|
Case Study 1
|
|
|
Outline of the
case
|
|
|
A junior member of staff
has just returned to work after
taking special leave
to care for
her elderly mother. For
financial reasons she
needs to work
full-time. She has
been having difficulties with
her mother’s home
care arrangements, causing her to miss a number of team meetings (which usually take place at
the beginning of
each day) and
to leave work early. She is very
competent in her
work but her
absences are putting pressure on her
and her overworked colleagues. You are her
manager, and you
are aware that
the flow of
work through the practice is
coming under pressure. One of her
male colleagues is
beginning to make comments such as “a
woman’s place is in the
home”, and is
undermining her at
every opportunity, putting her under even
greater stress.
|
|
|
Key fundamental principles
|
|
|
Integrity: You need
to be fair
to all those
involved and act
in a straightforward manner.
Confidentiality:
You
owe a duty of confidentiality to the staff involved.
Professional behaviour: How should you proceed so
as not to
discredit yourself, your profession or the practice for which you
work?
|
|
|
Considerations
|
|
|
Identify relevant facts:
Consider the
firm’s policies, procedures and guidelines, best
practice and, with
legal assistance if
required, applicable laws
and regulations. Is
there a staff
handbook or similar internal publication? Consider whether it is your
proper role to
manage this sort
of staff issue. Does
the practice have
a department responsible for personnel issues?
Identify affected parties:
Key affected parties are you, the
junior member of staff and
her colleagues. Other
affected members of staff may be in the personnel department.
Who should be involved in the resolution:
Consider not
just whom you
should involve but
also why and
when. Can your
professional body provide advice and guidance? Do you have
access to appropriate staff in the
personnel department, or are
you able to
consult an external organisation for confidential advice?
|
|
|
Possible course of action
|
|
|
Check the relevant facts. If necessary, clarify staff procedures with the personnel department. Take
legal advice if required.
Discuss
the matter with the junior member of staff. Possible solutions may include suggesting a more
flexible approach to
team meetings. Do
these always have
to be in
the morning? At times, working from home
may be an option for
the junior member
of staff.
You also
need to deal
with the other
member of staff, who needs to be reminded about proper conduct and how such
behaviour may amount
to harassment and
be in breach of
|
|
the practice’s code of conduct.
Considering the issues and trying to identify a solution enables
you to demonstrate that you are behaving professionally and attempting to resolve the difficulties faced
by the junior member of staff.
Throughout, you must be seen to be acting
fairly – both towards the
junior member of staff,
who is responsible for her mother’s care,
and towards other
members of staff.
Having considered all reasonable compromises, if the conclusion is reached that
the junior employee is unable to carry out the work
for which she
was employed, you must turn
your attention to her on-going employment within the practice. This will probably be out of your
hands, and you should deliver
the relevant facts to the personnel department or the owners
of the practice. Appropriate confidentiality must
be maintained at all times.
You should
document, in detail,
the steps that
you take in resolving your
dilemma, in case your ethical judgement is challenged in the future.
|
Outline
of the case
|
|
|
You are
one of three
partners in a firm of
accountants. Five years
ago the firm
was appointed as external accountants
to a young, successful and fast-growing company, engaged to prepare year
end accounts and
tax returns. The
business had started trading with a handful of employees but
now has a workforce of
200, while still
remaining below the size
of company requiring a statutory audit.
Due to
your close relationship with the directors of the company (who are its
owners) and several of its
staff, you become aware that staff
purchases of goods
manufactured by the company are authorised by
production managers, and then processed outside the accounting system. The
proceeds from these
sales are used
to fund the
firm’s Christmas party.
|
|
|
Key fundamental principles
|
|
|
Integrity: Would omitting income from staff
sales result in
the financial statements and returns to the tax
authority being misleading? Is the practice dishonest, and what
should be your involvement?
Objectivity: In view
of the trust
that has built
up between you
and your client, and the threat brought about by the
familiarity you have
with the directors and staff of
the company, how will you
maintain your objectivity when deciding on a course
of action?
Professional competence and due care:
You must
ensure that the
financial information that you
produce on behalf of your client is in accordance with technical and
professional standards.
Professional behaviour: How should
you act in order to
protect your reputation and that of your firm and your
profession?
|
|
|
Considerations
|
|
|
Identify relevant facts:
Consider relevant accounting standards and any
applicable laws and
regulations. Determine the system
currently employed for
controlling staff sales
and funding the
staff Christmas party.
Identify affected parties:
Key affected parties are you and
your firm, your client company, its directors and
staff, and users of the company’s accounts, including the
tax authority.
Who should be involved in the resolution:
The reputation of your firm
may be vulnerable, and you should
disclose this ethical dilemma to your partners.
