disruption. An interim plan for marketing leadership should be devised until the position is filled, with clear responsibilities assigned to maintain smooth operations.
  3. Related Party Transactions (Legal Services Provided by Brother and Co.):
    The legal fees paid by Bolgatanga to Brother and Co., where the wife of Bolgatanga’s Managing Director is a partner, constitutes a related party transaction. Although the FC’s wife works in a different division of the firm, the relationship still creates a perception of bias or undue influence, which should be addressed to ensure transparency and fairness.

    Step to Address:

    • The related party transaction must be disclosed in accordance with IAS 24 to ensure transparency in financial reporting. The company should ensure that all related party transactions are conducted at arm’s length and are fully disclosed in the financial statements.
  4. Corporate Governance and Professional Ethics (Board Dominance):
    The dominance of the Financial Controller, as mentioned in the sales director’s resignation letter, suggests poor governance practices where one individual exerts too much control over board decisions. This undermines the principle of collective decision-making and could lead to poor judgment or biased decisions, which is against good corporate governance practices.

    Step to Address:

    • The board should ensure that its governance structures promote balanced decision-making. Implementing formal governance guidelines and independent oversight would help distribute power and prevent any one individual from dominating decisions. An audit or governance review could help identify weaknesses in the board’s operation.
  5. Lack of Clear Strategic Response to Bank Rejection:
    Bolgatanga Ltd had its request for additional funds rejected due to insufficient assets to offer as security. This could indicate underlying financial issues or poor asset management, suggesting that the company may not have a strong financial position.

    Step to Address:

    • The company should re-evaluate its financial strategy, including exploring other financing options or improving asset management. Additionally, clearer communication with stakeholders, including the banks, might help in securing future funding. Strategic financial planning should be prioritized to address asset management concerns.

Conclusion:

The ethical issues identified relate to conflicts of interest, board governance, leadership, and related party transactions. To address these, Bolgatanga Ltd should implement formal governance structures, disclose related party transactions transparently, and ensure that leadership changes and financial strategies are aligned with ethical standards and good corporate governance practices.

  • 3 Marks

TX – May 2019 – L3 – Q3D – Ethical principles in taxation

Examine the ethical and professional issues that tax consultants must consider when dealing with taxpayers.

d) Section 18 of the Revenue Administration Act 2016 (Act 915) makes provision for the use of Tax Consultant by a taxpayer.

Required:
Examine THREE (3) ethical and professional issues that a tax consultant may consider in dealing with a taxpayer. (3 marks)

  • Objectivity: Avoid conflicts of interest; not to allow bias, conflict of interest, or undue influence of others to override professional or business judgments.
  • Professional Behavior: Tax consultants must demonstrate professional behavior at all times, comply with relevant laws, and avoid any action that discredits the profession.
  • Technical Competence: Maintain up-to-date knowledge of new tax rules and legislation to ensure that a client or employer receives competent professional service based on current developments in practice, legislation, and techniques.
  • Integrity: Tax consultants must be honest and should not assist clients in committing an offense. They must be straightforward and honest in all professional and business relationships.
  • Confidentiality: Client information should not be disclosed to other parties without the client’s permission, including Ghana Revenue Authority, unless required by law (e.g., in cases of suspected money laundering).
  • 10 Marks

CR – Dec 2022 – L3 – Q3c – Regulatory Framework and Ethics

Address ethical issues surrounding special treatment of a cashier at Salisu Medical Centre and propose remedies.

Salisu Medical Centre runs 24-hour services every day. To ensure smooth cash collection from walk-in clients, the company also operates a 24-hour cash office. The cashiers work on a shift basis to cover the morning, afternoon, evening, and night services. There are five (5) cashiers employed by the firm, who are all supposed to work at least once in each of the shift periods before the year ends. Jennifer, one of the cashiers, has never worked on night duties since she was employed. The Finance Director of the company prepares the duty roster (time-schedule) for the cashiers’ shifts together with the Chief Cashier.

