AAT's Code of Professional Ethics PDF

AAT’s Code of Professional Ethics: sets out a code of five fundamental principles which AAT professional members must comply with provides a conceptual framework which AAT professional members must apply to help them identify and evaluate threats to them complying with those funda...

AAT’s Code of Professional Ethics: sets out a code of five fundamental principles which AAT professional members must comply with provides a conceptual framework which AAT professional members must apply to help them identify and evaluate threats to them complying with those fundamental principles provides guidance on how to apply the conceptual framework in practice both generally and in specific problem situations. To remain compliant with the fundamental principles, an AAT professional member should: identify threats to compliance with the principles evaluate threats to compliance with the principles address those threats by putting in place appropriate safeguards to eliminate those threats or reduce those threats to an acceptable level. Following this process should ensure that an AAT professional member remains compliant with the fundamental principles. In other words, that the member behaves ethically. But even with a member behaving ethically, they may still encounter unethical behaviour. The unethical behaviour may be a third party, and the member needs to know what to do in that situation. This could be because the threat couldn’t be eliminated or reduced to an acceptable level and no further action was taken, or it could be because the threat wasn’t even identified in the first place. Jenni is an AAT trainee accountant at Unsworth LLP. They are a small firm of accountants which provide a range of professional services to business clients. Unsworth LLP have recently provided a training course for all their staff who are AAT members on AAT's Code of Professional Ethics including guidance for dealing with conflicts of interest. Regulatory compliance, professional scepticism and reporting duties 29% complete Jenni is an AAT trainee accountant at Unsworth LLP. They are a small firm of accountants which provide a range of professional services to business clients. Unsworth LLP have recently provided a training course for all their staff who are AAT members on AAT's Code of Professional Ethics including guidance for dealing with conflicts of interest. Continued It's Wednesday 30 January. Jenni receives a note that Nisar, one of the firm’s partners, took of a phone call from Mark Leaf, a new client who has been referred to the firm from an existing client. Client: Mark Leaf Date: 30 January Subject: Tax Return due tomorrow Hi Jenni We picked up a new client yesterday – Mark Leaf. He called and asked us to bring his affairs up to date and submit his tax return tomorrow. He’ll drop his information in tomorrow and will complete all money laundering documentation. I’ve quoted £500 to complete the return, and have promised him there won’t be any penalties – this is £200 more than usual as its such short notice. Please can you make sure the return is submitted tomorrow as I’ve promised. Nisar It's Thursday 31 January. The new client, Mark Leaf, has supplied his information at midday. Jenni has reviewed the information and realised that although all the information is there, there are actually 5 years’ worth of tax returns outstanding and she estimates this will take her at least 5 days to complete. She asks her manager, what to do. Her manager, Bill, says: “We’ve promised we’ll submit them by the deadline. Just get them done by then!” Jenni is under pressure to complete the work in an unreasonable timescale in order to meet the deadline that has been promised. She has already told her manager that she doesn’t think she can do the work in the time she has available. There's a risk that Jenni won’t be able to apply professional competence and due care and may make mistakes, or will fail to complete the task. What safeguard could the firm have put in place to reduce the threat? The problem appears to be a miscommunication in whether there needs to be one tax return completed, or several. Engagement letters are a standard procedure that firms should have in place to help safeguard against misunderstandings of what the service actually entails. It’s now 1 February. Jenni completed Mark Leaf’s tax returns and submitted them. She is concerned that her manager, Bill, put her under pressure to complete the returns. She’s recently spoken with a colleague who says that Bill regularly does this, and is worried that Bill’s behaviour is unethical and she should do something about it. Jenni clearly identified there was a threat to one of the fundamental principles and she raised her concerns with her manager in the first instance. Jenni’s manager, Bill, didn’t take any further steps to eliminate or reduce the threat to an acceptable level. Unsworth LLP may have formal whistleblowing policies that may be available for reporting unethical behaviour. Alternatively, Jenni may be able to confidentially speak with another manager, or even the AAT helpline if she’s unsure who she can talk to. Who a threat should be reported to will depend on an organisation’s own policies and procedures. It’s now 18 May, and HM Revenue & Customs have investigated Mark Leaf’s tax returns for the previous five