(Tiểu luận) mid term reportethical consideration

Trang 13 For the first case, the audit firm must not assign that member to the audit team at least two years after he or she stops working for the client.For the second case, the firm sh

FACULTY OF ACCOUNTING AND AUDITING

***

MID-TERM REPORT

ETHICAL CONSIDERATION

FOREIGN TRADE UNIVERSITY FACULTY OF ACCOUNTING AND AUDITING

***

MID-TERM REPORTETHICAL CONSIDERATION

Numerical order Student Code Full name

14 2112820017 Nguyễn Thị Linh Chi

Hanoi, October 2022INTROBusiness ethics are crucial in many areas, but they're particularly crucial when itcomes to the company's accounting records Even though you might not be anaccountant, accountants are required to handle books with the same professionalism.Even though certain unethical accounting techniques could seem like a fantastic idea,

an organization will eventually suffer as a result If they act unethically or don’tpractice good accounting ethics, their business could lose customers or even eitherhave trouble retaining employees or struggle to stay afloat.In addition to theaforementioned effects, if theey practice unethical accounting, their customers,employees, and investors may lose faith in the company and brand Additionally,being dishonest in accounting could be the end of a startup and force the owner topermanently close his doors

Therefore, accountants must adhere to accounting ethics whether they are abookkeeper for their own firm or a CPA (certified public accountant)

Table of contents:

Contents

I ACCOUNTANTS AND ETHICS 6

1 Key reasons for accountants to behave ethically 6

2 Approaches to accountancy ethics 7

II A CODE OF ETHICS FOR ACCOUNTANTS 7

1 IFAC and the ACCA 7

2 Fundamental principles of the ACCA Code of Ethics and Conduct 8

3 Personal qualities expected of an accountant 8

4 Professional qualities expected of an accountant 9

5 Conflict of interest 9

6 Self-interest threat 10

6.1 Financial interest 10

6.2 Close business relationships 11

6.3 Employment with client 11

6.4 Partner on client board 12

6.5 Family and personal relationships 12

6.6 Gifts and hospitality 13

6.7 Loans and guarantees 14

6.8 Overdue fees 14

6.9 Percentage or contingent fees 15

6.10 High percentage of fees 15

6.11 Lowballing 16

6.12 Recruitment 16

7 Self-review threats 17

*What Are Some Safeguards Against The Self-Review Threat? 19

7.1 Recent service with an assurance client 20

7.2 General services 20

7.3 Preparing accounting records and financial statements 21

7.4 Valuation services 21

7.5 Taxation services 22

7.6 Internal audit services 22

7.7 Corporate finance 22

7.8 Other services 23

8 Advocacy threat 23

9 Family threat 24

10 Intimidation threat 24

III Case study 25

1 Fundamental Principles 25

2 Danger of compromising fundamental ethical principles 27

2.3 Other services that can be offered together 29

2.4 Identify Threats 31

Reference 34

I ACCOUNTANTS AND ETHICS

As an accountant, your values and attitudes flow through everything you doprofessionally They contribute to the trust the wider community puts in the professionand the perception it has of it

They say not to judge a book by its cover, but bad ethics come with a badreputation for both the accounting company, and their clients For accountants, thiscan result in loss of clients, or difficulty retaining clients and gaining new clientswhich, in turn, will have a negative impact on revenue

For clients, the association with the bad ethics of their accountant (even if theyhave left), may have an impact on their reputation Some may make the assumptionthat they intentionally sought out bad ethics or illegal practices

1 Key reasons for accountants to behave ethically

1.1 Law and regulation

Ethical issues may be a matter of law and regulation All accountantsshould commit to professional behavior by complying with the laws andregulations of their profession Commitment to professional behavior ensuresthat the accountant doesn’t discredit or negatively affect the profession

1.2 Reputation

Protecting the profession's reputation and standing Given the nature ofthe business, and in compliance with various laws, accounting informationneeds to be kept confidential Clients trust accountants with sensitiveinformation, therefore ethics need to be strongly adhered to in order to protectits confidentiality

Orientation 73% (37)

34

F4 - Global Study

Ethical Considera琀椀on Group 14

1.3 Public interest

The public interest is an important, though abstract notion associatedwith the public benefit, rather than matters in which the public is interested.The accountancy profession’s actions to further the public interest include:developing technical and behavioral standards; establishing an infrastructure oftraining, development, monitoring and enforcement to help ensure thosestandards are applied; and promoting programmes to advance thinking anddevelop guidance to further the profession’s contribution to business andsociety

2 Approaches to accountancy ethics

Professionals will have their own idea of what behavior is ethical and what isnot Despite the differences, there are common views and values that shine through

To help individuals judge whether or not they are acting ethically in particularcircumstances, guidance should be given that unify the ideas Such guidance is usuallyknown as a 'Code of ethics' or 'Code of conduct'

II A CODE OF ETHICS FOR ACCOUNTANTS

1 IFAC and the ACCA

ACCA (the Association of Chartered Certified Accountants) is a global bodyfor professional accountants with 219,000 members and 517,000 students in 179countries It was granted a Royal Charter in 1974 which commits it to acting in andupholding the public interest To enable the development of high standards, IFAC'sethics committee established a code of ethics The code indicates a minimum level ofconduct that all accountants must adhere to As a member of IFAC, ACCA released its

Orientation

2020 ffr study guide

- ifrs9

ACCAOrientation None

8

own code of ethics, designed to align to the IFAC code The IFAC code is nowadministered by the International Ethics Standards Board for Accountants (IESBA).

