ICAEW ETHICS IN PRACTICE SCENARIOS 1

ETHICS IN PRACTICE
SCENARIOS
EMPLOYER GUIDE

icaew.com
ICAEW ETHICS IN PRACTICE SCENARIOS 2

INTRODUCTION

The Ethics in Practice scenarios in this document are There is a bank of 18 Ethics in Practice scenarios for use
provided for you to discuss with your students at their during the meetings.
six-monthly meetings in your capacity as their QPRT,
Counsellor or ATP. Scenarios 1 to 6 relate directly to the modules of the
Ethics Learning Programme. Each scenario relates to
They replace the Ethics in Practice webinars which one of the modules. Students are expected to read
accompanied the previous version of the Ethics and discuss some or all of these with you during the
Learning Programme. meetings held while they are studying the Ethics
Learning Programme, during the first year
The six-monthly meetings must include a discussion of of their training agreement.
the student’s learning and progress in relation to ethics.
This is a mandatory part of the qualification. You will Scenarios 7 to 18 are for discussion at meetings
need to discuss with the student: after the first year of the training agreement. These
build in complexity and students will find them
• their progress in the Ethics Learning Programme more challenging. They may cover a range of ethical
including progress through the modules, the dilemmas and some are set in specialist environments,
progress tests and the full assessment; and for example charities or financial services. The scenarios
• an ethical scenario from the Ethics in Practice will reflect the increase in responsibility that the student
scenarios included in this document; and will have at work as they progress through their training
• a real-life ethical situation. agreement.

The student must then update their training file by

adding an ‘ethics review’ to record their progress
through the Ethics Learning Programme and confirm
that ethical discussions were held with you, their QPRT,
Counsellor or ATP, on a scenario and a real-life situation.

PLEASE NOTE

• Scenarios 7 to 12 – for completion in Year 2

of the student training agreement (scenarios
10,11 and 12 are more complex than
scenarios 7,8 and 9)

• Scenarios 13 to 18 – for completion in Year 3

of a training agreement (or beyond). The final
three scenarios are more challenging than
the first three in this group
ICAEW ETHICS IN PRACTICE SCENARIOS 3

HOW TO USE THE SCENARIOS

Students have access to the bank of scenarios either via You should advise your students to read the scenario
their training file or via a link within the Ethics Learning and consider:
Programme dashboard.
• what are the ethical principles at stake?
The student version of this document advises them • what are the ethical issues to consider?
to prepare for the six-monthly review meetings by • what action would you take to solve the problem?
reading and considering the relevant scenario(s). There
should be enough time to discuss one or possibly The employer version of this document contains
two scenarios at each meeting. Once students have each of the scenarios annotated with call-out boxes
completed the Ethics Learning Programme in the later containing prompts and questions for your discussion
stages of their training agreement there will probably with the student. There are also supporting notes
only be time for one scenario per meeting, as they are covering the ethical principles, issues and actions that
more complex and challenging. the students should consider.

Your students should prepare three scenarios for

each sixmonthly review meeting working sequentially
through the collection. At each six-monthly review
meeting you will choose the scenario(s) for your student
to present for discussion.

PLEASE NOTE

For some of the scenarios there is no

absolute right or wrong answer. The
scenarios are based on ethical dilemmas,
which could have one or several solutions.
The purpose of the meetings is to promote
a discussion around the issues involved.
ICAEW ETHICS IN PRACTICE SCENARIOS 4

CONTENTS

Scenario Module/title Content Page

YEAR 1

1 Ethics, stakeholders and culture Culture 5

2 ICAEW and public trust Professional scepticism 7

3 The ICAEW Code of Ethics Threats and safeguards 9

4 Ethics in business NOCLAR: health and safety issue 11

5 Ethics in practice Taxation: advocacy threat 13

6 Ethics in a transforming world Sustainability 15

YEAR 2

7 Social media Audit: social media; inappropriate financial reporting 17

8 Conflict of interest Accounts and personal tax: competency, objectivity 19

Environmental, social and

9 Assurance: sustainability, professional behaviour 21
governance reporting

10 Banking Audit: self-interest, professional competence 23

11 Staff surveillance Business: fundamental principles 25

12 Modern slavery Audit: speaking out 27

YEAR 3

13 Machine learning Business: competence, transparency, stakeholders 29

14 Accounting for revenue Business: valuation, integrity, misleading information 31

Audit and business: work experience, confidentiality,

15 Qualifying and job hunting 33
restraint of trade

16 Diversity Audit: discrimination, confidentiality 35

17 Director’s loan account Business: misleading information 37

18 Going concern Business: professional judgement, public interest 39

ICAEW ETHICS IN PRACTICE SCENARIOS 5

MODULE 1 – ETHICS, STAKEHOLDERS AND CULTURE PROMPTS FOR DISCUSSION

CULTURE

You were delighted to gain a role at a prestigious

firm of accountants. You have been on excellent
initial training programmes. Now you are on your first Should you expect the manager to be
audit. One of the first steps is a briefing meeting with understanding about this and repeat things
your manager held by video call with 11 other team if necessary?
members. Your broadband connection keeps breaking
up, so sometimes there is a slight time lag in the
conversation. (You have spoken to your landlord who
provides all services where you live.)

Once the audit starts at the client’s premises, you Is this a necessary part of an efficient
feel isolated and bombarded by work programmes, working environment to ensure a competent
timelines and progress schedules. You feel that if you assignment is carried out?
fall behind you would never catch up again.

The other team members seem ‘super confident’

outspoken people. At the client premises you find it
hard to speak up. Everyone is always busy. There seems How can teams ensure that everyone feels
a big difference from the training courses to this real- comfortable speaking up?
world experience.

The company you are auditing is a manufacturer of

perspex (a solid transparent plastic) products. You
are auditing the inventory of screens the company
produces. The company seems to have a relaxed
attitude to the plastic waste it is creating, and you What should you do if you feel a dilemma
are a keen wildlife supporter and wonder where the with a clash between personal ethics and
scrap plastic ends up; is it in the oceans? You try one business/professional ethics?
or two tentative conversations with your colleagues
along these lines, but they clearly are not interested in
chatting with you.

When you have completed the on-site work and are

working from home filling in the rest of the programme,
you have another panic when you find there are
sections of the audit programme that you have not Would this be reasonable?
completed. You are not sure what to do. Would it be
reasonable to ask one of the seniors to have a video
call?

You decide to telephone the senior who had seemed

the most approachable. He just says, ’Has no-one told What should you do about this response?
you about ghostticking! It’s the quickest way to finish
work before 10pm. Just tick off the programme anyway.’

