Question

Daisy, an intern accountant at Tinned Food Company, noticed that supplies were recorded as suppliers expense when purchased.

She told her manager, Jack, who is the Financial Controller at Tinned Food Company. Jack wants to leave the accounting records as they are.

He told Daisy to not tell anyone about the incorrect treatment because he feels it will be too much work to complete the necessary adjusting entry, to revise the Worksheet and to redo the Financial Statements. Jack tells Daisy that if she does not remain silent, she will lose her internship.

1. In relation to APES 110 Code of Ethics, state two fundamental principles that have been violated, and explain why each has been breached?

2. In relation to APES 110 Code of Ethics, name two potential threats and comment on each.

Answer 1

Ans 1)

APES 110 Code of Ethics for Professional Accountants is issued by the AccountingProfessional & Ethical Standards Board Limited (APESB), which was established in2006 by the three main professional accounting bodies in Australia. All members of thosebodies are required to comply with the APES (Accounting Professional and EthicalStandards).

The overriding requirement is that members act in the public interest.Compliance with the fundamental principles of professional ethics should ensure that members are able to act in the public interest.

There are five fundamental principles of ethics for Members:

(a) Integrity – to be straightforward and honest in all professional and business relationships.

(b) Objectivity – not to compromise professional or business judgements because of bias, conflict of interest or undue influence of others.

(c) Professional Competence and Due Care – to:

(i) Attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organisation receives competent Professional Activities, based on current technical and professional standards and relevant legislation; and

(ii) Act diligently and in accordance with applicable technical and professional standards.

(d) Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships.

(e) Professional Behaviour – to comply with relevant laws and regulations and avoid any conduct that the Member knows or should know might discredit the profession

The two main principles violated in the given question are :

1. Integrity : The accountant is  knowingly being associated with reports, returns, communications or other information where the information: (a) Contains a materially false or misleading statement; (b) Contains statements or information provided recklessly. Supplies purchased should be recorded as an asset and debit to expense account only when they have been utlised.

2. Professional Competence and Due Care

The code requires memebers to Act diligently and in accordance with applicable technical and professional standards. Even after having the understanding of the situation , the accountant choose to not act diligently on it.

Ans 2)

Threats to compliance with the fundamental principles fall into one or more of the following categories:

(a) Self-interest threat – the threat that a financial or other interest will inappropriately influence a Member’s judgement or behaviour;

(b) Self-review threat – the threat that a Member will not appropriately evaluate the results of a previous judgement made, or an activity performed by the Member, or by another individual within the Member’s Firm or employing organisation, on which the Member will rely when forming a judgement as part of performing a current activity;

(c) Advocacy threat – the threat that a Member will promote a client’s or employing organisation’s position to the point that the Member’s objectivity is compromised;

(d) Familiarity threat – the threat that due to a long or close relationship with a client, or employing organisation, a Member will be too sympathetic to their interests or too accepting of their work; and

(e) Intimidation threat – the threat that a Member will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the Member.

A circumstance might create more than one threat, and a threat might affect compliance with more than one fundamental principle.