Lecture 9- Ethics & administration

Professional accountants have [blank_start]responsibility[blank_end] to act in [blank_start]public interest[blank_end] as well as considering their [blank_start]client[blank_end] or [blank_start]employer[blank_end]. 'Code of Conduct' requires professional accountants to comply with [blank_start]five[blank_end] fundamental principles

One ethical principle of 'Code of Conduct' is [blank_start]integrity[blank_end]. This means to be [blank_start]straightforward[blank_end] & [blank_start]honest[blank_end] in all professional & business relationships

Integrity also involves applying [blank_start]fair[blank_end] dealing & [blank_start]truthfulness[blank_end], so should not be associated with information that: contains materially [blank_start]false[blank_end] or [blank_start]misleading[blank_end] statement, contains statements or information furnished [blank_start]recklessly[blank_end] & [blank_start]omits[blank_end] or [blank_start]obscures[blank_end] information required to be included where such [blank_start]omission[blank_end] or [blank_start]obscurity[blank_end] would be misleading

Another ethical principle of 'Code of Conduct' is [blank_start]professional behaviour[blank_end]. This means to comply with relevant [blank_start]laws[blank_end] & [blank_start]regulations[blank_end] & avoid any action that [blank_start]discredits[blank_end] profession

Professional behaviour also involves actions which [blank_start]reasonable[blank_end] & [blank_start]informed[blank_end] third party, having knowledge of all [blank_start]relevant[blank_end] information, would conclude [blank_start]negatively[blank_end] affects good reputation of profession. Also, professional accountants shall conduct themselves with [blank_start]politeness[blank_end] & [blank_start]consideration[blank_end] towards all with whom they come into contact & shall not: make [blank_start]exaggerated[blank_end] claims for services they are able to offer, qualifications they possess, or experience they have gained & make [blank_start]disparaging[blank_end] references or [blank_start]unsubstantiated[blank_end] comparisons to work of others

Third ethical principle of 'Code of Conduct' is [blank_start]professional competence[blank_end] or [blank_start]due care[blank_end]. This means to maintain professional [blank_start]knowledge[blank_end] & [blank_start]skill[blank_end] at level required to ensure [blank_start]clients[blank_end] or [blank_start]employers[blank_end] receive competent professional services based on current [blank_start]developments[blank_end] in practice, legislation & techniques & act [blank_start]diligently[blank_end] & in accordance with applicable technical & professional [blank_start]standards[blank_end]

Professional competence or due care also involves continuing professional development (CPD) as it is required to [blank_start]develop[blank_end] & [blank_start]maintain[blank_end] capabilities to perform [blank_start]competently[blank_end] within professional environment. [blank_start]Users[blank_end] of accountant's professional services should be made aware of any [blank_start]limitations[blank_end] in those services

Fourth ethical principle of 'Code of Conduct' is [blank_start]objectivity[blank_end]. This means to not allow [blank_start]bias[blank_end], conflict of [blank_start]interest[blank_end] or undue [blank_start]influence[blank_end] of others. Professional accountant shall not perform professional service if circumstance or relationship [blank_start]biases[blank_end] or unduly [blank_start]influences[blank_end] accountant's professional [blank_start]judgment[blank_end] with respect to that service

Fourth ethical principle of 'Code of Conduct' is [blank_start]confidentiality[blank_end]. This means to respect [blank_start]confidentiality[blank_end] of information acquired as result of professional & business relationships & therefore not [blank_start]disclose[blank_end] any such information to [blank_start]third parties[blank_end] without proper & specific [blank_start]authority[blank_end] unless there is legal or professional right or duty to [blank_start]disclose[blank_end], nor use information for [blank_start]personal[blank_end] advantage of professional accountant or third parties

Confidentiality includes [blank_start]social[blank_end] environment, eg, close business [blank_start]associate[blank_end] or close or immediate [blank_start]family member[blank_end], confidentiality of information within [blank_start]firm[blank_end], confidentiality of information disclosed by prospective [blank_start]client[blank_end] or [blank_start]employer[blank_end] & confidentiality continues even after end of relationships between [blank_start]professional accountant[blank_end] & [blank_start]client[blank_end] or [blank_start]employer[blank_end]

One threat to ethical principle is [blank_start]self-interest threat[blank_end]. This means that [blank_start]financial[blank_end] or other [blank_start]interest[blank_end] will inappropriately influence professional accountant’s [blank_start]judgment[blank_end] or [blank_start]behaviour[blank_end]

Another threat to ethical principle is [blank_start]self-review threat[blank_end]. This means that professional accountant will not appropriately [blank_start]evaluate[blank_end] results of previous [blank_start]judgment[blank_end] made or activity or service performed by professional accountant, or by another [blank_start]individual[blank_end] within professional accountant’s [blank_start]firm[blank_end] or employing [blank_start]organisation[blank_end], on which accountant will [blank_start]rely[blank_end] when forming judgment as part of performing current [blank_start]activity[blank_end] or providing current [blank_start]service[blank_end]