You tick off the audit programme.

ICAEW ETHICS IN PRACTICE SCENARIOS 6

MODULE 1 – ETHICS, STAKEHOLDERS AND CULTURE

PRINCIPLES AT STAKE

Integrity – Not being associated with misleading information.

Professional competence and due care – Ensuring competent
professional service based on technical and professional
standards and legislation.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER

Integrity – Just ticking off the inventory part of the programme

would be misleading audit evidence.
Professional competence and due care – The senior doesn’t
seem to be working towards a competent job. The pressure of
the deadlines if they are excessive and unrealistic could result
in corners being cut
Professional behaviour – Should you be concerned about ACTIONS TO TAKE
discredit by association from the client’s attitude to waste? • It would be appropriate to consult your training
manager, or another senior mentor within your firm.
• To gain support you could contact both the ICAEW
helplines and CABA who offer courses on personal
resilience.
ICAEW ETHICS IN PRACTICE SCENARIOS 7

MODULE 2 – ICAEW AND PUBLIC TRUST PROMPTS FOR DISCUSSION

PROFESSIONAL SCEPTICISM

You are part of an audit team for an international

conglomerate payment processing company with
offices throughout the world.

You have only been training for a year and are feeling Does this matter to ensuring competence on
hesitant about auditing. You can never see the bigger the audit?
picture of what you are doing.

The company is responsible for handling banking

payments for a large percentage of people in your Is this going to impact confidentiality if
own country, and countless others across the world. friends and family have transactions carried
This makes you feel proud, as you are involved in one out by them?
of your firm’s most prestigious audits, but also slightly
concerned.

You have been allocated to the cash balances part of Might it also make you concerned due to
the audit programme. The programme emphasises that the scale of the client ie, might you lack
you must travel to see original verification documents confidence in your own ability?
that local offices will have obtained from banks in
their regions. However, you are informed that due to
pandemic related travel restrictions you are to carry out
this work remotely. You try to speak to your manager
about how you are to deal with this, however she is Is the manager being unethical here?
quick in her answers, saying things like ‘Do what it takes’
and ‘So long as we deliver a complete service on time
and on budget.’

Your work progresses and you find yourself on Google Should you be on your guard with
Maps looking up where the varied locations of the heightened professional scepticism if you
banks holding these balances are. don’t know the countries?

You try to arrange some sort of secure delivery service

for documents to be sent for you to view them, but that
just brings about more questions: should you have
them sent to your firm’s office? You are only meant to What about confidentiality?
be going in there for ‘essential work’, would this count? What should be done about the documents
Surely you are not meant to have them sent to your to balance due care and confidentiality?
home address.

To confuse you further, you see from last year’s audit

records that the verifications were sent by email. You
are sceptical about whether this counts as adequate What actions should your professional
audit evidence but don’t know who to ask about this. scepticism lead to?
What should you do if you are hesitant about
You decide it is probably OK. The client is such a previous work by your firm?
household name and such a huge corporation that
these balances in the bank are probably all there and
anyway, what if these banks you have never heard of
don’t really exist! Where do you stop?!
ICAEW ETHICS IN PRACTICE SCENARIOS 8

MODULE 2 – ICAEW AND PUBLIC TRUST

PRINCIPLES AT STAKE

Integrity – Not being associated with misleading information.

Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring competent
professional service based on technical and professional
standards and legislation; and to act diligently in accordance
with these standards.
Confidentiality – To respect the confidentiality of information
acquired as a result of professional and business relationships.
Not disclose information outside the organisation.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER ACTIONS TO TAKE

Integrity – Does your professional scepticism and hesitancy • You have only been training for a year in this scenario,
about the documents having been sent by email amount to a so the main thing you would want to do is to refer to
risk of an association with misleading information? those more senior and ask questions whenever you
Objectivity – Is the manager putting an undue pressure on feel uncomfortable. If you don’t feel satisfied with the
you by saying, ’Do what it takes’? responses, then you would need to seek out someone
else in a senior position to ask their advice.
Professional competence and due care – How much of the
‘big picture’ of an audit can you reasonably be expected to
have/need in order to perform a professionally competent
assignment? Does the fact that you don’t know where the
locations are impact your professional competence?
Confidentiality – If your friends and family are going to
have transactions carried out by this company, is it going
to be too difficult for you to resist talking about the work?
If the company has such a large coverage of the payments
processing sector would it even be feasible to have an
audit team who will not have connected persons impacted
by them in one way or another? Need also to think about
confidentiality in terms of documents sent to your home
address.
Professional behaviour – Might the issues with the audit
amount to behaviour that would discredit the profession:
ie, your manager’s attitude and the issues you have with the
audit evidence.
ICAEW ETHICS IN PRACTICE SCENARIOS 9

MODULE 3 – THE ICAEW CODE OF ETHICS PROMPTS FOR DISCUSSION

CHARITY
APPLICATION OF FUNDAMENTAL PRINCIPLES

Your fellow cycling club members are delighted when

you tell them you have started a training agreement to The club is a registered charity. Is it breaking
become a chartered accountant. The club is a any Professional Competence rules if you
registered charity and you agree to be nominated to be don’t have a specific knowledge of charities?
treasurer next year. Should you agree to be nominated?

You arrange with the current treasurer to look at the

records. They are in a complete mess and you end up
spending many evenings trying to sort them out.
What should you do about this?
Slowly you start to realise that sums of money have What responsibilities do you have?
been disappearing with no explanation. You try asking You are only a volunteer on this task rather
the current treasurer about them but he brushes than being at work, does that change things?
you off, saying, ’You know how expensive these high And even at work you are junior and don’t
specification bicycles can be to run’. have much accountancy knowledge.
You try speaking to the club chairperson, saying you
have got some good ideas for improving the records
next year. You try to think in terms of your Ethics
Learning Programme. Can you set up safeguards to Part of the Code of Ethics framework is to
deal with this problem? recognise when safeguards are not sufficient,
and it is necessary to resign.
When you ask if you can meet face-to-face to talk things
through, she brings along her husband (who in fact is
going to be the new chair next year). You start to get a
horrible feeling when you realise that neither of them
are at all interested in you improving the records, in fact
Is this theft? ie, a crime rather than merely an
you have a suspicion that they might also be benefiting
ethical misdemeanour?
from the money that is being taken out of the club.