Jennifer’s special treatment has been continuously justified by the Finance Director due to her place of abode being far from the workplace. However, there are other cashiers who come on night-shift staying in her vicinity.

Jennifer is also known in the company for her frequent “excuse” duty from Doctors at the medical centre, allowing her to stay away from work, as well as her spontaneous use of annual leave days, sometimes obtaining additional casual leave. This behavior of Jennifer continuously affects workflow at the Cash Office, leading to another cashier being called to stand in for her, resulting in overtime payments for that cashier.

The conduct of Jennifer and the manner in which the Finance Director handles her case has caused concern among the other cashiers.

Required:

i) Describe the ethical issues involved and their implications on work output at Salisu Medical Centre.
(4 marks)

ii) Recommend possible measures that could be instituted to prevent such ethical challenges in the future.
(6 marks)

(Total: 10 marks)

i) Ethical issues involved:

  • Integrity: The Finance Director’s behavior concerning Jennifer lacks honesty. There is no transparency in how the cashiers’ shifts are allocated, as Jennifer is excluded from night shifts, despite other cashiers living in the same area being assigned night shifts.
  • Objectivity: The Finance Director is biased in his treatment of Jennifer. The special treatment given to her regarding her work shifts and frequent days off without action undermines the fairness and objectivity expected in the workplace.
  • Professional Behavior: The Finance Director’s actions bring into question the overall management of the cash office. His favoritism towards Jennifer causes resentment among other staff members and leads to increased costs for the company through overtime payments.
  • Professional Competence: The Finance Director has failed to demonstrate the necessary professional competence by allowing Jennifer’s irregular leave usage to increase staff costs unnecessarily. Overtime payments are becoming a fixed cost due to his lack of proper management.

(Any 3 points @ 1.33 marks each = 4 marks)

ii) Recommended actions:

  • Accommodation and Shift Allocation: Jennifer should be encouraged to find accommodation closer to work or be prepared to work all shifts regardless of the time. This would ensure fairness in shift allocation.
  • Annual Duty Roster: The Finance Director should work with the Human Resource department to prepare an annual duty roster, ensuring all cashiers know their shifts and leave days ahead of time. This would improve planning and prevent last-minute disruptions.
  • Casual Leave Policy: The Human Resource department should implement a clear policy on casual leave for employees who have exhausted their allocated leave days. This would control leave abuse and improve workflow.
  • Excuse Duty from Doctors: A stricter policy should be set in collaboration with the Managing Director and medical professionals to limit the overuse of “excuse” duty for workers. This will prevent the misuse of the system.
  • Teamwork and Training: The Finance Director should hold a meeting with all cashiers to promote teamwork and ensure everyone understands the importance of fairness in shifts. This would foster a positive work environment.

(Any 4 actions @ 1.5 marks each = 6 marks)

  • 10 Marks

AAA – July 2023 – L3 – Q1a – The audit approach | Audit-related services Planning |

Discuss five factors to consider before developing an audit proposal for a multinational company facing financial challenges.

Your firm has been approached to tender for an audit assignment by STK Ghana Ltd. The company is a multinational with its headquarters in Europe. STK Ghana Ltd is a manufacturing company that has operated in Ghana since 2010 and has made steady profits over the years. However, over the past few years, the company’s profits have been dwindling, and the group director in charge of Anglophone West Africa subsidiaries has charged the company to reduce its costs.

In a meeting with the country manager, you ascertained the following information:

  • Several creditors are pursuing the company for payment of their outstanding debt, including the previous auditor who is being owed for the past three years of audit work. The company has negotiated a payment plan for all its creditors.
  • Staff wages have been frozen, staff morale is very low, and several have left.
  • The company’s liquidity challenges commenced when the license of Glow Savings and Loans was revoked as part of the banking sector crisis with STK Ghana Ltd funds exceeding GH¢1 million locked up in short and long-term investments.

In the Terms of Reference (TOR) for the audit engagement, you are required to provide timelines for the overall audit and a financial proposal that is competitive. Upon receiving the TOR, a debate ensued among the partners on the relevance of submitting a proposal in response to the TOR.

