The professional and ethical duty of the Accountant

The professional and ethical duty of the Accountant

VBS’s Unqualified Opinion KPMG’s report read that VBS’ accounts, “fairly present, in all material respects, the financial position of VBS Mutual Bank as at 31 March 2017, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Mutual Bank’s Act. ”

Managing ethics Compliance-based approach • Systems and practices ensure compliance with laws / punishment for non-compliance • Compliance manuals, disciplinary procedures etc Integrity-based approach • Management responsible for ethical behaviour in organisation • Ethics programmes and training exist • Creates ethical-based culture 6

IESBA Code of Ethics Professional Accountants in Public Practice Fundamental principles Conceptual framework Professional Accountants in Business 7

ACCA Code of Ethics and Conduct Fundamental principles • Objectivity • Professional competence and due care • Confidentiality safeguards • Integrity Threats • • • Self-interest Self-review Advocacy Familiarity Intimidation • Professional behaviour 8

Evaluating threats and safeguards Is threat at acceptable level? • Professional standards or legislation? • Culture of organisation (e. g. complaints system? ) No Apply safeguards • Professional e. g. education and training • Work environment e. g. internal control systems, organisation code of ethics, disciplinary procedures • Individual e. g. mentoring, maintain records of contentious issues 9

Threats in the digital age Cybersecurity • Risk of data theft • Accountants must protect data and respond to theft Platform-based business model • Risk of data theft • Accountants must protect data and respond to theft Distributed ledger Big data / AI • Lower risk of manipulation • BUT contains sensitive information • Use of big data must be ethical • Use of AI creates ethical threats 10

Activity: Ethical conflict § Lucy Smith is a qualified accountant working at Mbasi Construction Company. § The Finance Director, John Aderinto, who has recently returned from a lengthy sabbatical, has identified that some borrowing costs incurred before the construction of a property began were written off earlier in the current financial year. § John is worried that these costs will cause problems in meeting profit targets and so affect staff bonuses. § John has asked Lucy to retrospectively capitalise the costs, stating that this is an accounting choice. § He has also mentioned to Lucy that materials used to build the property were bought from RSJ Supplies, a company controlled by his wife. Identify the ethical issues this situation raises and explain how they should they be addressed. 11

Answer: Ethical conflict IAS 23 • No policy choice • Current accounting is correct and should not be changed John • Integrity: John may not be acting honestly if he knows the requirements of IAS 23 • Objectivity: John is driven by profit targets • Professional competence: John has been on sabbatical and may not know the requirements of IAS 23 • Professional behaviour: John’s behaviour not in line with that expected of an accountant Lucy • Should discuss IAS 23 requirements with John • May need to escalate/ seek external advice / speak to external auditors / resign RSJ • Related party transaction – should be disclosed. 12

Exam focus: how is ethics examined? Section A Question 2 “will require candidates to consider either (i) the reporting implications and/or the ethical implications of specific transactions to a scenario. 2 professional marks 14

Exam focus: writing an answer Depending on the scenario and requirement, an answer might include: • Identification of incorrect accounting treatment and explanation of correct treatment, referencing the relevant standard • Identification of relevant ethical principles and explanation of why these have been breached • Identification of any related party transactions • Suggested actions to address any incorrect accounting treatment, any breaches of ethical principles and disclose any related party transactions • Explanation of impact on stakeholders Avoid repetition!