The impact of ethical considerations (A Level) flashcards

Topic 20: The impact of ethical considerations

The five fundamental principles of ethical behaviour

Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour (the same five as the IESBA Code).

Self-interest and self-review threats: triggers and safeguards

Self-interest: a bonus tied to profit, or fee dependence on one client; independent review or removal from the decision. Self-review: checking your own budget or accounts; a different person reviews.

Advocacy, familiarity and intimidation threats: safeguards

Advocacy: keep the promoting and reporting roles separate. Familiarity: rotate staff. Intimidation: escalate above the person applying pressure. If no safeguard works, decline or end the work.

Audit opinions: the two-question grid

No material problem: unmodified. Material, not pervasive: qualified ("except for"). Material and pervasive misstatement: adverse. Material and pervasive lack of evidence: disclaimer of opinion.

Which board committee oversees the external auditor and internal controls, and who sits on it?

The audit committee, made up of independent non-executive directors.

An audit manager's spouse is the client's finance director. Threat?

Familiarity: a close family relationship with someone who prepares the figures being audited.

A firm earns $45,000 of its $300,000 annual fees from one client. Percentage and threat?

45,000 ÷ 300,000 × 100 = 15%; self-interest (fee dependence).

Closing inventory is overstated by $6,500. Effect on this year's and next year's profit?

This year +$6,500 (cost of sales too low); next year −$6,500 (opening inventory too high). Over two years no difference, but each year's report misleads.

A forecast omits a cost of $6,000 a year for 3 years. At 10% (factors 0.909, 0.826, 0.751), by how much is NPV overstated?

Factors total 2.486. 6,000 × 2.486 = $14,916.

The four courses of action 9615 names for a suspected unethical or illegal act

Evaluate the significance of threats to the fundamental principles; ensure safeguards are in place; resolve conflicts of interest; seek external or professional help when necessary.

How does a professional body establish and enforce a code of conduct?

Establish: publish it, make it a condition of membership, set exams and continuing professional development. Enforce: investigate complaints, hold hearings, impose sanctions up to exclusion.

An accountant claims a qualification she does not hold on the firm's website. Which principle is breached?

Professional behaviour (and integrity).