You realise that the reason they were pleased to have

you as treasurer wasn’t because they wanted you to
What can you do though?
do a good job, but rather because they thought you
would lend your title of trainee chartered accountant You have already tried consulting/informing
to the club’s senior team giving a nice façade of good the senior management of the club?
management without anything needing to change. s there a club management committee?
Should you try sharing your findings and
concerns with others?
What about the charity trustees?
Are they the same people as the chair and
the treasurer?
This seems like a legal matter which you are
out of your depth with.
ICAEW ETHICS IN PRACTICE SCENARIOS 10

MODULE 3 – THE ICAEW CODE OF ETHICS

PRINCIPLES AT STAKE

Integrity – Not being associated with misleading information.

Professional competence and due care – Ensuring competent
professional service based on technical and professional
standards and legislation.
Confidentiality – Confidential information must not be
disclosed outside the organisation without authority, unless
there is duty or right to disclose, or disclosure is in the public
interest and permitted by law.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER

Voluntary work – The Code of Ethics does cover this as well as

paid work.
Integrity – You certainly don’t want to be associated with what
is going on in the running of the club, however you need to
decide if you can just walk away now that you have become
involved.
Professional competence and due care – Would you need
specific knowledge about running a charity?
ACTIONS TO TAKE
Professional behaviour – You are concerned that the law
could actually be being broken • This would certainly be a case where you would want
to consult the ICAEW support lines.

• Firstly, the ethics advisory line to consider your own

ethical position.

• Secondly, the technical support line, if you did stay

involved with the charity, for specialised information of
charity reporting.

• However, it would seem from what has taken place that

this may well be a scenario where, having followed
the appropriate course of action on what you have
discovered, you may well decide you want to withdraw
your agreement to be nominated to be treasurer next
year
ICAEW ETHICS IN PRACTICE SCENARIOS 11

MODULE 4 – ETHICS IN BUSINESS PROMPTS FOR DISCUSSION

BUSINESS PRACTICE IN A TIME

OF PANDEMIC

You work as a project accountant for a haulage

company that specialises in the transportation of heavy
and abnormal loads. It is a time of global pandemic
when governments are balancing encouraging
people back to work with protecting public health.
Your company decides that administrative, as well as
operational staff should now go back to the workplace. What should you do about this?
You feel there is a clash between your
On returning you are surprised that arrangements in the personal ethics of what you think is the right
canteen seem much the same as they ever were. There thing to do and what seems to be the practice
is little evidence of social distancing, except a traffic of what is happening in your company.
lights system on the stairways (which no-one seems to
obey).

You see a friend who works in the company’s facilities

management department and you ask him about the Can you see ways where finance data could
arrangements. He admits he has been concerned that actually help ensure ethical matters are
the hours budgeted for cleaning communal areas being dealt with?
haven’t been increased at all.

He also says, it’s not his area, but he doesn’t understand

how it can be that the same lorry drivers are going out
Is this getting closer to questioning whether
when surely, they have returned from countries that you
the law is being complied with?
are meant to quarantine on return from.
What should you do about this?
You decide to raise these with your boss, the Finance
Director (FD). She is dismissive saying, ’Finance
staff can’t have any impact on health and safety
arrangements’.
What do you think about the FD’s statement?
Furthermore she says she has far too much to think
about with the Board meeting coming up, where she
has to give a summary of how the operation of the
furlough scheme (government scheme to subsidise
the wages of staff not able to work) has gone and also
present numbers as to the minimum and maximum
numbers of redundancies that are looking likely in Can you see a dilemma here in terms of
order to achieve a break even position. priorities?
ICAEW ETHICS IN PRACTICE SCENARIOS 12

MODULE 4 – ETHICS IN BUSINESS

PRINCIPLES AT STAKE

Objectivity – Not compromising judgements due to the

influence of others.
Professional competence and due care – Ensuring competent
professional service based on technical and professional
standards and legislation.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER

Objectivity – If you have reported your concerns to your

senior, ie, the FD, you need to consider if this is enough for
someone in your position; or if you are under undue pressure
from the FD not to raise these matters further.
Professional competence and due care – Should due care
extend to raising a voice on matters where you can see a
risk to stakeholders albeit not directly created by the finance
department.
Professional behaviour – If you are concerned that the
quarantine law could be broken what should you do? Need
to consider whether the public interest is being adequately
taken into account.

ACTIONS TO TAKE

• As an accountant, you would not be expected to have a • In this scenario, although further substantiation/verification
level of understanding of laws and regulations wider than would clearly be needed, it sounds as though the situation
those required for your role. could be close to this.

• You would have acted correctly in this scenario in raising the • While you may have done everything you should in the
matters with your superior, in this case the FD, to address circumstance, the FD is in a senior position. They have a
the matter. greater ability to influence policies, decision-making and
actions taken. The FD should therefore be doing more.
• The issues in this scenario are ones that HR (human
resources) should be made aware of, since this is likely to be • In any situation such as this, you should document the issue
their area of responsibility. and actions taken including the results of any discussion,
and the response.
• NOCLAR (Non-Compliance with Laws and Regulations)
permits a professional accountant (whether in practice or • If some of the issues escalate the board may end up
business) to make disclosure to the appropriate authority needing to take legal advice.
(in this case the Health and Safety Executive (HSE)) without
first reporting the matter to management, but only under
exceptional circumstances. Typically, there must be reason
to believe that there will be an imminent breach of law or
regulation that would cause substantial harm to stakeholders.
ICAEW ETHICS IN PRACTICE SCENARIOS 13

MODULE 5 – ETHICS IN PRACTICE PROMPTS FOR DISCUSSION

TAX AND ADVOCACY

You work in the tax department of an ICAEW registered

firm. You are starting work on an assignment which is What are the ethical principles involved in
part of the tax compliance services for a client. You see providing both services?
from the permanent file that the client is also an audit What ethical threats would there be?
client of your firm.

You begin the preliminary schedules for the corporation

tax return, and you find you have several issues you What would the potential ethical principle
don’t understand. at stake here be?
And is the threat suitably avoided in what
The company makes a large number of sales over the follows?
internet. There seems to be a disproportionately high
number of transactions going through in different
jurisdictions in the early hours of the morning. Plus,
you can see various journal entries that have narrative
Would this prompt any new ethical thoughts
saying the place of supply is somewhere you know to
in your head?
be an offshore tax haven.

The sundry expenses ledger seems to have some very

small items with the narrative of just ‘petty cash’. You
are not sure whether further narrative is required and
whether these are too small to bother your manager And this?
with.

After emailing your manager, he telephones you in

response and says why don’t the two of you have a
face-to-face meeting with the client.