years. They’ve identified that an error was made on two of the returns and are pursuing Mark Leaf for underpaid tax and fines. Mark Leaf is unhappy with Unsworth LLP as he doesn’t feel they carried out the service with due care and attention. He’s pursuing Unsworth LLP for breach of contract due to professional negligence. In addition to an engagement letter, what safeguard should Unsworth LLP have in place? Professional indemnity insurance is a requirement for AAT licensed members. It helps safeguard members if professional negligence claims are made against them. Jenni has recently been transferred into Unsworth LLP’s newly formed audit and assurance department. This department has been formed as Unsworth LLP has recently been successful in securing a number of audit and assurance clients, and they want to ensure they have specialised staff to work in this area. One of Jenni’s first assignments is as part of the assurance team for Emerald Fine Jewels Co, a high-profile jewellery company. Unsworth LLP has been asked to provide an assurance report to potential investors and as Jenni is new to review and assurance engagements, she’s nervous about the specific requirements for independence. She reviews her notes from college and finds the following definitions for independence in AAT’s Code of Professional Ethics. Independence is: independence of mind – the state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgement, allowing an individual to act with integrity, and exercise objectivity and professional judgement independence in appearance – the avoidance of facts and circumstances that are so significant a reasonable and informed third party, having knowledge of all relevant information, including any safeguards applied, would reasonably conclude a firm’s, or a member of the assurance team’s, integrity, objectivity or professional scepticism had been compromised. During the planning meeting for the assurance engagement, the partner asks if anyone has any personal circumstances that could threaten their independence. Jenni owns a piece of jewellery that was purchased from Emerald Fine Jewels Co, and the transaction occurred in the same period that the assurance engagement covers. Is Jenni’s independence threatened? For independence in appearance to be threatened, the facts and circumstances must be significant. It’s highly unlikely that a third party would consider Jenni’s independence to be threatened from one small irregular transaction occurring. If in doubt, Jenni should disclose the issue for the engagement partner to decide whether her independence could be threatened. Jenni needs to remember to apply professional scepticism in this situation. Although it can be tempting to take the word of the client at face value this can present a threat to independence. Which type of independence is being threatened? By not providing the information requested the finance manager is potentially affecting the ability to form an independent opinion. Jenni should ask for the evidence that she has requested, and if it’s not forthcoming, she should report this to the engagement manager. If Jenni’s firm intends to rely on the advice or work of an expert, they need to determine whether that reliance is warranted. They can’t just take it on face value. They need to consider a number of factors such as reputation, expertise, resources available and applicable professional and ethical standards. Jenni can gather this information from prior association with Payway or from consulting others. Even if Jenni concludes that they can rely on the work that PayWay has done, she’ll need to use professional scepticism in deciding how much reliance can be placed on the work and this might mean that some additional tests are still carried out Hi Jenni Lukasz at Emerald Fine Jewels said I should speak to you about whether our expenditure in relation to developing the new product should be treated as a non-current asset, or whether it’s an expense. We think it should be treated as a non-current asset, but our current firm has said that it should be an expense. Can you agree that it should be a non-current asset so that we can ask our firm to change their advice? Thanks! Sally at Sparkles Which of the fundamental principles is being most threatened? Professional competence and due care Jenni doesn’t have any evidence to form an opinion and also doesn’t know what the facts of the situation are. She doesn’t know what the accountant has based their advice on. What safeguard should the firm put in place to reduce the threat? Seeking client permission to contact the existing accountant Jenni should seek client permission to contact the existing accountant (while ensuring confidentiality is followed at all times). The firm may opt to communicate any limitations in forming their advice, but a blanket disclaimer isn’t appropriate. Professional accountants frequently find themselves in situations that may present a threat to ethical principles and knowing how to determine whether behaviour is ethical or unethical is a vital skill. Being familiar with an organisations policies and procedures will help to understand how to report unethical behaviour. There may be circumstances when it may be appropriate to ‘whistleblow’ and there is access to confidential support to help a member determine whether that is the right course of action.