Question Tag: Ethical Principles

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  • 10 Marks

FR – Nov 2023 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Discuss potential actions to avoid breaching the five fundamental ethical principles and recommend possible actions in dealing with an ethical situation.

a)
i) Explain how you could potentially act in order not to breach each of the FIVE (5) fundamental principles of the IFAC’s code of ethics. (5 marks)

ii) Recommend FIVE (5) possible actions that you should take as a member of the Institute of Chartered Accountants, Ghana in dealing with the situation. (5 marks)

i) Implication on the ethical principles

Integrity
In order not to breach the fundamental principle of integrity, the Finance Manager (FM) must be open and honest about the situation with the Finance Director (FD). The FM needs to be straightforward with the FD since it will not be right to ignore the issue, without proper investigation.
The possibility exists that the FD has made the adjustments to include some stocks located at another company’s premises or some errors identified with the stock count. However, if this is the case then why is the FD not providing evidence to justify his stock adjustments?
The FM should still try and resolve the issue with the FD. If the FM thinks he/she has already done enough by raising the issue with the FD, what will happen if the external auditors start to ask questions about the stock adjustments?

Objectivity
This is the ability to be able to question senior personnel when there is something that does not appear right, and not allowing self-interest or the undue influence of others override professional judgement. The FM should be objective and not allow the intimidation from the FD to override his professional judgement or his quest to seek clarification on the stock adjustment.

Professional Competence and Due Care
It is required of the FM to ensure that the quarterly management accounts are a fair representation of the company’s financial performance and position. It is therefore necessary that he takes the required steps to know if the company has some stocks elsewhere or probably if there were errors in the stock count.

Confidentiality
It is expected of the FM to respect the confidentiality of information he is privy to, without disclosing such to any third party (such as the bank) unless the necessary permission has been sought from the company. He can only do so if he has the legal or professional right or duty to do so.

Professional Behaviour
There is the need on the part of the FM to display professional courage by getting to the bottom of the matter. He should make the necessary effort to satisfy himself of the reason for the stock adjustment.

(Marks are evenly spread using ticks = 5 marks)

ii) The Finance Manager could consider taking the following possible actions to help remedy the situation.

  • If there is another director that the Finance Manager can speak to, then he should approach and raise the issue with that director. If the FD is falsifying the quarterly management accounts, then he is bowing to the commercial pressure to ensure that OJ Ltd is satisfying the funding conditions placed on it by the bank, and all the directors might have agreed to this.

    • ager could consult ICAG for assistance.

  • It would be unprofessional to attempt to ignore the issue. However, simply resigning from your employment, may cause significant problems for you and the practice. The Finance Man
  • The Finance Manager should seek legal advice. However, if the Finance Manager plans to seek advice from outside the practice, he should be mindful of the need for confidentiality as appropriate.
  • The Finance Manager could consider resigning if all other options prove futile. Since it is necessary for the Finance Manager to disassociate himself from all dishonest information/act, it may become necessary to resign if he thinks there may be some dishonesty in connection with the stock adjustment.
  • The Finance Manager should try to collect as much evidence as possible, documenting all discussions and decisions made in relation to the stock adjustments to protect himself legally and professionally

    • .

(Marks are evenly spread using ticks = 5 marks)

  • 10 Marks

AA – May 2019 – L2 – Q1b – Audit and Assurance Evidence

Discusses the advantages of auditor independence and the inherent limitations of auditing.

b) The Institute of Chartered Accountants (Ghana) is organizing a continuous professional development program on the code of conduct for members and other relevant issues pertaining to audit. You are the audit partner of Lankai and Co, a firm of Chartered Accountants, and you are to present a paper on the independence of the auditor and the inherent limitations of auditing.
Required:
i) Explain TWO (2) advantages of independent audit.
(3 marks)
ii) The phrase “the auditor must be seen to be independent both in fact and appearance.”
(3 marks)
iii) Inherent limitations of audit.
(4 marks)

i) Advantages of independent audit:

  • Independent audits inspire trust by showing transparency and accountability in financial reporting, which enhances the credibility of financial statements.
  • They help management detect and prevent errors and fraud, improving the reliability of financial information used by stakeholders.

ii) Independence in fact refers to the auditor’s state of mind, which allows them to provide an objective opinion without any undue influence. Independence in appearance refers to how third parties perceive the auditor’s behavior, which must be free from any situation that could compromise objectivity in the eyes of others.

iii) Inherent limitations of audit include:

  • Auditors cannot guarantee that all errors or fraud will be detected, as audits only provide reasonable assurance and not absolute certainty.
  • Judgements made in auditing may be subject to human error or misinterpretation.
  • Audits rely on evidence, which is persuasive rather than conclusive.
  • Internal controls, no matter how well designed, may not prevent all fraud or errors, especially if management overrides controls or colludes with others.
  • 10 Marks

CR – Mar 2023 – L3 – Q3c – Regulatory framework and ethics

Analyze ethical principles breached in payroll and recommend actions for addressing ethical dilemmas.