You look forward to the meeting as it will be really good

What ethical issues are involved here?
experience. However, once there, the client is very
demanding, and it turns out they want assistance from And what threats to the fundamental
the firm in discussions with the tax authority. There is a principles?
disputed treatment with the tax authority.
ICAEW ETHICS IN PRACTICE SCENARIOS 14

MODULE 5 – ETHICS IN PRACTICE

PRINCIPLES AT STAKE ISSUES TO CONSIDER

Integrity – To be honest and not be associated with misleading Professional competence – Tax treatment needs to be correct.
information. Only a certain amount can be learned from theoretical studies.
Consulting seniors/specialists is always to be advised.
Objectivity – Not to compromise professional or business
judgements because of bias or conflict of interest. In Integrity – Could be seen to not be honest.
undertaking the assurance engagement, the firm must not
only be, but also appear to be, independent. Objectivity – Independence could be impaired. The threats to
objectivity would be:
Professional competence – To ensure that the client receives
competent professional service. Self-interest and self-review threats – If the same team
provided both services.
Professional behaviour and due care – To comply with
relevant laws and regulations and avoid any conduct that Intimidation threat – There could also be a threat to
might discredit the profession. independence due to a demanding client. Intimidation
involves exerting undue pressure or influence. The client
THREATS TO THE PRINCIPLES acting in this manner could influence the actions of your firm
in the tax work. This could be seen as ’bullying’. Clearly the tax
This scenario has many threats, below are some of the major advisor should not be influenced by this behaviour.
ones:
Advocacy – Need to consider whether adopting a position
Self-interest – The threat that the financial or other interest will too closely aligned to that of management ie, including
inappropriately influence the firm’s judgement or behaviour. representing the entity in any negotiations or proceedings
involving the tax authority. If this was the case, this would
Self-review – The threat that during the audit the firm will not affect/compromise the independence of the advisor.
appropriately evaluate the results of previous judgements
made by the firm ie, in connection with the tax work. Professional behaviour – Some of the aspects of the scenario,
such as the association with the offshore tax haven and the
Intimidation threat – Exerting undue pressure or influence. sundry expenses should prompt professional scepticism in
your work.

ACTIONS TO TAKE

• You have acted appropriately here, in contacting your

manager to ensure the professional competence of
the job.

• You should also keep on your guard re any issues

where your professional scepticism prompts this.
ICAEW ETHICS IN PRACTICE SCENARIOS 15

MODULE 6 – ETHICS IN A TRANSFORMING WORLD PROMPTS FOR DISCUSSION

GREEN WASHING

You work as an associate in business development for

a large management advisory company. The company
has a strong brand and lists many green credentials in
proposals and pitches for new clients. The management
have made a commitment to net zero carbon emissions
and describe the company as proud of its zero waste
credentials.

You hadn’t been working there for long when you Is ‘green wash’ a term you are familiar with?
started to realise that many of these green credentials Have you come across examples of it in
are in fact ‘green wash’ (ie, giving the impression that real-life?
the company is behaving in an environmentally-friendly
manner to increase sales, when it is not doing so) and
most of the company’s practices are unsustainable or
take no account of environmental or societal impacts.
Do you think they should be doing so?
The company’s policy is to advise client companies to What do you think about the balance between
use the cheapest energy provider. You are expected to commercial priorities and ethical ones?
convey this advice. Your concern is that no-one spends Is it clear cut?
any time looking into what the environmental practices
of these energy providers are. When you suggest doing
so, you are strongly reminded that that wouldn’t be time
that you could be charging to any client. Is it fair if you won’t be allowed to log any
chargeable time to this research?
The rubbish collection points with huge colourful bins
laid out in a modernist design pattern to encourage
you to go there and recycle your waste at the large
headquarters office where you work are a talking point
among your co-workers. However, you have noticed the
office waste collection vehicles. They are provided by
a waste management facility company. On looking the
company up, you find a host of news reports and media To what extent does a company have a
comment about the waste company burning waste with responsibility to look into the further chain
seeming disregard for its environmental impact. as to what happens to something like waste
disposal?
Your employer has a policy of asking you to pitch for Once your company has passed the waste to
new business focussing on how green the company the contractor company does their
is and asks you to post on your personal social media responsibility end?
endorsing this. The management advisory company is
entering an award as ‘Green advisors of the year’; the
winners will be decided as those with the most posts on
social media.
ICAEW ETHICS IN PRACTICE SCENARIOS 16

MODULE 6 – ETHICS IN A TRANSFORMING WORLD

PRINCIPLES AT STAKE

Integrity – To be straightforward and honest in all professional

and business relationships. Not knowingly being associated
with misleading information.

Objectivity – Not compromising judgements due to the

influence of others.

Professional behaviour – Complying with relevant laws and

regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER

Taking the scenario as a whole, consider whether you think

the company is deliberately ‘green washing’? Are they taking
enough account of wider stakeholders? Who are the wider
stakeholders?
Integrity – The need to decide to what extent you think you
helping promote your consultancy’s ‘green’ reputation would
amount to you misrepresenting and being associated with
misleading information.
Objectivity – If pressure is put on you to not look into
the ethical practices of third parties you are promoting
ie, the energy providers, you need to consider if this is
compromising your own ethical position. ACTIONS TO TAKE
Professional behaviour – The need to consider to what extent
• The first step is going to be reporting your concerns
you think this ‘green washing’ by your employer is behaviour
to your immediate superior or to some other mentor
that might cause discredit to the profession. You are on the
who supports you in the company. If you don’t feel
first step to working towards the public interest by identifying
you are getting the support that you would expect and
the issues as described in the scenario.
that you think the seriousness of the matters deserves,
as might be the case from the discouragement you
experienced in terms of looking into the energy
providers, there is nothing to stop you looking to
approach another senior person in the company who
might be able to give you guidance and support.
ICAEW ETHICS IN PRACTICE SCENARIOS 17

SCENARIO 7 – SOCIAL MEDIA PROMPTS FOR DISCUSSION

SOCIAL MEDIA

Both you and Jack are trainee ICAEW Chartered

Accountants at FLT & Co., with two years’ experience
in audit. You are both currently auditing contract
provisions for a listed construction company, Rinter
plc. Jack identifies that Rinter is not recognising
unavoidable future costs on a number of long-term
contracts. He stays late one evening to produce a
schedule of audit evidence explaining why the losses
should be recognised on these contracts in the current
year, in accordance with IAS 37. However, when he
shows this to the audit manager, she dismisses his
concerns, arguing that ‘unavoidable’ is something
quite subjective. If the client thinks they are avoidable,
then we run with that.’ She even goes on to tell him to
remove his concerns from the audit working papers.