2 Fundamental principles of the ACCA Code of Ethics and Conduct

ACCA members agree to be bound by the ACCA's Code of Ethics and

Conduct and comply with the following fundamental principles:

Integrity

Confidentiality

Objectivity

Professional behavior

Professional competence and due care

The fundamental principles within the Code – integrity, objectivity,professional competence and due care, confidentiality and professional behavior –establish the standard of behavior expected of a professional accountant (PA) and itreflects the profession’s recognition of its public interest responsibility Thosefundamental principles as well as the categories of threats to them – self-review, self-interest, advocacy, familiarity and intimidation threats are unchanged Alsounchanged, are the overarching requirements to apply the conceptual framework tocomply with the fundamental principles and where applicable, be independent

3 Personal qualities expected of an accountant

The personal qualities that an accountant should demonstrate to meet the

fundamental principles are:

Reliability: Ensure that work gets done and meets professional standards Accounting reliability refers to whether financial information can be verified and usedconsistently by investors and creditors with the same results.

Responsibility: Take control over your work Responsibility accounting is a kind of management accounting that is accountable for all the management,

budgeting, and internal accounting of a company The primary objective of this accounting is to support all the Planning, costing, and responsibility centres of a company

Timeliness: Be on time and produce work within a specified time frame The timeliness of accounting information refers to the provision of information to users quickly enough for them to take action

Courtesy: Conduct oneself with courtesy and consideration towards clients and colleagues Courtesy is very important in life because when you are courteous people have a good impression of you and respect automatically follows, instead of hatred

4 Professional qualities expected of an accountant

The Code of Ethics stated four professional qualities expected from an

accountant: independence, scepticism, accountability, and social responsibility Independence requires the accountant to complete the work without bias and

prejudice An accountant when having an engagement with a client has to provide independent and accurate assessments, and do not support or compete against the client for any personal interests Scepticism requires an accountant to be critical, an accountant should keep questioning all the information given to build his own opinionabout its quality and reliability Accountability means that an accountant is

accountable for all judgments and decisions In addition, work related to accounting and auditing can affect the public so accountants have a social responsibility

To ensure the quality of the engagement Here are some safeguards to apply: All relevant parties should be informed of possible conflicts of interest

Another independent team will work with clients

Both have to sign in confidentiality agreements

6 Self-interest threat

Self-interest is the threat that comes from the close relationship between an audit firm to its client The close relationship includes a personal relationship betweenmember and client, a long-term relationship between member and client, or the other kind of relationship with the client the member of the audit firm can gain monetary benefits from They can be threats to independence, and this part will represent 12 conditions that self-interest can arise in detail

6.1 Financial interest

Financial interest exists when an audit firm has a financial interest in a client's affairs, including owning shares or having other forms of investment So the parties listed below are not allowed to have any financial interest in a client: Assurance/audit firm or members and family members of the client

There are some safeguards to limit the influence of the threat:

Member liquidates shares, disposing of the interest

Removing the individual from the team if required

Keeping the client's audit committee informed of the situation

Using an independent partner to review work carried out if necessary

6.2 Close business relationships

There are examples of when a firm and client have an inappropriately close business relationship include:

Having a material financial interest in a joint venture with the assurance client.Client and audit firm advertise for each other

It will be necessary to judge the materiality of the interest and therefore its

significance However, unless the interest is clearly insignificant, an assurance

provider should not participate in any kind of close relationship with a client

Some safeguards to apply include:

Audit firm and client stop close business relationships

The engagement between the audit firm and client will be resigned

6.3 Employment with client

Staff can transfer between client and firm, and that situation is a threat to independence (bias) This threat can happen in 2 cases: the first is the staff transfer from the client company to the audit firm, and the second is the staff transfer from the audit firm to the client company However, the extent of the threat depends on various factors including the extent of influence of that member, and the length of time gap when the member changes the role

Here are some safeguards:

For the first case, the audit firm must not assign that member to the audit team (at least two years after he or she stops working for the client).