Throughout the resolution process, you should keep your partners informed and
be alert to any possible requirement to notify
your professional indemnity insurers. It is not
appropriate to discuss the matter with any of the staff of the client
company, although the
directors should be
informed of the
issue as soon
as possible, and
be involved in the resolution.
|
|
|
Possible course of action
|
|
Having brought
the issue to the attention of your partners, and obtained the relevant
details of the
client’s system for
accounting for staff
sales, you should raise your concerns with the
directors of the
client company. You
will also have
to determine whether the financial statements of previous years
are likely to
be misleading and,
if so, consider your responsibility
(or that of
your client) to
inform the relevant authorities (including the
tax authority). You should
strongly advise the
directors that a staff sales
policy should be introduced to ensure that
these sales are
fully recorded in
the company’s accounting system in the future.
You
should explain to the directors the implications of their actions, and that
you are safeguarding the interests of
the company and
its staff in
advising how the
situation may be rectified. If
the directors are
co-operative, you should advise them of
the recommended changes to the
accounting system and
how they might
disclose the past
undisclosed income to
the tax authority.
If the directors appear unwilling to change the
system in respect of staff sales, you are obliged to disassociate yourself from any involvement with the company’s financial
statements, and this
will require your
firm to resign
as the company’s accountant. At any time, you
may seek advice
from your professional body.
In view of your client’s conduct, you are obliged to consider your whistleblowing obligations, and
may have to
report the matter to one or
more authorities.
You should document, in detail, the
steps that you
take in resolving your dilemma, in case
your ethical judgement is challenged in the future.
|
|
Outline of the
case
|
|
|
You are a sole practitioner who used to
provide a range
of accountancy services for a small company (Company A) that owns
a hardware shop
in the town
where you practise.
Following a
brief retendering process, the client chose
to engage an
alternative firm of accountants. Both you and
the other firm
had been asked
to tender for
a range of
services, including the preparation of year end
accounts, tax compliance work, and a
due diligence exercise in
respect of the intended purchase of a small hardware business in the neighbouring town. You
believe that you
were unsuccessful in
the tendering process on the basis of cost alone,
as Company A is not
very profitable, and
suffers from the
competition of the other
hardware business that
it intends to acquire.
You are
the continuity provider for another local
sole practitioner. Two
months ago he suffered a heart attack, and so you
are currently acting
for a number
of his clients. He is not expected to resume practising for another two
months.
One of
the clients of
the incapacitated practitioner (Company B) operates a shop selling electrical goods. The
director and majority shareholder has called
you to arrange a meeting to discuss a business venture that he is considering.
At the
meeting, the client
explains that he
intends to make
an offer for
the same small hardware business that
Company A is
seeking to acquire. He is aware
that there is another
bidder for the
business, but is
unaware that it
is Company A,
or that Company A used to
be your client.
When the
meeting is over,
you start to
feel uneasy. You
want to help
Company B and provide a valued service on behalf of
the practitioner for
whom you are
the continuity provider. But
you realise that
you are also
in possession of confidential information
concerning the plans
of your previous client. You are
aware of Company A’s problems and its motivation for wishing to acquire the business.
|
|
|
Key fundamental principles
|
|
|
Integrity:
You
must be straightforward and honest.
Confidentiality: How will you
ensure that you
do not use
confidential information relating to your
previous client to
the advantage of
Company B?
Professional behaviour: How will
you safeguard your
reputation and that
of your profession?
|
|
|
Considerations
|
|
|
Identify relevant facts:
You have
responsibilities to the
practitioner for whom
you are the
continuity provider, and to his
clients. You may
assume that the
target business has
a premium value
to Company A, because Company A already
owns a similar business. However, this is confidential information (which would
give Company B a competitive advantage in the
bidding process).
You must not
breach the fundamental principle of confidentiality. In addition to your
professional body’s code of ethics, you should consider any applicable laws
and regulations.
|
|
|
Identify affected parties:
Key affected parties are you, Company B (and its
director), Company A (and its
directors) and the target business (and its owners). You should also
consider the practitioner for whom you are
acting as continuity provider.
Who should be involved in the resolution:
The issue
of confidentiality is
a sensitive one,
and you should
not involve any
parties in the resolution process without good
reason. Any discussion of this ethical dilemma, in itself, risks breaching
confidentiality. The involvement of your professional body may be
particularly useful in
such a situation. If the other
sole practitioner is
well enough, he
should be informed of the dilemma and the actions that you decide
to take.
|
|
Outline of the
case
|
|
|
You are
a qualified accountant in practice, and
you lead a team providing management consultancy services. In recent years
your practice has
undertaken several assignments on manufacturing efficiency improvements for a medium-sized, quoted group of
companies. It operates through a number of
divisions, but line
responsibility appears complicated, and so significant control rests with four
semi-autonomous regional directors. The authority of
these
directors is enhanced by their seats on the group’s main board.