BYF Health Facility offers varied medical services; it is known for its high-quality laboratory services. In 2021, the company added to its laboratory services, testing for Covid-19 following the increased demand by airlines that travelers must have negative Covid-19 status either through PCR or Antigen tests. Consequently, the company recruited additional workers in the year to work in the new Covid-19 Lab on a part-time basis. All part-time employees (Locum staff) are paid based on hours worked, either on an 8-hour or 12-hour cycle.

As a precondition, part-time workers are to log in and also log out on every working day, for hours worked to be computed by the log-in device.

Bismark Appau (Bismark), a brother of the Director of Health Services of BYF Health Facility, is one of the employees who was employed on a part-time basis at the Covid-19 Lab on an 8-hour cycle. Bismark has permanent employment with KBT hospital and hardly gets time to work at the Covid-19 Lab of BYF Health Facility. However, in preparing payroll of Locum staff, the Director of Health Services continuously insists that in the case of Bismark, the full hours for the total working days in the month on the 8-hour cycle should be used, regardless of the hours he worked. Colleague workers are aware of this special treatment to Bismark, and are unhappy about this preferential treatment.

Required: i) Based on the scenario above, justify the possible ethical principles that might have been breached and its effect on productivity. (6 marks)

ii) Recommend the possible actions to be taken in dealing with this ethical dilemma. (4 marks)

 

i) The following fundamental principles of the IFAC code of ethics might have been breached:

  1. Integrity: An accountant is encouraged to be honest and straightforward in carrying out their duties. The Locum staff members are paid based on hours worked. Thus, under no circumstance is a Locum staff member expected to be paid for hours they did not work in the month. By complying with the directive of the Director of Health Services to pay Bismark the full allocated hours for the month, when he actually did not work, suggests dishonesty in the work of the accountant.
  2. Objectivity: The IFAC code of ethics expects accountants to be unbiased in their work and not succumb to any undue influence. The use of full hours allotted to Bismark in computing his salary when other Locum staff members are paid strictly on the hours they work suggests bias on the part of the accountant. The objectivity of the accountant might be impaired by the influence of the Director of Health Services.
  3. Professional behavior: The conduct of accountants at their workplace, in carrying out their duty, or wherever they find themselves, is expected to maintain the good reputation of the accountancy profession, and not to soil it. The “inconsistent” treatment given to the Locum staff, which has become known to other Locum staff, does not speak well of the accountant and could put the accountancy profession in a bad light.

(6 marks)

ii) Possible actions that the Finance Director should take include:

  1. The Finance Director should engage the Human Resource Director and the Laboratory Manager, if any, or whoever Bismark reports to on the issue of Bismark’s continuous absence from work. The Human Resource Director should ensure that Bismark reports to work during the allotted hours or loses the position to a willing and ready lab professional.
  2. Engage the Director of Health Services on why an exception cannot be made for Bismark regarding the determination of his earned salary in a month.
  3. Engage Bismark to reiterate that he will only be paid for hours worked and not the allotted hours.
  4. If the Director of Health Services insists on giving Bismark special treatment, the Finance Director should raise the matter with the Board of Directors.
  5. If necessary, the Finance Director can seek advice from the professional body on the matter.

(4 marks)

  • 10 Marks

CSEG – Nov 2018 – L2 – Q2a – Business ethics

Discuss the ethical principles that would be breached if you agree to the IT Director's request in the cost-benefit analysis.

The IT Director of Uswatu Ltd (Uswatu) has asked you to undertake a cost-benefit analysis of a proposed new IT system. The IT Director will use this analysis to convince the Board of Directors of Uswatu that they should invest in the new system. As part of your analysis, you found that the new system will not run properly on Uswatu’s existing computers. This means that Uswatu would have to replace most of their existing Desktop computers and servers, leading to an excess of costs over benefits.

The IT Director has suggested that you downplay the cost of replacing the IT infrastructure as he was sure that he ‘could find a work-around’ that would allow the existing computers to use the new software, though he was currently uncertain how this would be accomplished.

The IT Director has told you that he ‘expects’ the cost-benefit analysis to show a favourable result for the new system and has indicated that your future promotion prospects may depend on this.

Required:

Explain the IFAC’s fundamental ethical principles that you would be breaching if you agree to do the IT Director’s request. (10 marks)

IFAC Fundamental Principles That Would Be Breached:

  1. Integrity:
    • This principle requires members not to be associated with any form of communication or report where the information is materially false, provided recklessly, or incomplete. Potential problems with the proposed new system that will result in large cash outflow from Uswatu to upgrade the system have been identified. Following the IT Director’s suggestion would involve ignoring the issue without a firm idea of how it will be resolved. This means that the report will be incomplete and misleading to its users.
  2. Objectivity:
    • This principle requires accountants to ensure that their judgment is not compromised because of bias or conflict of interest. It is likely that the director’s demands will be adhered to because failing to do that may jeopardize job career prospects. This would clearly be acting in one’s own self-interest, compromising objectivity.
  3. Professional Competence and Due Care:
    • This principle requires accountants to follow all applicable technical and professional standards when providing services. It is clearly known that the cost-benefit analysis, when undertaken properly, shows an unfavorable result for the new IT system. Failing to use the correctly obtained result could be seen as a failure to meet professional and technical standards.
  4. Professional Behavior:
    • This principle requires accountants to avoid any activities that might bring the profession into disrepute. If you are found to have knowingly misled the Board of Directors into buying a system that is not cost-effective, it would clearly damage confidence in the accountancy profession.
  • 20 Marks