Third threat to ethical principle is [blank_start]advocacy threat[blank_end]. This means that professional accountant will promote [blank_start]client’s[blank_end] or [blank_start]employer’s[blank_end] position to point that professional accountant’s [blank_start]objectivity[blank_end] is compromised

Fourth threat to ethical principle is [blank_start]familiarity threat[blank_end]. This means that due to [blank_start]long[blank_end] or [blank_start]close[blank_end] relationship with [blank_start]client[blank_end] or [blank_start]employer[blank_end], professional accountant will be too sympathetic to their [blank_start]interests[blank_end] or too [blank_start]accepting[blank_end] of their work

Fifth threat to ethical principle is [blank_start]intimidation threat[blank_end]. This means that professional accountant will be [blank_start]deterred[blank_end] from acting [blank_start]objectively[blank_end] because of actual or perceived [blank_start]pressures[blank_end], including attempts to exercise undue [blank_start]influence[blank_end] over professional accountant

Safeguards are [blank_start]actions[blank_end] or other [blank_start]measures[blank_end] that may eliminate [blank_start]threats[blank_end] or reduce them to an [blank_start]acceptable[blank_end] level

Two safeguards created by profession, legislation or regulation are: [blank_start]educational[blank_end], [blank_start]training[blank_end] & [blank_start]experience[blank_end] requirements for [blank_start]entry[blank_end] into profession & continuing [blank_start]professional development[blank_end] requirements

Another two safeguards created by profession, legislation or regulation are: [blank_start]corporate governance regulations[blank_end] & [blank_start]professional standards[blank_end]

Final two safeguards created by profession, legislation or regulation are: professional or regulatory [blank_start]monitoring[blank_end] & disciplinary [blank_start]procedures[blank_end] & external [blank_start]review[blank_end] by legally empowered third party of [blank_start]reports[blank_end], [blank_start]returns[blank_end], [blank_start]communications[blank_end] or [blank_start]information[blank_end] produced by professional accountant

Conflict resolution process should take into account: relevant [blank_start]facts[blank_end], relevant [blank_start]parties[blank_end], [blank_start]ethical issues[blank_end] involved, [blank_start]fundamental principles[blank_end] that apply to matter in question, established [blank_start]internal procedures[blank_end] & alternative courses of [blank_start]action[blank_end]

Professional accountant may disclose confidential information if: disclosure is permitted by [blank_start]law[blank_end] & is authorised by [blank_start]client[blank_end] or [blank_start]employer[blank_end], disclosure is required by [blank_start]law[blank_end], e.g. under [blank_start]anti money laundering[blank_end] legislation & there is professional [blank_start]duty[blank_end] or right to disclose, when not prohibited by [blank_start]law[blank_end] e.g. to comply with review by professional [blank_start]body[blank_end] or [blank_start]regulator[blank_end], or to protect professional [blank_start]interests[blank_end] of professional accountant in [blank_start]legal[blank_end] proceedings

Two factors professional accountants should consider in deciding whether to disclose confidential information are whether [blank_start]interests[blank_end] of all parties, including third parties whose [blank_start]interests[blank_end] may be affected, could be [blank_start]harmed[blank_end] if client or employer [blank_start]consents[blank_end] to disclosure of information by professional accountant & whether all relevant information is [blank_start]known[blank_end] & [blank_start]substantiated[blank_end], to extent it is practicable to do so

Another two factors professional accountants should consider in deciding whether to disclose confidential information are type of [blank_start]communication[blank_end] that is expected & to whom it is [blank_start]addressed[blank_end] & whether parties to whom [blank_start]communication[blank_end] is addressed are appropriate [blank_start]recipients[blank_end]

Final two factors professional accountants should consider in deciding whether to disclose confidential information are whether information is [blank_start]privileged[blank_end], for example under legal professional [blank_start]privilege[blank_end] & legal & regulatory [blank_start]obligations[blank_end] & possible [blank_start]implications[blank_end] of disclosure for professional accountant

Money laundering- Conceal, disguise, convert, transfer or remove [blank_start]criminal property[blank_end] or enter into or become concerned in an [blank_start]arrangement[blank_end] which they know or suspect facilitates acquisition, retention, use or control of [blank_start]criminal property[blank_end] by or on behalf of another person or it is acquiring, using or having possession of [blank_start]criminal property[blank_end]

Professional accountants are obliged by law to report [blank_start]suspicions[blank_end] of [blank_start]money laundering[blank_end]. Accountancy firms have [blank_start]Money Laundering Reporting Officer[blank_end] (MLRO). MLRO must then decide whether to submit [blank_start]suspicious activity report[blank_end] (SAR) to [blank_start]National Crime Agency[blank_end] (NCA)