You have recently become aware that Jack has been

posting adverse comments on social media about the What ethical obligations does knowledge of
client and FLT, although he has never explicitly named this matter create for you?
either entity in his posts.

The next day you see one of Jack’s posts on Facebook:

Does anyone else find it really annoying when you’re not

Is Jack likely to be correct in his judgements?
listened to by your boss? Working on the audit of a large
construction company and my manager is refusing to If Jack is right, is he right to speak out?
challenge the FD when it’s obvious they’re not accounting What ethical principles are at stake for Jack
for provisions correctly. It’s so frustrating plus I’m starting to and you?
get a bit worried as I don’t want to be implicated if there’s
anything untoward going on – anyone got any advice?

You also notice a follow up Facebook post made by

Jack as follows:

I work for an audit firm, but I think it is unethical and I

want to leave. I am working on the audit of a construction Are there different ethical principles at stake
company and the audit partner is terrified to challenge the for the two social media posts by Jack?
FD over the draft accounts. The audit manager is terrified
of the partner, so she won’t do anything. They both seem to
want to make any excuse, so they do not have to modify the
audit report. I really don’t want to be associated with this
client when a scandal emerges – it’s going to be another
Carillion. I need to speak out now.

In a private conversation Jack said to you recently ‘I feel What advice, if any, would you give Jack on
strongly about the matters I am raising in my posts, but I the actions he should take?
will be able to say much more after I leave FLT. However,
What ethical difference would it make if Jack
I would like your advice on what I should do now.’
had made the same social media posts, but
after he had left FLT?
ICAEW ETHICS IN PRACTICE SCENARIOS 18

SCENARIO 7 – SOCIAL MEDIA

PRINCIPLES AT STAKE Social media disclosures by Jack about the firm that employs
him are also a breach of confidential information and
Confidentiality – There is a professional duty to respect perhaps also his employment contract. However, they are not
the confidentiality of information acquired as a result of necessarily a breach of client confidentiality.
professional and business relationships. Not to disclose such
information outside the organisation, unless there is duty or The duty of confidentiality does not end when Jack leaves the
right to disclose, or disclosure is in the public interest and firm.
permitted by law.
Duty to report or disclose - As you are aware of Jack’s
Professional behaviour, competence and due care – behaviour on social media and the possible consequences,
To comply with relevant laws and regulations and avoid you should consider your obligation to report the matter to
any conduct that might discredit the profession. Ensuring somebody senior in the firm, perhaps the staff partner or
a competent professional service, which is compliant with ethics partner.
technical and professional standards and legislation.
(2) Possibility of inappropriate financial reporting by client
Integrity – To be honest and not be associated with misleading and lack of challenge by audit firm.
information.
Professional behaviour, competence and due care – With
Intimidation – Exerting undue pressure or influence. only two years’ experience, Jack may not be in a position to
make a reliable judgement on the required financial reporting
treatment of long-term contract losses.
ISSUES TO CONSIDER
However, he has the right to voice his opinion within the audit
(1) Public disclosure of confidential information in social team and make his case.
media.
Intimidation threat – An intimidation threat, or a perception
Confidentiality - There is a risk that, despite not naming the of an intimidation threat may mitigate Jack raising the issue
client in the social media postings, somebody who knows internally and may constrain subsequent open and honest
Jack could identify the audit firm and the client. This would discussion of the issues within the audit team.
be a serious breach of confidentiality given the nature of the
disclosures. As Rinter is a listed company, this could be a The instruction by the engagement manager for Jack to
particularly serious matter as its shares could be traded at a remove his concerns from the audit documentation does not
profit, based on the information in the postings. suggest his view has been heard and considered.

ACTIONS TO TAKE

• You should inform Jack that he must make no

further social media postings disclosing confidential
information about the client or the firm.
• You should take advice from a senior colleague about
who to inform about Jack’s historic disclosures on social
media.
• The matters raised by Jack need to be discussed
honestly and openly within the audit team to resolve the
technical application of IAS 37 and audit judgements
surrounding the relevant issues.
• If matters are not resolved appropriately internally
within the audit firm, for you or Jack, then, to gain
support, you could contact the ICAEW ethics helpline.
• If there is still no internal resolution, consideration
should ultimately be given, by you and Jack, as to
whether there is a duty to disclose (eg, whether a crime
has been committed, such as false accounting).
ICAEW ETHICS IN PRACTICE SCENARIOS 19

SCENARIO 8 – CONFLICT OF INTEREST PROMPTS FOR DISCUSSION

CONFLICT OF INTEREST

You work for a small firm of chartered accountants

and are carrying out work for a client who operates
a wedding services business. It is run by Gareth
and Mia, husband and wife directors who are equal
shareholders. Your firm’s partner, whose client it is,
flatters you by saying they think you will be able to What should you do here?
handle the whole accounts and taxation job. You are
hesitant and would have liked some supervision. Should you carry on with the job?

You have an exploratory look in the folder with the

client’s files and find some of your firm’s records
confusing. Your firm provides advice for the directors
regarding their personal tax as well as for the company,
but there seems to be only one client acceptance
document and engagement letter. You are not sure Should you continue on the job when you are
whether there should be separate versions of these
not certain all correct client procedures have
sorts of things. You have future ambitions to set up
your own practice and want to ensure you are clear on been followed?
proper procedures.

Your first task is to go on a visit to the client. The

partner has forwarded an email saying they would like
to decide on the dividend payment for the year at the What should you do here?
meeting. When you arrive, you are met by Mia who
suggests you conduct the meeting in a coffee shop Should you talk with just Mia about what the
nearby. It becomes apparent Gareth isn’t going to be possibilities might be?
attending. You wonder whether discussions on the And is it ok to relay to a client general text-
company’s dividends can take place without Gareth book like scenarios, when you won’t have the
there. It soon becomes clear that they have separated. full specifics of their situation?
Mia says they want to split the business and asks you to
explain what this would mean for the business. Are you competent to do so?

You find the meeting awkward because Mia also says

a lot of derogatory things about Gareth and how he
doesn’t split car-related expenses equitably between
the business and his personal use and never keeps his What should you do about Mia telling you
mileage records properly. these things?
On returning to your office, you realise you must have
left your work laptop in the coffee shop. You telephone
and the person answering promises to go and look and
ring you straight back. You wait for what seems like an What should you do if the laptop has been
eternity. lost?

