Study tips: fundamental principles, threats and safeguards – part 2

The second and final article of our series on fundamental principles, threats and safeguards.


Study tips: fundamental principles, threats and safeguards series


The first part of this series looked at the five fundamental principles and the categories of threats as defined in the AAT Code of Professional Ethics

It also considered members’ responsibilities in a conceptual framework to uphold the principles by applying safeguards to eliminate threats or reduce them to acceptable levels.  Just to recap the principles are:

  1. Professional Behaviour
  2. Professional and competence and due care
  3. Confidentiality
  4. Integrity
  5. Objectivity

And the threats are:

  1. Self-interest
  2. Self-review threats
  3. Advocacy threats
  4. Familiarity threats
  5. Intimidation threats

This article is going to focus on intimidation and advocacy threats as well as the principle of confidentiality.

Intimidation

Let’s start with intimidation as it is the threat’s equivalent of professional behaviour. In other words, the one we fall back on as the default and are quick to identify as a threat, sometimes inappropriately.

Let’s suppose you were offered £100 to include some expenses in a set of accounts that you know are fraudulent. The offer is unethical but it isn’t intimidation. It’s a self-interest threat as it would lead to personal gain. Let’s say you accept the inducement, which I know you wouldn’t as it’s dishonest and you uphold the principle of integrity but there’s still no intimidation threat. The next month you are asked to do the same again. This time you say no, but are now threatened that if you don’t do as asked, then the fact that you did it last time will be made public. Only now is there an intimidation threat.

Other examples of intimidation threats could be the threat of dismissal or replacement due to a disagreement or someone attempting to inappropriately influence decision-making. These intimidation threats can come from anyone within or outside an organisation operating at any level.  The intent that causes the intimidation, and helps you correctly identify the threat is always the same – if you don’t do as instructed there will be consequences.

Advocacy

Now let’s think about advocacy, as it is the threat that many of us struggle to understand. This may be because it’s not obviously ‘wrong’ and often stems from good intentions. Alternative words for advocacy are support, promotion, backing and sponsorship. All very commendable but the issue is the degree of advocacy. Advocacy becomes a threat when a position or opinion is actively promoted to the point that subsequent objectivity may be compromised. It’s the compromising of the fundamental principle of objectivity that is the problem. Objectivity is about being free from all prejudice and bias, in other words, making professional judgements on the basis of real facts which have been reliably and thoughtfully appraised.

If we overstep the boundary and actively try to support or promote a position or opinion to the point that we are no longer making judgements based on unbiased facts, then our objectivity is compromised and we’ve become advocates. As accounting professionals we may have a number of stakeholders (clients, colleagues etc.) and must work professionally with all of them without favouritism, avoiding advocacy threats by understanding the boundaries of our role.

Confidentiality

Finally, we’re going to focus on confidentiality as it is a fundamental principle and a legal requirement. It is vital to know when confidential information should be disclosed and who is entitled to it. Let’s find the answers to some FAQ’s in the ethical code:

  • Q            What circumstances make information confidential?
  • A             The principle defines ‘information acquired as a result of professional and business relationships’ as confidential.

Note:     Care needs to be taken regarding social and online environments where professional and business relationships may be discussed.

  • Q            What should accountants do in relation to confidential information?
  • A             The principle states that members should, ‘in accordance with the law, respect the confidentiality of information.’

Note:    This means everyone in members’ organisations and that members have a responsibility to train employees and monitor their activities to ensure confidentiality is maintained. Respect for confidentiality remains in place even once a contractual agreement, with an employer or client, has ended.

  • Q            What shouldn’t accountants do in relation to confidential information?
  • A             The principle states that members should not ‘disclose any such information to third parties’ or use confidential information ‘for the personal advantage of the member or third parties.

Note:    Care needs to be taken to ensure information isn’t mistakenly disclosed especially if professional and business relationships are long term or have personal elements. It is important to recognise that the principle of confidentiality involves not disclosing confidential information and not using it for the benefit of yourself or anyone else.

  • Q            When should accountants disclose confidential information?
  • A             The principle states members must ‘not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose.’  The ethical code goes on to say ‘in general terms, there is a legal obligation to maintain the confidentiality of information which is given or obtained in circumstances giving rise to a duty of confidentiality. There are some situations where the law allows a breach of this duty:
  1. Where disclosure is permitted by law and is authorised by the client or the employer (or any other person to whom an obligation of confidence is owed)
  2. Where disclosure is required by law
  3. Where there is a professional duty or right to disclose, which is in the public interest, and is not prohibited by law’

Note:    Examples of these situations are given in section 140.7 of the AAT Code of Professional Ethics.

The problem with confidentiality is that it is not entirely black and white, despite the legislation and fundamental principle. The ethical code itself acknowledges that it is a difficult and complex area and, gives guidance on what members should consider before disclosing confidential information, these are:

  1. Whether the disclosure could cause harm
  2. Whether all the facts are known and can be proved
  3. How the disclosure will be made and whether the person receiving it is appropriate

The legal aspects of confidentiality are also relevant to Data Protection legislation which exists to protect personal information. Accounting professionals will be dealing with personal data and if they store this on computers they will to need to register as data users with the Information Commissioner’s Office.

Ethics is not about common sense but knowledge and understanding of the definitions of the fundamental principles and threats that are outlined in AAT’s Ethical Code. The application of your knowledge and understanding, requires diligent professional judgement to put suitable safeguards in place and comply with the law.

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Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.

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