You have
cultivated a good
working relationship with
the regional director with whom you are in contact most frequently.
Three weeks ago that regional director asked you to investigate, as
a matter of urgency, a
particular project, Project A. He had
been irritated to be
told, informally, of
the likely deferral of the agreed
delivery date for
the components on this sophisticated design-and-build contract. Project A comes within the regional director’s responsibility
primarily because of the location of the factory that makes the key
components.
Once on
site, your team
had discovered a range of difficulties with
the project, starting with fundamental design
faults and extending deep into the
manufacturing processes. It is clear that various contracts will be breached, and
litigation is likely to follow. Your
team has produced a
prioritised list of
actions and begun
working to establish a revised schedule to take the project to completion.
At a recent
meeting, you gave
the regional director and the factory manager your estimate that the
delay to Project A will be
a minimum of
three months. You
indicated that extra direct costs are likely to be £7
million to £10
million. This is
before any potential claims for
compensation.
On the
instructions of the
regional director, your
team has been
working on a formal report specifying detailed recommendations. While still incomplete, the report appears certain to support
your previous estimates.
You are
aware, from the
financial press, that
the group is rumoured to have difficulties with its bankers. You assume that
the situation with
Project A is likely to be seriously detrimental to the group’s
financial position.
One week
before the final
version of the
report is due,
you receive a surprise telephone call from the group’s finance director. He explains that he
is about to enter a main board meeting, but needs
to know a date for
delivery of the
report on Project A. Late the
previous evening, the regional director had informed the finance director that your firm
had been asked to provide the report. He says:
“I appreciate that you have
only just started, so there are
no reliable estimates yet. But the regional director mentioned that
Project A could
incur around £4
million to £5
million in extra costs, with
income delayed by
perhaps six to
eight weeks. The
regional director has sent his apologies to
the board meeting, as he has
to attend a family funeral.”
He adds:
“Hopefully, the
regional director is
being cautious, but
if something does
turn out to
be as
wrong with Project A as those
numbers suggest, the extra
costs and deferred income have serious implications for the group’s cash flow. The
full board will
need to start
planning
|
|
|
remedial
action now. When will your report be ready?”
|
|
Key fundamental principles
|
|
Integrity: How do
you maintain your
professional integrity: by
responding only to
the question asked or
by immediately alerting the finance director and the main
board to the seriousness of the situation?
Objectivity: Does loyalty to
the regional director, from whom your
firm usually takes instructions, outweigh your responsibility to the main
board? If not,
can you resist
any feeling of intimidation from
the regional director that you may
be experiencing?
Confidentiality: Confidentiality is fundamental to the assignment as a whole.
But to whom is the duty of confidentiality owed?
Professional behaviour: The information you have could
assist the main
board significantly with the
discharge of its
duties. Whether you
disclose the information now or restrict the information you provide pending a discussion with the regional director, how can
you protect your reputation and that of your firm?
|
|
Considerations
|
|
Identify relevant facts:
You should establish why the finance director appears to
have incorrect information. Is there a mistake or misunderstanding, or
some other explanation for the discrepancies in the extra
costs and the
time frame? You
must establish from
your engagement letter to whom you owe
a duty of
confidentiality, in order
to resolve your
potential conflict of loyalty.
Identify affected parties:
Key affected parties are you,
the regional director, the finance director and the board. Indirectly, investors and other stakeholders in the group
are affected, due
to the group’s recent cash flow problems.
Who should be involved in the resolution:
You should involve the regional manager as early as possible, and
the finance director and the main board if necessary.
|
|
Outline of the
case
|
|
|
You are
a trainee accountant in your second
year of training within a small
practice. A more senior
trainee has been
on sick leave, and you are
due to go
on study leave. You have been
told by your
manager that, before
you go on leave, you
must complete some complicated reconciliation work. The deadline suggested appears unrealistic, given the complexity
of the work.
You feel
that you are
not sufficiently experienced to complete the
work alone. You would need additional supervision to complete it to the
required standard, and
your manager appears unable to offer the necessary support. If you try
to complete the work within the proposed timeframe but fail to
meet the expected quality, you could
face repercussions on your
return from study
leave. You feel
slightly intimidated by
your manager, and also feel pressure to do what you can for the
practice in what are challenging times.
|
|
|
Key
fundamental principles affected
|
|
|
Integrity: Can you
be open and
honest about the
situation? Would it
be right to
attempt to complete work
that is technically beyond your abilities, without proper supervision?