In the meantime you check your emails on your phone

and find there is one there from Gareth, saying he is
sorry he missed you and would you let your partner
know that he would of course like your firm to continue What would the answer to this be?
acting for him after the imminent divorce which he What should you do now?
understands you know about. You realise you don’t
know what should happen here. Can your firm continue How should your firm deal with this?
to act for both Mia and Gareth?
ICAEW ETHICS IN PRACTICE SCENARIOS 20

SCENARIO 8 – CONFLICT OF INTEREST

PRINCIPLES AT STAKE
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Integrity – Not being associated with misleading information.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation.
Confidentiality – To respect the confidentiality of
information acquired as a result of professional and business
relationships.
Professional behaviour – To comply with relevant laws and
regulations and avoid any conduct that the professional
accountant knows or should know might discredit the
profession.

ISSUES TO CONSIDER
Objectivity – In this situation, careful safeguards will need to
be implemented in order to act for both the parties. It will be
difficult to know who to listen to and who to take instruction
from.
Conflicts of interest – There is guidance on conflicts of
interest over and above what is stated in the Code of Ethics
itself. ACTIONS TO TAKE
Integrity – You will need to make a note of the points about
the potential inappropriate treatment and keeping of records • On the potential inappropriate motor expenses, you
re: the motoring expenses. You will then need to follow will need to write this up and bring it to the attention
this up, to ensure that both yourself and your firm are not of the partner. It will be necessary to scrutinise the
associated with misleading information. records carefully in order to resolve the concerns.
• With regard to the splitting of the business, you will
Professional competence and due care – If you do not feel need to pass this situation on to the partner and to
competent to carry out this job in the first place, you will most probably the engagement manager in your firm
need to make this clear to the partner. You will also need to to sort out the arrangements re: the splitting of the
follow up whether the correct client acceptance documents, business.
Know Your Client documents and engagement letters are • In this circumstance there are effectively three clients,
comprehensive and up to date. When Mia asks you about each of the husband and wife directors, plus also
splitting the business and matters that are outside your level the business. The key thing is consent and to ensure
of expertise, you should make sure you let her know this fact that this is obtained in the appropriate way from the
and that someone will get back to her. However, it would be appropriate party.
ok to say very general points about possibilities for going • It will be possible to keep acting for the two
forward in a text-book like fashion. individually. The most important thing will be
safeguards and that there are information barriers.
Confidentiality – Talking in the coffee shop was not to be
• As far as the company is concerned, it will have to
advised, especially as one of the parties wasn’t present, and
be made clear that your firm can no longer take
you could be disclosing his information. The potential loss of
instruction from one of the parties. There will need to
the laptop has now clearly compounded the confidentiality
be unanimous consent from the board.
breach and may also have compromised GDPR (General Data
• The missing laptop will need to be reported straight
Protection Regulations).
away. It may be possible for information to be locked
Professional behaviour – Again, talking in the coffee shop down remotely. If the laptop turns out to be lost, the
about the client’s affairs could well be construed as not risk to client information may need to be reported to
professional behaviour. You also need to make sure that you the client.
take reasonable precautions not to lose client information ie,
in the form of taking care of the laptop.
ICAEW ETHICS IN PRACTICE SCENARIOS 21

SCENARIO 9 – ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORTING PROMPTS FOR DISCUSSION

ENVIRONMENTAL, SOCIAL AND

GOVERNANCE REPORTING

You work in the environmental, social and governance

(ESG) reporting department of a firm of ICAEW Chartered Are you aware of initiatives on ESG reporting?
Accountants. Your firm has recently signed up to reporting Is it an area you have worked in?
under a new framework of metrics. These cover issues ranging
from carbon emissions to social factors and governance
targets.
Too much time pressure could result in
Your department is struggling with trying to keep its ongoing rushed assignments.
assignments going at the same time as researching the new
framework.

One problem has been over social metrics which it is found Do you think it is possible to have
have been harder to measure with precision. You can also see comparability in these type of criteria just as
that some companies that adopt specific social policies can
you can in financial criteria?
end up appearing stronger than other companies that by the
nature of their strategy can deliver social impact. How important is this to encourage
responsible investing?
Another problem has been ensuring there is a staff
knowledge base in all the areas. There has been a big
recruitment drive for staff with a STEM (science, technology,
engineering and mathematics) background. One of the recent
recruits to the department is Jane. Jane has a degree in
Have you tried looking at CO2 emissions
Natural Sciences and has been a real asset with regard to the reporting?
emissions reporting. Do you think a scientific background is required
to understand the data?
You are currently the senior on an engagement for a cement
manufacturing client. Jane reports to you on this assignment.
The company has introduced a new manufacturing
technology. Your assignment is to provide assurance on its What ethical issues will be important when
claims that this technology can cut emissions by more than providing assurance on future claims?
two-thirds. The technology does not use natural resources
and importantly does not involve use of the high temperature
kilns.

You are called to meet with the engagement partner on It seems Jane has chatted about the company
the assignment. The partner informs you that the CEO of
within earshot of the CEO. What should be
the company has made a complaint that he himself heard
Jane chatting informally by one of the coffee stations with a
done about this?
member of the company’s accounting staff, saying that she
didn’t really believe the CO2 emissions reduction that the
company was claiming.
Should Jane be removed from the
He is demanding that Jane be removed from the assignment assignment?
and threatening that the company might start looking for an
alternative assurance firm. What stance should the partner take in terms
of the CEO saying this?
You speak to Jane after the meeting. Jane tells you that she
has seen board minutes in which the operations director
admitted that she has doubts about the effectiveness of the
new technology.
How does this fact impact the situation?
ICAEW ETHICS IN PRACTICE SCENARIOS 22

SCENARIO 9 – ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORTING

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation; and to act diligently in
accordance with these standards.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER
Integrity – You will need to consider the possibility of being
associated with misleading information in terms of the claims
that the company is making about the new technology. Jane
has been using her professional scepticism, though it would
seem not dealing with her concerns in an appropriate way.
Objectivity – The CEO is putting the firm under pressure after
he heard Jane’s comments. It will be necessary to safeguard
against being influenced by this and in particular by his threat
to take his business elsewhere.
Professional competence and due care – In having ACTIONS TO TAKE
appropriate staff in the ESG department, the firm is taking
care to ensure professional competence and due care. • It is entirely appropriate to talk to Jane about this
Professional behaviour – In signing up to the new framework incident.
for ESG reporting, your firm will need to ensure that it upholds
the standards of that framework. • It will be necessary to caution Jane with regard to
‘casual’ chatting, no matter how true the content of
If your firm is associated with ESG assurance that is found what she is saying.
to have been carried out incompetently, this could clearly
discredit the profession. • With regard to the doubts about the efficacy of the
new technology in reducing CO2 emissions, you
and Jane should assemble evidence to support
whatever level of assurance it is felt can, or cannot, be
given. Jane will be able to make use of her scientific
knowledge to interrogate the data presented.

