Ethical Considerations

Marcus is a professional accountant who prepares the financial statements for Dalton Ltd. He recently purchased 5,000 shares in Dalton Ltd as a personal investment. Identify the threat to the fundamental ethical principles in this situation, name the principle most at risk, and state ONE safeguard Marcus could apply. (3 marks)

Priya works for an accounting firm. She prepared the management accounts for one of her firm's clients last year. Her firm has now been appointed as the external auditor for the same client, and Priya has been assigned to the audit team. Identify the threat to the fundamental ethical principles, name the principle most at risk, and suggest ONE way to reduce this threat. (3 marks)

Aisha is a management accountant at Fernbridge Plc. The finance director, who is Aisha's close friend, has asked her to prepare a report that presents the company's cost figures in the most favourable light possible for an upcoming board meeting. Identify the threat to the fundamental ethical principles in this situation and explain the risk this creates. (3 marks)

Define the terms "ethics" and "business ethics". (4 marks)

State the names of FOUR professional accounting bodies. (4 marks)

James is a professional accountant working in public practice. He has identified that he faces an advocacy threat in relation to one of his clients. Explain what an advocacy threat is in this context, and identify TWO safeguards that James's firm could put in place to reduce this threat. (4 marks)

The managing director of Alderton Ltd is considering under-depreciating the company's non-current assets this year to boost reported profit and improve the company's chances of securing a bank loan. Apply the THREE ethical test elements to this decision. (4 marks)

An accountant has been asked by their employer to include revenue from a contract that has not yet been signed in the current year's income statement. Explain which fundamental principle is most at risk in this situation and why. (4 marks)

Explain TWO reasons why acting ethically is important for a business organisation. (4 marks)

Explain the role of the Financial Reporting Council (FRC) in promoting ethical behaviour in accounting. (4 marks)

A client asks their accountant to share information about another client's financial position. Explain why the accountant should refuse and which fundamental principle this relates to. (4 marks)

Explain how the board of directors and external auditors each contribute to good corporate governance in a limited company. (4 marks)

State the FIVE fundamental principles of professional ethics that accountants must follow. (5 marks)

State the FIVE threats to the fundamental principles of professional ethics. (5 marks)

State the THREE ethical test elements that should be considered when making business decisions, and state the THREE possible penalties for professional misconduct. (6 marks)

Tom is a qualified accountant employed by Henley Ltd. The finance director has asked Tom to prepare a cash flow forecast that shows the company meeting its loan covenants, even though Tom believes the realistic figures would show a breach. Tom is concerned about losing his job if he refuses. Evaluate the extent to which Tom faces threats to the fundamental ethical principles and what he should do. (8 marks)

In 2015, it was revealed that Toshiba had overstated its operating profits by $1.2 billion over seven years. An independent investigation found that senior management set unrealistic profit targets and that corporate culture demanded obedience from subordinates. Internal controls across the organisation failed to detect or prevent the misconduct. Evaluate the extent to which strong corporate governance could have prevented the Toshiba accounting scandal. (8 marks)

Redwood Plc manufactures clothing and sources materials from factories in developing countries. A campaign group has published a report alleging that some of Redwood's suppliers use unsafe working conditions and pay below minimum wage. Redwood's board is considering whether to increase its corporate social responsibility (CSR) commitments by auditing all suppliers and withdrawing from those that fail to meet ethical standards. Evaluate whether Redwood Plc should increase its CSR commitments. (10 marks)

Sarah is an accountant in public practice. Her largest client, Pemberton Ltd, has told her that unless she produces accounts that show a higher profit than the figures support, they will move to another accounting firm. Pemberton Ltd accounts for 40% of Sarah's firm's revenue. Evaluate how Sarah and her firm should respond to this situation. (10 marks)