AAT Ethical Principles PDF

Integrity A member shall be straightforward and honest in all professional and business relationships. Objectivity A member shall not allow bias, conflict of interest or undue influence of others to override professional or business judgments. Professional competence and due care A mem...

Integrity A member shall be straightforward and honest in all professional and business relationships. Objectivity A member shall not allow bias, conflict of interest or undue influence of others to override professional or business judgments. Professional competence and due care A member has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A member shall act diligently and in accordance with applicable technical and professional standards when providing professional services. Confidentiality A member shall, in accordance with the law, respect the confidentiality of information acquired as a result of professional and business relationships and not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships shall not be used for the personal advantage of the member or third parties. Professional Behaviour A member shall comply with relevant laws and regulations and avoid any action that brings our profession into disrepute. Threats Self-Interest Threats May occur where a financial or other interest will inappropriately influence the member's judgement or behaviour. Self- Review Threats May occur when a previous judgement needs to be re-evaluated by the member responsible for that judgement. Advocacy Threats May occur when a member promotes a position or opinion to the point that subsequent objectivity may be compromised. Familiarity Threats May occur when, because of a close or personal relationship, a member becomes too sympathetic to the interests of others. Intimidation threats May occur when a member may be deterred from acting objectively by threats, whether actual or perceived. The conceptual framework provides guidance on fundamental ethical principles. AAT professional members are required to apply this conceptual framework to enable them to identify threats to compliance with the fundamental principles and to evaluate their significance. If such threats are clearly significant, members should apply safeguards to eliminate them or reduce them to an acceptable level so that compliance with the fundamental principles is not compromised. It's impossible to define every situation that creates such threats and specify the appropriate mitigating action. Members shall determine whether appropriate safeguards are available and can be applied to eliminate the threats, or reduce them to an acceptable level. In making that determination, the member shall exercise professional judgement and take into account whether a reasonable and informed third party, weighing all the specific facts and circumstances available to the member at the time, would be likely to conclude that the threats would be eliminated or reduced to an acceptable level by the application of the safeguards, so that compliance with the fundamental principles is not compromised. Unsworth LLP Meet Nisar and Josie. They work at Unsworth LLP, a small firm of accountants which provides a range of professional services to its business and personal clients. Nisar, an AAT member, is a partner at Unsworth LLP. Nisar runs the business clients department. He provides services to a number of clients, particularly Finns Ltd. They have been a client for many years. Unsworth LLP made total fee income of £1,900,000 last year. The accountancy services provided to Finns Ltd produced total fee income of £665,000. All staff at Unsworth LLP that are members of AAT have recently attended a training course on the AAT's Code of Professional Ethics, which helped them understand the conceptual framework and how to apply it. Nisar and Josie are both considering events which have recently occurred with their clients. Today is Wednesday 15 January. Finns Ltd Nisar received an email from Jerry Finn at Finns Ltd. From: Jerry Finn Sent: 14 January To: Nisar Cc: Subject: URGENT: Please amend grant form to show estimates Hi Nisar, One of your competitors, Grimble, have spoken to me, they said that the advice you gave last week was incorrect and that to secure our grant funding they think we can use estimated figures rather than the actual figures from the financial statements even though that’s what the grant regulations requires. We would like to estimate our income for the grant form as £10 million instead of the £7 million that our last financial statements show. Please could you amend the grant form and resubmit it by the end of today. By the way, Grimble have stated that if you can’t meet this deadline, they will be happy to do it for us and we would obviously also move our accountancy services to them to show our appreciation. I would prefer to keep our services with you, but Grimble’s offer is very tempting. Thanks, Jerry This email presents Nisar with an ethical problem. As he has undertaken training, he knows that applying the conceptual framework can be used to help with this situation. Nisar is facing a self-interest threat in two ways. The first self-interest threat Nisar is facing is the prospect of losing Finns Ltd as a client. The second threat is that Unsworth LLP are heavily reliant on Finns Ltd, as they represent 35% of the fee income to Unsworth LLP. This would be a large amount of their total fees to lose. Nisar is also facing an intimidation threat by Jerry Finn, as he is being threatened with replacement by Grimble, also by being asked to reply in a very short timescale agreeing to something that isn’t what the regulations require. Fear about losing Finns Ltd as a client means that Nisar is primarily in danger of compromising his objectivity: that he shall not allow bias, conflict of interest or undue influence of others to override professional or business judgements. There is also a further threat to his professional behaviour. If Nisar responds to the intimidation threat to amend the grant form based on the incorrect figures, Nisar is not complying with relevant regulations. Nisar’s integrity is also under threat; submitting the form with estimated figures when it requires actual figures is not honest and straightforward Through his professional judgement, Nisar should decide that giving into Jerry's threats will mean he is in breach of two fundamental principles - Objectivity and Professional behaviour. Nisar should consider what safeguards can be implemented to reduce the threats to an acceptable level. Nisar needs to: review the policies and procedures in place at Unsworth LLP in respect of ethics Nisar should discuss the situation with his fellow partners, and agree an appropriate 'holding' response to Jerry Finn Nisar could contact the AAT's ethical helpline for further guidance. Josie, an AAT student member, works in the personal clients department of Unsworth LLP. Josie provides services to a number of clients, including Anne Hammerson. Anne is an elderly, wealthy lady. Anne's nephew, Stan Hammerson, maintains her personal records and monitors her personal finances. Stan is a professional accountant, and member of another IFAC member body. Josie was alone in the office on Tuesday 14 January, when she received a phone call from Stan Hammerson who is a friend of Josie’s father. Stan told Josie that using his expertise as a professional accountant, he had found an error in the accounting work performed by Josie. This error he found was that his Aunt had paid £5,000 too much tax. "As I’ve known you for a long time personally, I don’t want you to get into trouble. So, if you fix the error then I won't tell your boss." – Stan Stan asked Josie to agree the amount of the error, and asked her to rectify the problem by paying £5,000 into his own bank account. He told Josie that as long as she takes this action, he wouldn’t inform anyone at Unsworth LLP of the error. This conversation presents Josie with an ethical problem. As she has undertaken training, she knows that applying the conceptual framework can be used to help with this situation. Josie is facing a self-interest threat as if she doesn’t comply with Stan’s request she may be in fear of losing her job or facing other disciplinary action. This may influence her judgement. As Stan is asking Josie to review her own work for an error and confirm it, this is also a self-review threat. Josie is also facing an intimidation threat. Stan is threatening to reveal her error to her boss. Stan is also pressurising Josie into agreeing with his decision by stating he has more expertise in this matter, and his judgement is therefore better. Josie is also facing a familiarity threat, by Stan as he is using his family relationship with Josie to place pressure on her. Integrity is one of the fundamental ethical principles – a professional accountant should be straightforward and honest in all professional and business dealings. Paying money into Stan's personal bank account in order to secure her job is devious and dishonest. Additionally, failing to tell her boss about the potential issue or the conversation is dishonest. Josie also faces threats to her objectivity, and professional behaviour. Her objectivity is threatened by Stan's undue influence to carry out his request. Josie's professional behaviour is also threatened as she would be bringing the profession into disrepute by illegally transferring funds, and could also be part of money laundering or fraud. Josie has access to confidential information due to her role. This is particularly relevant as her father knows the client involved but she should remember that she should not be discussing client information with anybody without proper and specific authority (unless she has a legal or professional duty to disclose). Unsworth LLP have provided a safeguard to Josie by providing the training on the conceptual framework. This training stresses the importance which Unsworth places on complying with the fundamental principles. As soon as Josie received the phone call, she should discuss this with her manager or a designated ethics partner. As a junior employee she has a duty to report the situation to someone more senior. This situation also raises a question about the quality of work being carried out. If an error of this size has indeed been made by a junior member of staff, this should have been picked up by the review processes at Unsworth LLP. Safeguards should be in place to ensure that, where possible, staff members are not working on clients who they have a personal relationship with. All AAT members must comply with the fundamental principles in AAT’s Code of Professional Ethics(opens in a new tab). The conceptual framework helps an accountant to analyse a situation in full before determining the action to take. The conceptual framework is not a list of rules because every situation is different; instead it revolves around the five fundamental principles. Ask yourself, ‘Does this situation mean that my integrity, objectivity, confidentiality, competence/due care and professional behaviour are preserved?' If you have to answer ‘No': use the framework to analyse which principles are at stake and what the threats are; then use professional judgement and safeguards to find a resolution. A flat organizational structure is one with few or no middle management layers between employees and leadership. A hierarchical or 'tall' structure has many leaders and layers of management, and businesses with this structure often use a 'top-down' approach with a long chain of command. 2. Functional structure In a functional structure, the organization is divided into groups by roles, responsibilities, or specialties. For example, an organization may have marketing, finance, and sales departments that are each overseen by a manager who also has a supervisor who oversees multiple departments Matrix structure The matrix organizational structure resembles a grid in which employees with similar skills are grouped and report to multiple managers. This often includes a functional manager who oversees projects and their progress and a product manager who is responsible for the company's strategy and success regarding product offerings. Divisional structure Organizations are split into divisions in a divisional structure based on specific products, services or geographies. Large companies that operate in broad geographic areas often use this structure or own separate, smaller companies. Each division has its executive leadership, departments and resources. Avoid/resolve the risk (completely eliminate or forego risk) Mitigate the risk (reduce the likelihood or impact of risk) Transfer the risk (assign or move the risk to a third-party via Cyber Liability Insurance) Accept the risk (acknowledge the risk and choose not to resolve, transfer or mitigate) CPD stands for Continuing Professional Development. The CPD cycle consists of (i) Plan; (ii) Do; and (iii) Review. It is a requirement of the AAT that all its professional members go through this cycle on a regular basis. Charles is an AAT licensed member. He's been preparing the accounts for Riley Ltd and has discovered that the business has not been paying National Insurance and income tax for some of its employees. He has raised this with the Finance Director who has asked Charles to ignore the issue as everyone does it. He has also said that if Charles raises it with the tax authorities he will find another accountant. What first steps should Charles take in this situation? Immediately report Riley Ltd to HMRC Evaluate the threats to his compliance with the fundamental principles and identify what safeguards he can implement Explanation of the correct answer: The conceptual framework approach requires professional members to identify, evaluate and respond to threats to compliance with fundamental principles. In this case Charles must use his ethical judgement to decide what threats this situation poses to his fundamental principles and implement safeguards to reduce or eliminate these threats. To protect his integrity he should discuss the situation with the Finance Director and explain the implication of not paying the National Insurance and tax. This will then reduce the intimidation and self-interest threats he faces to his fundamental principles. The conceptual framework approach gives AAT professional members a set of guiding principles. These encourage members to evaluate each situation depending on the circumstances which present themselves. An individual found guilty of money laundering can face fine an ulimited fine or a prison sentence of up to 14. The maximum penalty for failure to report is 5 years imprisonment and/or a fine. It is an offence for an AAT professional member to 'tip off' (i.e. warn) a client of their suspicions of money laundering. If the member works for a large firm these suspicions should be reported to the Money Laundering Reporting Officer; if the member is a sole trader the member should report directly to the National Crime Agency.