• Your department overall is clearly working under time

pressure. This creates a threat to ethical behavior, in
particular to the principle of professional competence
and due care. You should ensure that each of your
tasks is carried out to a high standard. If it appears that
it is not going to be viable to undertake everything
that is expected then you should inform the partner or
other relevant senior managers as appropriate.
ICAEW ETHICS IN PRACTICE SCENARIOS 23

SCENARIO 10 – BANKING PROMPTS FOR DISCUSSION

BANKING
You are an audit senior on the final audit visit of a large
UK bank with a premium listing on the London Stock What additional pressure does this create?
Exchange. It has a 31 December year end. It’s the first
year for which your firm is auditor, having won a tender Might there be a self-interest threat?
initiated by the maximum auditor tenure requirements How could this be mitigated?
for public interest entities (PIEs). The bank’s policy is
to announce its preliminary results before the end of
February and all audit work needs to be completed by
that date.

You were pleased to have been selected as this is a Does this create a conflict of interest?
prestigious new audit client for your firm, a household
name and you even have your own bank account with
them. At the initial planning meeting the engagement
partner mentioned that this was an excellent career
opportunity for everyone in the audit team and that it was
important for the first year of the audit to go really well. Is there undue pressure being put on you
here?
You have the responsibility for coordinating the audit
of the bank’s proprietary trading and structured
finance operations. This includes valuation of financial
instruments held in the bank’s trading book. These
include over the counter (OTC) derivative positions
which have been valued by the bank using sophisticated Can you be sure that you are not breaching
derivative pricing models. A derivative valuation the ethical principle of professional
specialist has been engaged as an auditor’s expert competence in this tricky area?
to assist in obtaining sufficient appropriate evidence.
You have always found derivatives a challenging area How can you ensure your professional
and are glad that an expert has been employed to scepticism isn’t compromised?
cover this area. As he is an expert, you have accepted
his conclusion that all derivative positions are valued
appropriately.

The bank’s structured finance department sets up special

purpose vehicles (SPVs) as part of asset securitisations. Is the head of structured lending
You have identified that several of these entities have not attempting to intimidate you and apply
been consolidated. You wish to review the structure of all undue influence?
non-consolidated SPVs to confirm that they don’t require
consolidation under the provisions of IFRS 10. You Are you allowing his behaviour to
discuss this issue with the head of the structured lending undermine your objectivity?
team and ask for details of the relevant SPV structures. He How should you proceed if he won’t
is a very forceful individual and tells you that he doesn’t
understand why you need this information, that the supply the information you request?
previous auditors have reviewed these and so he does
not understand why you are wasting everyone’s time on
the matter. He is reluctant to provide the information and
adds that if this information was required it should have
been requested during the interim audit.

To make matters worse, you also don’t know how to What issues are raised by the fact that your
proceed with regard to the following matter: a female
member of your team has come to you to complain colleague has turned to social media to
about the manner in which she has been treated when speak out on this matter?
making enquiries regarding the valuation of equity
positions. She states that she has had to suffer ‘a barrage
of micro-aggressions’ including being frequently
addressed in patronising and sexist terms by the bank’s
staff. She tells you that she has frequently described
how difficult she finds the environment at the bank What should you do in this circumstance?
on her social media accounts and many people have
advised her that she shouldn’t put up with a toxic work
environment. You are unsure how to proceed.
ICAEW ETHICS IN PRACTICE SCENARIOS 24

SCENARIO 9 – ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORTING

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation; and to act diligently in
accordance with these standards.
Confidentiality – To respect the confidentiality of information
acquired as a result of professional and business relationships.
Not disclose information outside the organisation.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER
Integrity – You will need to ensure that you are not associated
with misleading information, by ensuring enough safeguards
in relation to not fully understanding the derivatives pricing
model and by fully interrogating the situation of the SPVs.
Objectivity – The fact of the student loan does not create a
conflict of interest if the loan is on normal commercial terms.
ACTIONS TO TAKE
The engagement partner mentions that this is an excellent
career opportunity and that it is important for the first year of
the audit to go well. This creates a self-interest threat due to • With regard to the derivatives valuations, you need
the potential pressure being put on you. to make sure that you satisfy the auditing standards’
guidance as to reliance on experts.
There is a potential intimidation threat in relation to the head
of the structured lending team. You need to make sure that • You should also make sure that how you dealt with
you don’t compromise your judgements as a result of his your professional scepticism concerns is documented.
attitude. There could also be a self-interest threat with you not
wishing to cause problems for the client. • With regard to the setting up of special purpose
vehicles as part of asset securitisations you need to
Professional competence – You need to make sure this
make sure that you gain what information you consider
ethical principle isn’t breached with regard to the challenging
necessary and are not intimidated by the attitude of
area of derivatives. Using an expert is an appropriate way
the head of the structured lending team.
to help with this, however you still need to keep control
and responsibility. You will need to make sure that your
• The discrimination suffered by a member of your team
professional scepticism isn’t compromised.
during the audit is an important matter to follow up.
Confidentiality – Social media content can create a breach of You will need to reassure your colleague that she did
this principle. right to speak up and find the appropriate avenues in
your firm for advice on how you should deal with this.
Professional behaviour – It would bring the Institute into
At the same time as being supportive on this matter,
disrepute if you did not engage with the situation of your
you will need to advise your colleague that she should
colleague suffering from potential discrimination and seek
take care with regard to putting confidential client
the appropriate avenue for it to be investigated and fed
sensitive material on social media, again hopefully
back to the client that your firm will not allow their staff to be
your firm has advice to give out on this. Advice can
subjected to this behaviour.
also be sought from ICAEW.
ICAEW ETHICS IN PRACTICE SCENARIOS 25

SCENARIO 11 – STAFF SURVEILLANCE PROMPTS FOR DISCUSSION

STAFF SURVEILLANCE
You are a manager at a services support company. The
division you are in charge of provides payroll services for
a healthcare provider, Westerncare.

