Test your code of ethics: Try out these 3 scenarios

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Accountants have a duty to conduct themselves in an ethical manner at all times. Test your knowledge with these scenarios.

Ethics can sometimes seem like common sense. But there are many ways in which accountants trip up, even when they should know better. It’s important to note that they aren’t necessarily aware they are acting unethically – they might be trying to be helpful, or they aren’t really thinking. But an ethical breach is still an ethical breach.

“I’ve always made sure I spend time really going through ethics with my students, and even then, some of them have gone on to get themselves into trouble,” says tutor and forensic accountant Samantha Perkin. To help you get to better grips with your ethical knowledge, Perkin has written out some scenarios to get you thinking about ethics.

Scenario 1

A trainee accountant is working in a family practice, managing their own clients – their work is checked by a partner at the firm. They have finished one term of the AAT Professional Diploma.

The student is told that the practice is disengaging from one of the clients that they have been managing – they aren’t given any further explanation. The student has developed a rapport with the client and is disappointed to have lost one of their clients. During their lunch break, the student has an idea. They have the client’s number on their personal mobile, having worked from home from time to time.

They call the client and arrange to meet. When the student and the client meet a few days later, the student offers to take the client on at a lower price. The student does not have a licensed practice. Can the student take the client on? What should they have thought about when considering this move? Are they in breach of anything?

Solution

The short answer is that the student should not have taken the client on. They should have considered their position in the firm, their contract, and several laws and regulations before making such a move.

Under the AAT Code of Professional Ethics, students and members are expected to conduct themselves according to five principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. This student has broken pretty much all of these principles.

Professional conduct and confidentiality have been broken by contacting the client outside of work – it’s also a potential GDPR breach. They have also most likely broken their employment contract, which would usually have a non-compete clause preventing staff from taking on the firm’s clients directly.

The student doesn’t have a licence to practice, and would not meet the requirements anyway. They are not registered for anti-money laundering, which means they’re breaking the law. The student should also have questioned why the client might have been dropped – the firm may have had a very good reason for doing so. As the client is the only one the student has taken on privately, their objectivity is also called into question. Lastly, by going behind their employer’s back, the student has demonstrated a serious lack of integrity.

Scenario 2

A student, partway through their Professional Diploma, is working in a business, splitting their time between IT work and bookkeeping. They spend a lot of their time entering records into Sage from bank statements as part of their job. The employer holds money for customers. However, all the money goes through one account – the student knows this because they reconcile it.

Can the business put all transactions through the same account? What should the student do?

Solution

This comes under professional conduct and due care. The student should know that client money should go into a special account. By not acting, the student is not providing a competent professional service based on current developments in practice, legislation and techniques. The student needs to go to their employer and explain how customer monies should be handled.

If the employer’s methods don’t change, the student should refer to the Code of Professional Ethics: “There may be circumstances where a member in business believes that unethical behaviour or actions by others or by him or herself cannot be avoided or will continue to occur within the employing organisation. In such circumstances, the member in business shall consider seeking legal advice.

In those extreme situations where all available safeguards have been exhausted and it is not possible to reduce the threat to an acceptable level, a member in business may conclude that it is appropriate to resign from the employing organisation.”

Scenario 3

A student lives with their dad and is halfway through completing their qualifications. Their dad asks them to prepare and submit accounts for his building development business, which he owns with two other directors. The dad does his own accounts and believes that by getting the student to prepare the accounts, he can save ‘unnecessary’ expense. The student prepares the accounts with their dad and then submits them to Companies House. No money passes hands.

The student has not covered business tax and is unaware of the company’s tax liabilities. Should the student have helped their dad? Is there any situation in which this would be OK? Can the student do anything to correct the error?

Solution

This scenario is problematic for several reasons. The student is not meeting their requirements for professional competence and due care. They also cannot be objective, thanks to the family connection.

Building development companies are tricky to account for – what land counts as stock? What should go on the balance sheet? Then there are some serious errors in the tax calculations. The student has also not met their responsibility to the other directors, either. The student is not registered for anti-money laundering and isn’t licensed to practice.  

If the errors are spotted and a licensed accountant prepares and resubmits the accounts before the deadline, it’s possible that the errors could be corrected without any impact on HMRC compliance.

However, it’s more likely that the company would be penalised. The student
would also face a misconduct hearing through AAT and could have their student membership revoked or suspended.

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