22208 Chap.9 Law, Ethics and Independence in Accounting
Law, Ethics and Independence in Accounting
Week 9 opens Module 3 with the legal and ethical setting of accounting. It covers the sources of law, contracts and consumer protection under the Competition and Consumer Act, then argues that legal conduct is not always ethical.
APES 110 sets five fundamental principles and five threats to ethical conduct, with safeguards from regulation and the workplace and a conceptual framework for resolving dilemmas in the public interest.
Questions on this topic are mostly short answers.
Expect to name the principle at stake in a scenario, identify which of the five threats is present, suggest a safeguard, or explain why something legal can still be unethical. The lecture illustrates each principle with recent disciplinary and media cases, and the pre-class page points to Australian accounting scandals as the reason the profession’s standards matter.
What this chapter covers
- 01
Statute law, case law and contracts
- 02
Consumer protection: the ACCC and ASIC
- 03
Legal versus ethical conduct
- 04
The five fundamental principles of APES 110
- 05
The five threats to ethical conduct
- 06
Safeguards and the conceptual framework
- 07
Colonial legacy and identity
Worked example · free
Spotting the threat in a review engagement
- 1The threat is self-review: Priya would be judging her own earlier work.
- 1Objectivity is the principle at risk, because her judgement may be biased towards finding the system sound.
- 1A suitable safeguard is to have a different, independent person carry out the evaluation.
- 1If no safeguard can reduce the threat to an acceptable level, the firm should decline that part of the engagement.
Key terms
- APES 110
- The Code of Ethics for Professional Accountants issued by the APESB, binding members of the major professional bodies.
- Integrity
- The principle of honest, straightforward dealing in all professional and business work.
- Objectivity
- The principle of not letting bias, conflict of interest or undue influence override professional judgement.
- Self-interest threat
- A threat arising when a financial or other interest could influence an accountant’s judgement.
- Intimidation threat
- Undue pressure from a superior or client, such as a threat of dismissal, to act against professional judgement.
Law, Ethics and Independence in Accounting FAQ
How can something be legal but unethical?
The rules often allow choices, such as estimates of useful life or bad debts. Using that freedom to make results look better than the evidence supports can stay within the law while misleading the people who rely on the accounts, which breaches the profession’s ethical standards.
Who must follow APES 110?
All members of CPA Australia, Chartered Accountants Australia and New Zealand, the Institute of Public Accountants and ACCA. Breaches can lead to loss of membership and fines, and prosecution where the conduct is also fraudulent.
What is the difference between a principle and a threat?
The five principles describe ideal behaviour, such as integrity and confidentiality. The five threats, such as self-interest or intimidation, are the pressures that explain why an accountant might fall short of those principles in a given situation.
What safeguards can an organisation use against ethical threats?
The topic lists safeguards from the profession and regulation, such as education requirements, continuing professional development and external review, and safeguards in the workplace, such as strong internal controls, ethics programs, careful recruitment, ethical leadership and channels for raising concerns.
Why must accountants be independent?
Their duty is to report accurate figures, while the company they report on may want results to look better. Independence lets the accountant resist that pressure and act in the public interest, which includes investors and superannuation funds that rely on the numbers to make decisions.
Exam move
Memorise the five principles and five threats as two lists, then practise matching short scenarios to one threat and one principle. For longer questions, write your answer in the order of the conceptual framework: facts, issues, principles and threats, safeguards and alternatives. Rehearse two or three scenarios aloud using the framework, because the reasoning, not the label alone, is what earns credit in a written answer.
Keep a short table of the five threats with one example of each from your own reading, and next to each write a safeguard; the table becomes a quick reference for the restricted open book exam and a check that you can tell similar threats apart.
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