RELEVANT TO ACCA QUALIFICATION PAPER P7
A question of ethics
Paper P7, Advanced Audit and Assurance often contains question scenarios and requirements dealing with ethical issues, in both the compulsory and optional questions. When ethics appears in an optional question, it seems to be a popular choice for candidates in the exam, but answers are often lacking in detail and not well applied to the question scenario. The purpose of this article is to assist candidates in terms of knowledge and question technique when tackling a question on ethics. The IESBA Code IESBA’s (IFAC’s) Code of Ethics for Professional Accountants provides a conceptual framework that requires a professional accountant to identify, evaluate, and address threats to compliance with the fundamental principles. The conceptual framework approach should assist professional accountants to comply with the ethical requirements of the IESBA Code, and to serve the public interest. Guidance is provided in several areas: the identification of threats; the evaluation of the significance of those threats; and the use of safeguards that may serve to reduce threats to an acceptable level. In addition there are circumstances in which safeguards cannot reduce a threat to an acceptable level, and guidance is given on this also. Each of these points is discussed below. Threats to compliance with the fundamental principles The IESBA Code states that threats may be created by a broad range of relationships and circumstances. A circumstance or relationship may create more than one threat, and a threat may affect compliance with more than one fundamental principle. The threats to compliance are listed and described as follows in the IESBA Code: • Self-interest threat – the threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behaviour. • Self-review threat – the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or service performed by the professional accountant, or by another individual within the professional accountant’s firm or employing organisation, on which the accountant will rely when forming a judgment as part of providing a current service. • Advocacy threat – the threat that a professional accountant will promote a client’s or employer’s position to the point that the professional accountant’s objectivity is compromised.
© 2012 ACCA
2 A QUESTION OF ETHICS NOVEMBER 2012
Familiarity threat ─ the threat that due to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or too accepting of their work. Intimidation threat – the threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant.
Exam technique point – when answering exam requirements, candidates often simply state that a situation creates a threat, for example an answer may state ‘this situation creates a self-interest threat’ but without further explanation. Candidates must explain why a situation creates a particular threat in order to gain full credit, i.e. the answer must be tailored and specific to the scenario. Some candidates take a scattergun approach to their answer and simply list out all of the threats in the hope that one or more will be relevant to the scenario. Again, this approach is wasteful of time in the exam, as full credit can only be given where the correct threat or threats have been identified and also explained. The evaluation of the significance of threats The IESBA Code requires that a professional accountant shall take qualitative as well as quantitative factors into account when evaluating the significance of a threat. This is a matter of judgment and the matters that form part of the evaluation will depend on the type of threat...
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