ACA Professional Ethics (ICAEW Code) 4 — Questions and Answers
Question 1: Which of the following is an example of an acceptable contingent fee arrangement for an audit client?
- Audit fee based on the size of the clean opinion
- Tax compliance fee based on the amount of tax saved
- No contingent fees are acceptable for audit engagements (Correct answer)
- Fee based on share price increase post-audit
Correct answer: No contingent fees are acceptable for audit engagements
Contingent fees for audit engagements are prohibited under ethical standards as they create an unacceptable self-interest threat to independence; the auditor's remuneration must not depend on the outcome.
Question 2: Professional accountants must comply with the spirit and letter of ethical requirements. 'Spirit' means:
- Interpreting rules as narrowly as possible to avoid compliance
- Looking beyond the technical wording to the underlying purpose and intent of the requirement (Correct answer)
- Only applying rules when there is a risk of being caught
- Following the majority view in the profession
Correct answer: Looking beyond the technical wording to the underlying purpose and intent of the requirement
Compliance with the spirit of ethical requirements means understanding and acting in accordance with the underlying purpose of the rules, not merely finding technical compliance while violating their intent.
Question 3: Under UK anti-bribery legislation (Bribery Act 2010), the corporate offence of failing to prevent bribery:
- Only applies to UK companies
- Requires proof that senior management authorised the bribe
- Is committed by a commercial organisation that fails to prevent bribery by an associated person (Correct answer)
- Only covers bribes to foreign public officials
Correct answer: Is committed by a commercial organisation that fails to prevent bribery by an associated person
Section 7 of the Bribery Act 2010 creates strict liability for commercial organisations that fail to prevent bribery by associated persons acting on their behalf; the only defence is adequate anti-bribery procedures.
Question 4: When preparing tax returns, a professional accountant should:
- Minimise tax by any means available
- Present the client's tax affairs honestly, claiming only legitimate reliefs and deductions (Correct answer)
- Only prepare returns if the client provides complete information
- Report all clients to HMRC proactively
Correct answer: Present the client's tax affairs honestly, claiming only legitimate reliefs and deductions
Integrity requires honest presentation of tax returns. Accountants should claim legitimate reliefs but must not assist in tax evasion or make false statements; they must also comply with HMRC disclosure obligations.
Question 5: The ICAEW's disciplinary process can result in which of the following sanctions for a member?
- Criminal prosecution only
- Reprimand, fines, suspension, or exclusion from membership (Correct answer)
- Referral to the FCA only
- A formal warning with no further consequences
Correct answer: Reprimand, fines, suspension, or exclusion from membership
ICAEW's disciplinary process can impose a range of sanctions including reprimands, fines, conditions on practice, suspension, or exclusion (striking off) from membership for serious misconduct.
Question 6: The principle of objectivity requires a professional accountant to:
- Always agree with the client's preferred accounting treatment
- Not allow bias, conflicts of interest, or undue influence to compromise professional judgements (Correct answer)
- Remain emotionally detached from all professional situations
- Only express opinions in writing
Correct answer: Not allow bias, conflicts of interest, or undue influence to compromise professional judgements
Objectivity requires accountants not to allow bias, conflicts of interest, or undue influence — from clients, employers, or others — to override their professional judgements.
ACA Professional Ethics (ICAEW Code) 4
Which of the following is an example of an acceptable contingent fee arrangement for an audit client?