Professional competence and due care:
Is it
possible to complete the work within the time available and still act
diligently to achieve the required quality of output?
Professional behaviour: Can you
refuse to perform the work without damaging your
reputation within the
practice? Alternatively, could
the reputation of the practice suffer if you attempt to perform the work?
|
|
|
Considerations
|
|
|
Identify relevant facts:
The practice that employs you
is small and
under pressure due
to the sickness of a member of
staff. However, the
work you are
being asked to
perform is beyond the usual ability of
a trainee at
your level. Determine whether the deadline can be extended; when your colleague is
expected to return
from sick leave; and what other
resources might be
available to the
practice. Consider the
policies and procedures of the practice, as well
as your professional body’s code of ethics.
Identify affected parties:
Key affected parties are you, your
manager, the practice, its other employees and the client.
Who should be involved in the resolution:
In the
first instance, you
should attempt to
resolve the issue
with your manager, although it may be necessary to involve the person responsible for training within
the practice. You might, at an appropriate stage, suggest that
the client be
involved.
|
|
|
Outline of the
case
|
|
|
You
are a partner in a three-partner firm of accountants. The firm generates fees
of approximately £1.4 million per annum. Within
your portfolio of clients is Company A, which
has been very successful since
it first came
to your firm
five years ago.
It now has
an annual turnover in excess of £15 million.
Company A generates annually recurring fees
for the practice of approximately £50,000, of which approximately £35,000
is in respect of audit work
and £15,000 relates to routine tax calculations and
preparation of the
corporation tax return. Your firm has
a separate tax department, which performs the
tax compliance work
in respect of
Company A.
The company’s financial year end
is December. Last
year the audit
work commenced in June, and the audit
report was finally signed in August. By the end
of August, the
tax return had been
submitted to the
taxation authority, and
the firm’s invoice had been issued
to Company A.
In September a significant customer of Company A went into
receivership, and Company A suffered a large
bad debt. The
directors approached you
immediately, and were
very open about the company’s short-term cash flow problem. Therefore, you agreed
that payment of the firm’s
invoice of £50,000 could be spread over ten months, commencing in October.
Company A
also needs the
support of its
bank and, in
December, it was
negotiating a modest increase in its overdraft facility. It is now early
March, and the
bank has requested audited financial statements by the
end of the
month. The audit
is well underway, and you have promised the
directors of Company A that the
bank will have
the audited accounts on time.
The planning of the audit
was performed by the audit
senior and reviewed by the audit manager for the
assignment (in whom
you have a
great deal of
confidence). Due to
pressure of work, you
did not review
the audit plan
in detail before
the audit team
commenced the year
end audit work,
and so you
decide to review and sign off
that section of
the audit file now.
You note
that the audit
manager has correctly identified going concern as the area
of the audit attracting greatest risk. However, at the time
of planning the audit, the manager was unaware of the credit
agreement reached with
regard to the
payment of last
year’s fees. You check your
firm’s records, and
determine that Company A still owes
the firm £25,000.
|
|
|
Key fundamental principles
|
|
|
Integrity: There was
a flaw in
the planning of
the audit, which
was not noticed by the audit manager before the audit
work commenced. Is
it possible to
ignore the flaw
and yet act with integrity, given that the flaw was unintentional?
Objectivity: Can you reach
an objective audit
conclusion in view
of your wish
for Company A to continue trading and settle its outstanding fees
to your firm?
Professional competence: You need
to bear in
mind any ethical standards for auditors relevant to the country in which you
practice.
Professional behaviour: Regardless of the actual impact of the
outstanding debt on
your
|
|
|
objectivity, if the bank
(or a hypothetical, objective, well-informed third
party) knew of
the
outstanding
fees, what impact would it have on your firm’s reputation?
|
|
Considerations
|
|
Identify relevant facts:
Through a combination of circumstances, your
firm is under
pressure to complete an audit assignment while
it has a financial interest in the client. The debt of Company A to your
firm was not as
a result of
an investment decision, but a pragmatic solution to a problem being faced by an honest client. Nevertheless, your firm
has a clear
interest in the
client’s ongoing existence, and
would not want
the audit opinion to jeopardise the repayment of
the debt.
Identify affected parties:
Potentially, the affected parties are you
and your firm,
Company A, the
bank, and any stakeholders in
Company A who
will refer to your firm’s
audit opinion.
Who should be involved in the resolution:
You may involve the audit manager in discussions, although he can do nothing to
make your opinion more
objective. He can
only provide advice
(as can your
professional body). You should certainly involve your
partners, and consider who else you
may involve who
is free from any personal interest in Company A.
|
Comments
Post a Comment