Tax avoidance is [blank_start]legal[blank_end] (but can be considered [blank_start]unethical[blank_end]) while tax evasion is [blank_start]illegal[blank_end]

Tax evasion is seeking to pay [blank_start]less[blank_end] tax than is due by [blank_start]deliberately[blank_end] misleading [blank_start]HMRC[blank_end] or it is [blank_start]suppressing[blank_end] information to which [blank_start]HMRC[blank_end] is entitled or it is providing [blank_start]HMRC[blank_end] with [blank_start]false[blank_end] information

Tax avoidance is not [blank_start]defined[blank_end], but it is any [blank_start]legal[blank_end] method to [blank_start]reduce[blank_end] tax burden. It is not always be [blank_start]effective[blank_end] at saving tax. [blank_start]Anti-avoidance[blank_end] legislation is introduced to close legal '[blank_start]loopholes[blank_end]' which taxpayers make use of. They have recently introduced certain [blank_start]tax avoidance[blank_end] schemes must be disclosed to HMRC. [blank_start]Courts[blank_end] have struck down some planning schemes by ignoring elements of [blank_start]transactions[blank_end] which have no [blank_start]commercial[blank_end] purpose. Also, [blank_start]general anti-abuse rule[blank_end] (GAAR) has been introduced to enable [blank_start]abusive[blank_end] tax avoidance arrangements to be challenged

Penalties depend upon the taxpayer’s [blank_start]behaviour[blank_end] which could be [blank_start]careless[blank_end] (didn't take [blank_start]reasonable care[blank_end]) or [blank_start]deliberate[blank_end] but not [blank_start]concealed[blank_end] ([blank_start]inaccurate[blank_end] return but taxpayer has done [blank_start]nothing positive[blank_end] to [blank_start]conceal[blank_end] it) or [blank_start]deliberate[blank_end] & [blank_start]concealed[blank_end] ([blank_start]inaccurate[blank_end] return & taxpayer has done something to [blank_start]conceal[blank_end] it)

Causes of penalties include: failure to notify [blank_start]HMRC[blank_end] of [blank_start]chargeability[blank_end], failure to [blank_start]submit return[blank_end], [blank_start]incorrect return[blank_end], [blank_start]late return[blank_end], [blank_start]late payment[blank_end] & failure to keep [blank_start]proper records[blank_end]

For penalty to be charged inaccurate return must have led to: an [blank_start]understatement[blank_end] of taxpayer’s tax [blank_start]liability[blank_end] or false or increased [blank_start]loss[blank_end] for taxpayer or false or increased [blank_start]repayment[blank_end] of [blank_start]tax[blank_end] to taxpayer

HMRC has certain powers to undertake [blank_start]compliance checks[blank_end]. Therefore, they can [blank_start]check[blank_end] certain income tax [blank_start]returns[blank_end] or corporation tax [blank_start]returns[blank_end] at random or for particular reason. They can check those returns in [blank_start]detail[blank_end]. They can also make [blank_start]determinations[blank_end] of tax due within 3 dates of statutory filing date if taxpayer does not send in [blank_start]returns[blank_end]. This is treated as [blank_start]self-assessment[blank_end]. Also, HMRC can make [blank_start]discovery assessments[blank_end] if they think taxpayer has not declared [blank_start]full[blank_end] amount of income or profit. Reason for discovery assessments is that taxpayer has made an [blank_start]incomplete[blank_end] disclosure resulting in [blank_start]loss[blank_end] of tax. TIme limits are if it wasn't due to carelss or deliberate behaviour, HMRC have [blank_start]4[blank_end] years in order to raise discovery assessment but if it is due to careless behaviour that is extended to [blank_start]6[blank_end] years & if due to deliberate behaviour they can go back for [blank_start]20[blank_end] years to assess tax which has not been declared correctly

Taxpayers can appeal against [blank_start]discovery assessments[blank_end] & [blank_start]determinations[blank_end]. It has to be made in writing within [blank_start]30[blank_end] days of relevant [blank_start]event[blank_end] & must specify [blank_start]reason[blank_end] for appeal

HMRC has [blank_start]information[blank_end] powers as they can request [blank_start]information[blank_end] & [blank_start]documents[blank_end] either informally from taxpayer or formally via written notice. Third party [blank_start]notices[blank_end] must have consent of either [blank_start]taxpayer[blank_end] or [blank_start]first tier tribunal[blank_end]. Also, they have [blank_start]inspection[blank_end] powers as they can enter business [blank_start]premises[blank_end] of taxpayer whose liability is being checked to inspect [blank_start]premises[blank_end]