CHAPTER 1 - Ethics

Fundamental Principles have been set out internationally by

International Ethics Standards Board for Accountants (IESBA)

The ICAEW Code of Ethics is derived from

IESBA Code of Ethics for Accountants

Professional Conduct in Relation to Taxation (PCRT)

this includes the five standards designed to supplement Fundamental Principles, set out in the Code.

Threats to the Fundamental Principles

• Self Threat

• Advocacy

• Self Review

• Intimidation

• Familiarity

Safeguards against Threats to Fundamental Principles

• Education/Training

• CPD

• Corporate Governance Rules

• Professional Standards

• Regulators

• External Review

Fundamental Principles (PIPCO)

• Professional Behaviour

• Integrity

• Professional Competence and Due Care

• Confidentiality

• Objectivity

Professional Behaviour

Comply with all relevant laws and regulations, avoid action which discredits the profession.

Integrity

Be straightforward and honest in all business dealings

Professional Competence and Due Care

Maintain professional knowledge and skill, as well as acting diligently.

Confidentaility

Do not disclose information outside of business unless there is a legal obligation to disclose.

Objectivity

Avoid bias, conflict of interest or undue influence.

Standards for Tax Planning

• Client Specific

• Lawful

• Disclosure and Transparency

• Advising on tax planning arrangements

• Professional judgement and appropriate documentation

What factors should be considered when initiating Conflict Resolution Process?

• Relevant Facts

• Relevant Parties

• Ethical Issues Involved

• Fundamental Principles related to the matter in question

• Established Internal Procedures

• Alternative Courses of Action

Steps for an Ethical Conflict Resolution

• Consult with other appropriate persons within the firm, from the relevant professional body or legal advisors.

• Obtain professional advice from professional body/legal advisor - or ICAEW helpline

• Document issues and details of discussions

• If it still remains unresolved, a professional accountant should refuse to remain associated with the matter creating the conflict.

• The professional accountant may determine that it is appropriate to withdraw from the engagement team, or to resign from the engagement/or the firm.

A Professional Accountant may disclose confidential information if:

• Disclosure is permitted by law and is authorised by the client/the employer

• Disclosure is required by law e.g. Anti money laundering.

• Disclosure is required if there is a professional duty to do so, when not prohibited by law.

  • e.g. to comply with a review by a professional body or a regulator.

Factors to consider regarding disclosure:

• Whether the interests of all parties, including third parties who’s interests may be affected, could be harmed if the client or employer consents to the disclosure of the information by a professional accountant.

• Whether all the relevant information is known and substantiated, to the extent it is practicable to do so.

• The type of communication that is expected and to whom it is addressed.

• Whether the parties to whom the communication is addressed are appropriate recipients.

• Whether the information is privileged, e.g. under legal professional privilege.

• The legal and regulatory obligations and the possible implications of disclosure for the professional accountant.

Threat of a Conflict of Interest

A conflict may arise between the firm and the client or between two conflicting clients being managed by the same firm.

• e.g. representing a husband and a wife in a divorce settlement.

A Conflict of Interest will always pose

a potential threat to objectivity and could threaten our fundamental principles.

Safeguards to Conflicts of Interest:

• Notifying the client of the firm’s business interest or activities that may represent a conflict of interest.

• Notifying all known relevant parties that the professional accountant is acting for two or more parties in respect of a matter where their respective interests are in conflict.

• Notifying the client that the professional accountant does not act exclusively for any one client in the provision of proposed services

  • e.g. in a particular market sector.

Additional Safeguards to Consider:

• Use of separate engagement teams

• Procedures to prevent access to information

• Clear guidelines for members on the engagement to ensure there is actual confidentiality.

• Regular review of the application of safeguards by a senior, not involved with the client engagements

What happens if Consent cannot be obtained or if the conflict cannot be reduced to an acceptable level?

They may not continue with both engagements and they must resign from one or both engagements.