For the second case, the firm should arrange new personnel and ensure new member are as sufficient experience as the one who has left The engagement and audit work carried out should also be reviewed by an independent team And the engagement should be quality checked

In addition, ethical guidance stated that: A partner should not accept a key management position at a client until at least two years have passed since the end of the audit in which they participated An individual who has moved from a firm to a client will not be entitled to any benefits or payments from the firm (unless they are made according to predetermined agreements) The firm must have a procedure stating that the member who has a negotiation with the client must notify the firm and will be removed from the engagement

6.4 Partner on client board

Partner on the client board is the threat that arises when a partner or member of

an audit firm performs administrative roles in a client’s company And rule stated that

d partner or member of an audit/assurance firm should not perform administrative roles (for example, director) in a client’s firm

It may be acceptable for a partner or an employee of an assurance firm to perform the role of company secretary for an assurance client But both the audit firm and client have to ensure that the secretary's role will not include routine

administrative tasks

6.5 Family and personal relationships

Family or close personal relationships between assurance firm and client staff could seriously threaten independence Each situation has to be evaluated individually.Factors to consider are:

The individual’s responsibilities on the assurance engagement

The closeness of the relationship

The role of the other party at the assurance client

When an immediate family member of the assurance team member is a

director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the assurance engagement, the individual should be removed from the assurance team

The audit firm should also consider whether there is any threat to independence

is an employee who is not a member of the assurance team has a close family or personal relationship with a director, an officer or an employee of an assurance client

A firm should have quality control policies and procedures under which staff should disclose if a close family member employed by the client is promoted within the client

6.6 Gifts and hospitality

Accepting goods, services, and hospitality from clients may create self-interestand familiarity threats, since the assurance team members may be indebted to theclient and give biased opinions

However, not all gifts are prohibited The following safeguards are used to limit the impact of this threat on independence

Only small, insignificant and unimportant gifts are accepted and must be approved by the partner.

The receipt of the gift must be recorded even if the gift is refused

Note: The purchase of goods and services from an assurance client generally does not threaten independence, as long as the transaction occurs in the ordinary course of business and on commercial terms

6.7 Loans and guarantees

The advice on loans and guarantees falls into two categories

The client is a bank or other similar institution

Overdue fees mean the client still owes assurance fees from the previous year

or the previous services If the assurance companies continue to provide the service in

this case, they may not be able to collect the fee from the customer Therefore, the safeguard for the above situation is

Do not perform any further services for the customer until the fees owed arepaid

Overdue fees can be converted into interest-bearing loans to clients

6.9 Percentage or contingent fees

Contingent fees are fees calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work performed The assurance will have an incentive to ensure that specific results

For example: The client requests to omit audit adjustments that reduce the client'sprofits and the assurance team might accept this request to maximise revenue

Ethical guidelines state that a firm should not enter into any fee arrangement for an assurance angagement under which the amount of the fee is contingent on the result of the assurance work or on items that are the subject matter of the assurance engagement It would also usually be inappropriate to accept a contingent fee for non-assurance work from an assurance client

6.10 High percentage of fees

A firm shoul be alert to the situation arising where when total fees generated by

an assurance client represent a large proportion of a firm’s total fees Factors such as the structure of the firm and the length of time it has been trading will be relevant in determining whether thereiss a threat to independence It is also necessary to beware

of situations where the fees generated by an assurance client are a large proportion of the revenue of an individual partner Over-dependence on the specific customer may

cause the assurance team to skip necessary adjustments for fear of losing the client As

a result, the neutrality of the assessment will be affected

Safeguards in these situations might be include:

Discussing the issues with the audit committee

Taking steps to reduce the dependency on the client

Obtaining external/internal quality control reviews

Consulting a third party such as ACCA

Ethical guidance states that the public may perceive that a member’s objectivity

is likely to be in jeopardy where the fees for audit and recurring work paid by one client or group of connected clients exceed 15% of the firm’s total fees Where the entity is listed or public interest, this figure should be 10%

It will be difficult for new firms establishing themselves to keep within these limit and firms in this situation should make use of the safeduards outlined

6.11 Lowballing

When a firm quotes a significantly lower fee level for an assurance service thanwoulđ have been charged by the predecessor firm, there is a significant self-interest threat If the firm’s tender is succesful, the firm must apply safeguard such as:

Maintaining records such that the firm is able to demonstrate that appropriate staff and time are spent on engagement

Complying with all applicable assurance standards, guidelines and quality control procedures

6.12 Recruitment

Recruiting senior management for an assurance client, particularly those able toaffect the subject matter of an assurance engagement creates a self-interest threat for the assurance firm

Assurance providers must not make management decisions for the client Theei involvement could be limited to reviewing a shortlist of candidates, providing that the client has drawn up the criteria by which they are to be selected

7 Self-review threats

When auditors encounter the risk of assessing their own work, this is known as the self-review threat Apart from their basic services, audit firms frequently offer other services Accounting, valuation, taxation, and internal audit are some of its examples When an auditor is required to review work that they previously completed, a self-review threat may arise For instance, if the external auditor performs the accounting work and then audited the financial statements There’s a chance that the auditor won’t see any flaws in their own work because they’re afraid of being penalized (either financial or reputational) When an audit company offers non-audit services, such as drafting management or year-end accounts and then functions as an auditor, self-review threats may occur If auditors are involved in these services with a

customer, the threat of self-review arises