ABS - Law and Ethics

Topic 9: Law and Ethics

  • UTS CRICOS 00099F

Learning Objectives

  • 9.1 Understand legal considerations in business and accounting

  • 9.2 Understand the need for accountants to be ethical and independent

  • 9.3 Define and describe the principles of ethical conduct

  • 9.4 Define and describe the threats to ethical conduct

  • 9.5 Identify various safeguards to the practice of ethics in organisations

9.1 Understanding Legal Considerations in Business and Accounting

Legal Considerations Overview

  • There are three main legal considerations in business and accounting:

    • Sources of Law: The two primary sources of law in Australia

    • Statutory Law: Law created by Parliament.

    • Case Law (Common Law): Law developed through judges' decisions in superior courts.

    • Contracts: Define expectations in business relationships.

    • Consumer Protection: Enforced regulations for protecting consumer rights.

Sources of Law

  1. Statutory Law

    • Legislation made by Parliament.

    • Includes specific statutes governing business transactions.

  2. Case Law

    • Judge-made law based on precedents from prior cases.

    • Decisions set legal standards for future cases.

Contracts

  • Definition: A contract is described as a ‘nexus of contracts’ where expectations of parties are set.

  • Elements of a Contract:

    • Specifies necessary components to form a legally binding contract.

    • Types of Contracts: Can be express (written/verbal) or implied (conduct).

  • Contract Law Functions:

    • Validates enforceability of contracts.

    • Provides interpretation in cases of dispute.

    • Addresses consequences of breaches (e.g., when one party fails to fulfill obligations).

  • Internal accountants are typically employees, while auditors act as external suppliers.

Consumer Protection

Goods and Services

  • Historical Shift: Since 1974, consumer legislation has changed from 'Buyer Beware' to 'Seller Beware.'

    • Key Legislation: Competition and Consumer Act 2010 (Cth).

    • Enforced by the Australian Competition & Consumer Commission (ACCC).

    • Quality Guarantees:

    • Products (s54)

    • Services (s60)

    • Unacceptable Business Conduct:

    • Misleading, deceptive, and unconscionable conduct (s18, s34, s21).

    • False or misleading representations (s29).

    • Recent Examples of Violations:

    • Volkswagen Emissions case.

    • Optus data breach case.

Financial Products and Services

  • Regulatory Responsibility:

    • Professionals must provide timely and accurate information.

    • Investigations by the Australian Securities and Investments Commission (ASIC).

    • Violations include false statements or misleading financial advice.

  • Implications: Accountants must ensure financial statements are true, fair, and reflective of the company's situation.

    • Recent Examples:

    • Commonwealth Bank of Australia

    • Mayfair Group engagements.

9.2 Need for Accountants to be Ethical and Independent

Legal versus Ethical Considerations

  • Legal requirements do not encompass the complete scope of accountants' responsibilities.

  • Discussion Scenario:

    • Task of increasing net profit by potentially unethical means.

    • Methods include: Overstating sales, understating expenses, fake sales, etc.

Ethical Violations

  • Illegal Actions: Breaching laws (e.g., fraud).

  • Unethical Conduct: Legal actions that obscure truth (e.g., delaying expense recording).

  • Earnings Management: Legal practices that may be considered unethical.

  • Public Interest: The primary duty of accountants is towards the public rather than just clients or employers.

Importance of Independence

  • Independence is crucial for avoiding undue influence on accounting judgments.

    • Accountants report accurate financial information, while clients may desire favorable outcomes.

    • Professional Accountability: Upholding public interest by observing ethical measures.

9.3 Principles of Ethical Conduct

APES 110 - Fundamental Principles

  • The APES 110 Code of Ethics outlines five fundamental principles:

    1. Integrity

    2. Objectivity

    3. Professional competence and due care

    4. Confidentiality

    5. Professional behaviour

  • Note: These principles indicate ideal behavior expected of accountants.

Principle Details

Principle 1: Integrity

  • Obligation: Accountants must be honest and straightforward in all relationships.

  • Expectations: No association with misleading or materially false information; integrity involves fair dealing and truthfulness.

Principle 2: Objectivity

  • Obligation: Accountants must maintain unbiased judgement and avoid conflicts of interest.

  • Guideline: Professional relationships that could bias decisions should be avoided.

Principle 3: Professional Competence and Due Care

  • Expectations: Accountants must maintain relevant professional knowledge, ensure competent service, and adhere to technical standards.

  • Requirement: Continuous education and awareness of professional developments.

Principle 4: Confidentiality

  • Obligation: Must not disclose confidential information without authority unless legally obligated.

  • Expectation: Preventing misuse of confidential information for personal gain.

Principle 5: Professional Behaviour

  • Obligation: Must comply with laws and avoid actions that could tarnish the profession’s reputation.

  • Expectation: Honesty in marketing and professional representations; avoiding exaggerated claims.

9.4 Threats to Ethical Conduct

Identification of Ethical Threats

  • APES 110 outlines several threats to ethical conduct:

    1. Self-interest

    2. Self-review

    3. Advocacy

    4. Familiarity

    5. Intimidation

Threat Explanations
Threat 1: Self-interest

  • Occurs when accountants possess financial interests in clients or are unduly dependent on client fees.

Threat 2: Self-review

  • Involves evaluating one’s own work, creating a conflict of interest.

Threat 3: Advocacy

  • An accountant promoting a client’s interests can compromise their independence.

Threat 4: Familiarity

  • Close relationships with clients can impair objectivity in judgement.

Threat 5: Intimidation

  • Situations where external pressures cause accountants to act unethically.

9.5 Safeguards to Practice Ethics in Organizations

Addressing Ethical Threats

  • Safeguards: Measures to counteract ethical threats should be established when necessary.

  • Categories of Safeguards:

    1. Professionally Created Safeguards: Regulations and standards ensuring ethical behavior.

    2. Work Environment Safeguards: Internal practices that promote ethical standards.

Professionally Created Safeguards

  • Include educational requirements, continuing development, corporate regulations, and disciplinary actions.

Work Environment Safeguards

  • Encompass internal monitoring systems, ethics programs, recruitment standards, and transparent communication policies.

  • Promote leadership that exemplifies ethical behavior creating a culture of ethics within the organization.

Ethical Thinking Framework

  • Framework includes assessing:

    1. Relevant facts

    2. Ethical issues

    3. Fundamental principles connected to the issues

    4. Established internal safeguards

    5. Alternative actions

Application of Ethical Framework

  • Implementing through an inquisitive mindset, professional judgment, and reasonable informed tests.

9.6 Colonial Legacy Impacting Identity (and Claim to Indigeneity)

Overall Concept of Identity

  • Identity is multidimensional and can encompass social, cultural, economic, and political aspects.

Colonial Influence

  • Colonialism Defined: Systematic takeover of one country by another, often altering the identities of the subjugated populations.

  • Imposition of languages, customs, and religions leads to significant cultural changes.

Indigenous Identity in Australia

  • Complex and multifaceted identities of Indigenous peoples shaped predominantly by external influences over time.

  • Recognition that Indigenous peoples constitute a distinct identity beyond mere ethnicity.

Lasting Impact of Colonialism

  • Cultural identities risk dilution through imposed languages and customs.

  • Understanding of one’s heritage can be affected by the dominance of colonial languages.

Next Steps

  • Engage with Chapter 9 and interactive exercises in the textbook.

  • Attend workshops and tutorials for deeper comprehension.

  • Prepare for Topic 10: Performance measurement and evaluation.

  • Remind importance of ethical principles and threats in the accounting profession, fostering ethical conduct through acknowledgment of foundational principles.