Accountants must comply with:

• Proceeds of Crime Act 2002 (POCA) which is amended by the Serious Organised Crime and Police Act 2005 (SOCPA)

• Money Laundering Regulations 2007 (the Regulations)

ICAEW Members’ Regulations and Guidance includes:

• Consultative Committee of Accountancy Bodies (CCAB) 2018

• UK Economic Crime Strategic Board (ESCB)’s 2019 Economic Crime Plan

Money Laundering

The term used for a number of offences involving the proceeds of crime or terrorist funds. It includes processing, or in any way dealing with, or concealing, the proceeds of any crime.

Proceeds of Crime Act 2002

POCA criminalises all forms of money laundering and creates other offenses, such as failing to report a suspicion of money laundering and ‘tipping off’

Under POCA, someone is engaged in money laundering, if they:

• Conceal, disguise, convert, transfer, or remove (from the UK) criminal property

• Enter into or become concerned in an arrangement which they know, or suspect facilitates (by any means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

• Acquire, use, or have possession of criminal property.

Criminal property includes (not limited to):

• the proceeds of tax evasion, other tax-related offences

• a benefit obtained through bribery and corruption (inc. receipt of a bribe and the income received)

• benefits obtained, or income received, through the operation of a criminal cartel

• benefits arising from a failure to comply with regulatory requirements, where that failure is a criminal offence.

Tax evasion consists of seeking to mislead HMRC by:

• Suppressing information to which HMRC is entitled

• Providing HMRC with deliberately false information

Which of the following is not a fundamental principle of the ICAEW Code of Ethics?

A Professional behaviour

B Professional intellect

C Integrity

D Objectivity

E Confidentiality

B Professional intellect

Professional accountants must be straightforward and honest in all professional and business relationships. Which principle does this relate to?

Integrity

A professional accountant must comply with relevant laws and regulations and avoid any action that discredits the profession. Which principle does this relate to?

Professional Behaviour

Sandra, a chartered accountant, is completing the corporation tax computation for a client company. She realises that the client company's sales director, Heather, is a close family friend. Heather asks Sandra whether she has seen any information from the Financial Director about any planned bonuses.

Which two of the fundamental principles of the ICAEW Code of Ethics may be under threat here?

A Objectivity

B Integrity

C Professional behaviour

D Confidentiality

A Objectivity

D Confidentiality

Richard, a chartered accountant who works as a sole trader, is aware that he must adhere to the fundamental principle of confidentiality of the ICAEW Code of Ethics in respect of information he acquires in the course of his work.

Which of the following describes a situation where Richard does not have to keep such information confidential?

A When he suspects a client of money laundering

B When his firm no longer acts for the client

C When his firm has not yet been engaged by a prospective client

D When talking to a close friend in a social environment

A When he suspects a client of money laundering

Roger is a chartered accountant and is married to Jennifer, who is also his client. Jennifer runs several businesses on behalf of her father. Roger knows that Jennifer comes from a wealthy family with criminal connections. However, Roger has never queried the funding of Jennifer's businesses as he trusts her implicitly.

Which two of the following options are threats Roger is experiencing according to the ICAEW Code of Ethics?

A Self-interest threat

B Self-review threat

C Advocacy threat

D Familiarity threat

E Intimidation threat

A Self-interest threat

D Familiarity threat

Florence, a chartered accountant, knows that a client, Freddy, has financed his business using the proceeds of his criminal activities for a number of years. Florence has not reported this and has instead accepted substantial payments from Freddy which are 10 times her normal fee for comparable work.

Which two of the following statements are correct?

A Freddy is laundering money through his business and as Florence is aware of this she is required to disclose it to the proper authorities.

B Florence should discuss her decision to go to the authorities with Freddy.

C Florence may be guilty of money-laundering offences as she has assisted Freddy in concealing the proceeds of crime.

D Florence was justified in increasing her fee for such risky work.

A Freddy is laundering money through his business and as Florence is aware of this she is required to disclose it to the proper authorities.

C Florence may be guilty of money-laundering offences as she has assisted Freddy in concealing the proceeds of crime.

Iqmal is a chartered accountant who has just become suspicious that a client is engaged in money laundering.