CSEG – May 2017 – L2 – Q5 – Corporate governance framework | Business ethics

Discuss the fundamental principles for a code of ethics in an NGO and the benefits of good corporate governance.

Covenant Mission (CM) is a non-governmental organisation that provides charitable support to disadvantaged families.

It is currently involved in a number of community projects to assist in the provision of clean water supply to families in Liberia, Nigeria, and the Gambia. In its home country, Ghana, it focuses more on assisting clients in accessing state-granted financial support as well as providing counselling and psychological support to less privileged people.

The NGO has grown very rapidly in recent years as demand for its services has increased. In line with this rising demand, it has begun to slowly evolve from an enterprise primarily run by volunteers to an institution employing professional managers from the private sector. These changes are considered essential in supporting the sustainability of the charity.

The board of trustees at the NGO recognizes the need to adopt a relevant code of ethics as part of necessary governance support structures. They are, however, concerned about recent criticism of such codes and wish to ensure that any code developed is effective throughout the organization.

Required:

a) Advise CM on FOUR fundamental principles to be included in its code of ethics. (8 marks)

b) Explain FOUR benefits of good corporate governance to CM. (12 marks)

a) Fundamental Principles to be Included in a Code of Ethics:

  1. Integrity: Integrity involves being straightforward and honest in all professional and business relationships. CM must ensure that all members act with integrity in their interactions with beneficiaries, donors, and stakeholders, fostering trust and credibility.
  2. Objectivity: Objectivity requires that CM members not allow bias, conflict of interest, or undue influence from others to override professional or business judgments. This principle ensures that decisions are made in the best interests of the beneficiaries without favoritism or prejudice.
  3. Confidentiality: Confidentiality entails respecting the privacy of information acquired as a result of professional and business relationships. CM must ensure that sensitive information about beneficiaries or operations is protected and only disclosed when authorized or legally required.
  4. Professional Competence and Due Care: This principle emphasizes maintaining professional knowledge and skill at the level required to ensure that services provided are based on current practices, legislation, and techniques. CM should ensure that all members act diligently and in accordance with applicable standards, particularly as the organization transitions to employing professional managers.

(Total: 8 marks)

b) Benefits of Good Corporate Governance:

  1. Enhanced Accountability and Transparency: Good corporate governance ensures that CM’s activities are conducted in an open and transparent manner, which builds trust with stakeholders, including donors, beneficiaries, and regulatory bodies. This transparency is crucial for maintaining the NGO’s reputation and securing ongoing support.
  2. Improved Decision-Making: By adopting good governance practices, CM can benefit from more structured and informed decision-making processes. The involvement of professional managers and a well-defined board of trustees ensures that decisions are made after careful consideration of all relevant factors, leading to more effective and efficient operations.
  3. Sustainability and Long-Term Success: Good governance practices contribute to the sustainability of CM by ensuring that resources are managed efficiently and responsibly. This approach not only helps in achieving immediate objectives but also secures the long-term future of the NGO, allowing it to continue serving disadvantaged communities.
  4. Risk Management: Effective governance frameworks include robust risk management practices, which help CM identify, assess, and mitigate potential risks that could affect its operations. This proactive approach to risk management protects the NGO from financial, operational, and reputational harm, ensuring continuity of services.

(Total: 12 marks)

  • 6 Marks

BCL – Nov 2016 – L1 – Q6c – Governance and Ethical Issues Relating to Business

List and describe the key principles of corporate governance.

Corporate Governance has been defined as a set of systems, processes, and principles which ensure that a company is governed in the best interest of all stakeholders.

Required:
List SIX principles of corporate governance.

The key principles of corporate governance include:

  1. Leadership: Ensuring that the company is led by an effective board that is responsible for the long-term success of the company.
  2. Transparency: Promoting openness and transparency in the company’s operations to build trust among stakeholders.
  3. Capability: Ensuring that the company’s management and board possess the necessary skills, experience, and knowledge to effectively govern the company.
  4. Accountability: Holding individuals within the company accountable for their actions, ensuring that they act in the best interests of the company and its stakeholders.
  5. Compliance: Adhering to legal, regulatory, and ethical standards to ensure the company operates within the law and maintains its reputation.
  6. Sustainability: Focusing on the long-term sustainability of the company, including environmental, social, and governance (ESG) factors, to ensure the company’s continued success.

(6 points at 1 mark each = 6 marks)

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