Required:
Discuss FIVE (5) factors to be considered prior to developing a proposal for submission. (10 marks)

Tendering should commence only when a firm has been approached by a prospective client. The firm should not submit a proposal unless it can give satisfactory answers to the following questions:

  1. Expertise to Undertake the Engagement: The firm needs to assess whether its current manpower has the adequate expertise to undertake the audit of a manufacturing multinational like STK Ghana Ltd. The firm must understand both local and European legal and regulatory frameworks that the company operates under.
  2. Staff Availability: The firm must consider whether it has enough manpower to undertake the audit within the required timelines, considering STK Ghana Ltd’s size as a multinational corporation.
  3. Ethical Issues: Ethical considerations are critical. The firm must evaluate potential conflicts of interest, integrity issues, and independence, particularly since the group director is focused on cost reduction, which might impair the firm’s independence and objectivity.
  4. Liquidity Challenges: The firm should assess the seriousness of the company’s liquidity issues, the likelihood of getting paid for the audit services, and the risk of joining the list of unpaid creditors.
  5. Audit Risks: The firm must evaluate the audit risks involved, including the possibility of the company’s going concern and the risk of the auditor expressing an inappropriate audit opinion if the financial statements are materially misstated.

Additional considerations might include geographical coverage, the appropriateness of the proposed audit fee, and the possibility of communicating with the incumbent auditor to understand the situation better.

  • 18 Marks

BCL – Nov 2018 – L1 – Q5a – Company Directors and Other Officers Governance and Ethical Issues Relating to Business

Explain the governance issues and director duties related to fraud and financial mismanagement in a company.

In 2015, BIGO Ltd, which carries on the business of exporting yam and pineapple from Ghana to Europe, opened an account with Cal Bank at the Osu Branch. In 2016, the Finance Manager, who is the sole accounts officer of the company, forged the signature of the Managing Director (who was also the sole signatory to the bank account of the company) and made several withdrawals from the company to the tune of GH¢550,000. The bank, in that same year, requested that the Managing Director should, within two weeks of the letter, confirm the credit balance on the account which at the time stood at GH¢2,200,000. The Managing Director, without any further checks, signed the document, thus confirming the credit balance presented by the bank. In 2017, the auditors raised queries on some of the fictitious withdrawals. The Chairman of the Board ordered the Human Resource Manager to dismiss both the Managing Director and the Finance Manager with immediate effect.

Required:
i) Explain FOUR (4) issues in the case relating to governance and duties of directors.

(12 marks)

ii) Explain THREE (3) factors that disqualify a person from being appointed as a director.

(6 marks)

  • Duties of Directors: Directors have a duty to act in good faith, represent the company, and uphold their fiduciary duties.
  • Procedure for Termination: The case shows how the dismissal process for key company officers should be handled, especially in cases of fraud.
  • Board’s Authority and Involvement: The board’s responsibility in operational activities is highlighted, especially regarding oversight and the verification of financial transactions.
  • Fiduciary Duty of the Finance Manager: The Finance Manager’s actions breached their fiduciary duties, leading to significant financial loss.
  • Fraud and Criminal Implications: The fraud perpetrated by the Finance Manager, along with the failure of the Managing Director to properly verify financial documents, led to significant legal and ethical consequences for the company.                                                        (4 issues well explained @ 3 marks each = 12 marks)

aii)

  • Infants: Persons who are not of legal adult age cannot be appointed as directors.
  • Persons found by a competent court to be of unsound mind: Individuals who are legally determined to lack mental capacity are disqualified.
  • Companies: A company, as a legal entity, cannot be appointed as a director.
  • Undischarged Bankrupt: Individuals who have not been discharged from bankruptcy are disqualified from being directors.
  • Court Order: Individuals disqualified by a court order cannot be appointed as directors unless the period specified by the court has expired or the court grants leave.                    (3 points @ 2 marks each = 6 marks)

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