Iqmal should report this to the firm's Money Laundering Reporting Officer:

A Once there is sufficient proof of money laundering

B Now

Any Suspicious Activity Report would be made by:

C Iqmal

D The firm's Money Laundering Reporting Officer

B Now

D The firm's Money Laundering Reporting Officer

Which of the following is not one of the factors for consideration given in the framework for ethical conflict resolution in the ICAEW Code of Ethics?

A Ethical issues involved

B Alternative courses of action

C Timescale involved

D Relevant parties

C Timescale involved

Stephanie accepts payment from a client in relation to work performed in preparing his personal tax return. The fee is a percentage of the reduction in the tax payable based on the previous year. Stephanie strongly suspects that the client has failed to disclose all sources of income. She later discovers this to be the case.

A Offence committed by Stephanie

B No offence committed by Stephanie

A Offence committed by Stephanie

Trevor suspected that a client of his has been receiving income through the operation of a criminal cartel. He reported this to his firm's Money Laundering Reporting Officer (MLRO), but has not heard anything else from the MLRO. Trevor later approaches the client to advise him of his suspicions and that the firm may have to report this to the authorities.

C Offence committed by Trevor

D No offence committed by Trevor

C Offence committed by Trevor

A threat to the fundamental principles may occur when a professional accountant promotes a particular opinion, compromising subsequent objectivity.

This category of threat is known as:

A Self-interest threat

B Self-review threat

C Advocacy threat

D Familiarity threat

C Advocacy threat

A threat to fundamental principles may occur when a professional accountant has to re-evaluate a previous judgement that they made.

This category of threat is known as:

A Self-interest threat

B Self-review threat

C Advocacy threat

D Familiarity threat

B Self-review threat

Which of the following statements is correct?

A Tax evasion is illegal and tax avoidance is legal.

B Both tax evasion and tax avoidance are legal.

C Tax evasion is legal and tax avoidance is illegal.

D Both tax avoidance and tax evasion are illegal.

A Tax evasion is illegal and tax avoidance is legal.

Mr Blythe is tendering for some consultancy work. The same work has also been tendered for by Comp Partners, the accountancy firm which prepares Mr Blythe's tax returns. The ethics partner at Comp Partners concludes that the threat from this conflict of interest cannot be acceptably reduced.

According to the ICAEW Code of Ethics, which of the following would be an acceptable course of action for Comp Partners?

A Inform Mr Blythe of the conflict and notify him that Comp Partners is ceasing to act for him

B Inform Mr Blythe of the conflict and obtain his written consent to continue to act for him

C Inform Mr Blythe of the conflict and continue to act for him

D Continue to act for Mr Blythe and keep the conflict confidential

A Inform Mr Blythe of the conflict and notify him that Comp Partners is ceasing to act for him

Toby is a sole trader.

Which of Toby’s actions is not an example of tax evasion?

A Claiming £2,000 of personal expenses through the business

B Understating cash sales by £500

C Deliberately postponing the sale of some shares from 5 April until 6 April so that he can use the following year's annual exempt amount to reduce his capital gains tax

D Overestimating the value of some property donated to charity

C Deliberately postponing the sale of some shares from 5 April until 6 April so that he can use the following year's annual exempt amount to reduce his capital gains tax

William, a chartered accountant, is being threatened by his client, James. James is threatening to harm William's family if William refuses to launder money for him.

Which of the following options correctly identifies the type of threat William is experiencing according to the ICAEW Code of Ethics?

A Self-interest threat

B Self-review threat

C Advocacy threat

D Familiarity threat

E Intimidation threat

E Intimidation threat

Select which of the following would be offences under UK anti-money laundering legislation:

(1) An accountant alerting a money launderer that a report has been made to the NCA.

(2) An accountant failing to report knowledge of a client's money-laundering activities.

(3) A taxpayer underpaying tax as the result of a deliberate omission from their tax return.

(4) A taxpayer underpaying tax as the result of an innocent error from their tax return.

(5) The act of tax avoidance.

A All of them

B (1) to (3) only

C (2) and (3) only

D (2), (3) and (5) only

B (1) to (3) only

Lauren is unhappy with an explanation given to her by a client in relation to the current year's accounts. If she accepts the explanation and submits the accounts to HMRC she feels that this will compromise the principle of integrity.

