Bluestone Accountants Llp

1. Accounting bodies have published a ‘Code of Ethics’, in which they have outlined five ‘Fundamental Principles’ that professional accountants must abide by. The principles are: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. There are threats that could cause the principles to be compromised, which can be prevented through a framework approach of identifying, evaluating threats, and applying safeguards (CIMA, 2014, p.342).

The principle of integrity states “a professional accountant should be straightforward and honest in all professional and business relationships” (ICAEW, 2015). A threat to this principle is familiarity, which was demonstrated when HSBC was discovered to have helped wealthy clients evade tax payments (Moore, 2015). The over familiarity with clients caused personal bias to influence professional judgment, which resulted in the overriding of business procedures to help clients avoid tax. A framework approach is necessary in such situations as it can be applied to various circumstances, and provides a clear guideline as to how to identify and tackle threats to these principles. In this case personal safeguards, such as external third party opinions, can be implemented to guarantee that business decisions are fair and not affected by any unprofessional influences.

Objectivity requires an accountant to not allow bias, conflict of interest or any influence of others to override professional and business decisions (ICAEW, 2015). The compliance with this principle was compromised when Tesco “overstated its half-year profit guidance by £250m” (BBC, 2014) to maintain shareholders’ investments. Using the framework approach it can be identified that personal safeguards would be effective when tackling threats of self-interest, as they ensure that individuals are aware of the role they play within the company. This threat can also be dealt with using safeguards to financial interest, such as monitoring a company’s activity to ensure that procedures are not altered for any undue gain.

Recently, the BBC (2014) reported that Barclays has been fined £38m for putting it’s clients’ assets at risk by failing to keep them separate from their own. This demonstrates the principle of professional competence and due care being breached. The principle requires an accountant to maintain professional knowledge and skill at the level required, and for them to act in accordance with applicable technical and professional standards (ICAEW, 2015). This incident defines the threat of self-review to this principle, as Barclays did not assess themselves to ensure that their services were of the required standard because they were not focused on the rules. They would need to implement business safeguards, such as a compliance manager, to ensure that the company is delivering at the right standards, in accordance with all rules and regulations.

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