Which of the following factors is she not required to consider in resolving the ethical conflict?

A The facts that she has uncovered

B The relationship that her firm has with the client

C The client's internal procedures

D Alternative courses of action

B The relationship that her firm has with the client

A government is considering abolishing the current VAT rules on all food bought in supermarkets (but not any other shop) and replacing it with the following form of taxation. Each item bought in the supermarket will be subject to a levy of £0.75. In other words, a person who purchases 10 items of any value will pay £7.50 in tax.

The principle behind the proposed system is the:

A Ability to pay principle

B Value principle

C Unit principle

D Neutrality principle

C Unit principle

Which of the following is a source of tax law?

A The Budget

B Statutory instruments

C HMRC extra-statutory concessions

D HMRC statements of practice

B Statutory instruments

The ICAEW Code of Ethics defines the fundamental principle of integrity as an obligation on professional accountants:

• not to compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others

• to act diligently in accordance with applicable technical and professional standards when providing professional services

• to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession

• to be straightforward and honest in professional and business relationships

to be straightforward and honest in professional and business relationships

The ICAEW Code of Ethics defines the fundamental principle of objectivity as an obligation on professional accountants:

• not to compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others

• to act diligently in accordance with applicable technical and professional standards when providing professional services

• to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession

• to be straightforward and honest in professional and business relationships

not to compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others

The ICAEW Code of Ethics defines the fundamental principle of professional behaviour as an obligation on professional accountants:

• not to compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others

• to act diligently in accordance with applicable technical and professional standards when providing professional services

• to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession

• to be straightforward and honest in professional and business relationships

• to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession

The ICAEW Code of Ethics defines the fundamental principle of professional due care and competence as an obligation on professional accountants:

• not to compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others

• to act diligently in accordance with applicable technical and professional standards when providing professional services

• to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession

• to be straightforward and honest in professional and business relationships

• to act diligently in accordance with applicable technical and professional standards when providing professional services

Which of the following would not be likely to give rise to a conflict of interest?

• Acting for two competing business clients

• Acting for both a husband and wife in a divorce settlement

• Taking over a client from a rival accountancy firm

• Acting for a company and an employee of the company being made redundant

Taking over a client from a rival accountancy firm

You work for an accountancy firm and are preparing the accounts of one of your clients. You become suspicious about some large receipts showing in her bank account. When you question your client about these, she seems unable to provide satisfactory explanations.

Decide whether the following courses of action are correct or incorrect according to the ICAEW anti-money laundering guidance for accountants

As a professional accountant you are obliged to contact the firm's Money Laundering Reporting Officer (MLRO) regarding your suspicions.

Correct

You work for an accountancy firm and are preparing the accounts of one of your clients. You become suspicious about some large receipts showing in her bank account. When you question your client about these, she seems unable to provide satisfactory explanations.

Decide whether the following courses of action are correct or incorrect according to the ICAEW anti-money laundering guidance for accountants

You should inform your client that you have contacted the MLRO, but do not need to disclose the details to her.

Not Correct

Which one of the following statements is incorrect?

• Tax evasion is legal and tax avoidance is illegal

• Tax evasion is illegal and tax avoidance is legal

Tax evasion is legal and tax avoidance is illegal

Which one of the following statements is correct?

• The GAAR enables HMRC to challenge abusive tax avoidance arrangements

• The GAAR enables HMRC to challenge abusive tax evasion arrangements

• The GAAR enables HMRC to challenge abusive tax evasion arrangements

Linda is a Chartered Accountant and has been asked by her husband, who is a partner in the firm employing her to understate the income in one of their client’s accounts. She would receive a bonus payment for doing so.

Which two of the following options correctly identify the type of threats Linda is experiencing according to the IESBA Code of Ethics?

Self-Interest = she will receive a bonus

Familiarity = her husband

A professional accountant is obliged by law to report suspicions of money laundering.

What is the maximum prison sentence for failure to disclose?

5 years and an unlimited fine