Westerncare’s staff don’t tend to work a fixed number

of hours per month. Most work overtime according to
business needs. Employees log any additional hours on
an overtime request form; this is then signed by their
manager and sent to your team to process. There have
been various issues with this system in recent years…

You are due to attend a meeting with some of

Westerncare’s directors. An agenda item is the possible
introduction of electronic staff-tracking lanyards (a cord
worn round the neck to hold an identity card) or badges
(that would pin on to employees’ uniforms). These staff
tracking devices would be swiped by staff when they How much should you enter into private
start and end their shift and the data sent to your team to conversations with the FD on this? Should you
calculate each employee’s pay for the month. encourage him to wait and speak openly about
this at the meeting?
Before the meeting, Westerncare’s finance director (FD),
an ICAEW member like yourself, telephones you with What would your response to the FD on
his concerns about the lanyards. He thinks there is a this be?
safety risk for staff doing physical work. He knows the Is there a potential conflict of interest here?
forecasts show electronic lanyards are much cheaper
than electronic badges. However, he is considering not
revealing this to his fellow directors. He tells you that
Westerncare’s operations director is a major shareholder
in one of the companies being considered to supply the What do you think about the directors’ attitude
lanyards. He asks you if there are any conflict of interest here?
rules which would prevent that company from becoming Should you in your role get involved with their
a lanyard supplier. responsibility towards their staff?
How would you feel about supporting a payroll
At the meeting, a director is concerned about staff who
forget to swipe the lanyard. The other directors argue procedure where you knew the payees would be
that this is the individual’s own responsibility and as they unlikely to be able to check the accuracy of what
won’t be able to go through the newly fitted automated they receive?
doorways without the device, it shouldn’t happen too Is this your problem?
much. One of the directors comments to you that it
would be extremely surprising if staff could actually
work out the detail of their hours anyway, as there are
various formulas for the calculation of overtime – eg, if What are the ethical issues with regard to
working an evening, weekend or national holiday. When surveillance of staff in this fashion?
you get back to your own office, one of your directors is Have you come across any similar procedures?
keen to talk to you. She asks your opinion on the use of
surveillance technology in your own company. There is How does the matter of trust in staff relate to
a proposal that surveillance software should be installed ethics?
on all staff computers to monitor work activity. She thinks What responsibility for the health and safety
that benefits will include seeing who the most efficient of staff does your company have?
accounting staff are and trusting more staff to work at Do you have responsibility as a senior staff
home. You know your company is trying to reduce the member?
cost of office space. You have concerns about your own
staff’s welfare if they can no longer work at the office. An
office rule says that anyone dealing with a third party’s
pay details must carry out this work from office premises.
However, it now seems this is being disregarded in Does cost-cutting threaten confidentiality?
favour of cost-cutting.
ICAEW ETHICS IN PRACTICE SCENARIOS 26

SCENARIO 11 – STAFF SURVEILLANCE

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation; and to act diligently in
accordance with these standards.
Confidentiality – To respect the confidentiality of information
acquired as a result of professional and business relationships.
Not disclose information outside the organisation.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.
ISSUES TO CONSIDER
Integrity – If you process a payroll knowing that due to the
access method for hours, the staff won’t know whether their
pay is correct or not, do you have some responsibility for
being associated with misleading information? Or is it too far ACTIONS TO TAKE
removed from you? Once you know the information may be
misleading does this change your responsibility? • You should explain to the FD of Westerncare that he
should present his concerns to the other directors at
Objectivity – Would you have a conflict of interest in the meeting. It is understandable that the FD wants to
taking part in the healthcare provider’s decisions regarding consult someone else who he considers might be a
obtaining staff time? Would you want to encourage whatever ‘like mind’ for moral support. You should encourage
provides the cheapest and easiest source of information for the FD to follow the ICAEW Code of Ethics and use the
your own company to process the payroll? ICAEW helpline. The FD should not present misleading
As the operations director is a major shareholder in one of the financial information to his fellow directors. He should
companies being considered to supply the lanyards, do they present both sides of the argument.
have a conflict of interest in terms of the decision between
using the lanyards or the badges as the tracking device? • You should make it clear that some parts of the
meeting are not relevant to you, but if ethical
Professional competence and due care – Can you be said principles are threatened you should speak out.
to be performing a task with adequate due care, if you know
that the data you have been supplied with from a third party is • You should suggest a working group be set up on the
potentially unreliable? use of surveillance software at your own company. This
Confidentiality – What issues are there with confidentiality should include all stakeholders including the Human
when staff increasingly carry out work away from a formal Resources department and staff representatives.
workplace? What difference does the sort of accountancy
work it is make? Is it appropriate for payroll work? • The meeting must discuss the wider ramifications of
the proposed changes. The physical and psychological
Professional behaviour – If you know there is a safety risk welfare of staff must be considered and constantly
with the lanyards, would it be acceptable for you to sit at a reviewed. The issue of trust of staff is an important one,
meeting where they are decided upon and excuse yourself both in terms of staff welfare and also in terms of staff
from a contribution because it is outside your remit? motivation. With the introduction of new technology
Is it acceptable to talk to the FD about his company’s affairs small scale samples or trial periods can then seek
outside the formal work meeting? feedback for what unintended consequences there
could be.
Is the Westerncare FD, as another ICAEW member, being
inappropriate in not explaining to the other directors why • The impact on confidentiality of staff working at home
he doesn’t want to present the beneficial cost aspect re: the is important. The type of work is relevant. Payroll work
lanyards due to his concerns on health and safety grounds? demands high levels of confidentiality and it may be
decided it is not suitable for it to take place remotely.
ICAEW ETHICS IN PRACTICE SCENARIOS 27

SCENARIO 12 – MODERN SLAVERY PROMPTS FOR DISCUSSION

MODERN SLAVERY
You are working as an associate on the audit of a large
food and consumer goods company with complex
supply chains.

Whilst reviewing the internal controls system relating to

purchases for the company’s food division, you are told
by a member of staff in the procurement department What are your responsibilities if something like
that an NGO (non-governmental organisation) has this is brought to your attention while out on
audit?
reported to the company that it had uncovered evidence
of working conditions in an overseas division of the
company that could be modern slavery. This occurred
during the last financial year, but the staff member
believes that no action has been taken by the company The staff member claims they have not reported
to investigate the report. the matter to anyone but you – they might
be afraid of reprisals or they could harbour a
The staff member has not reported their knowledge to grudge against another staff member or the
any member of the company’s management team, as company itself. Should you act on information
they say they fear they will lose their job for speaking out. that could be made up?

You speak to the audit manager about this. The manager

just says that you should try and encourage the staff
member to speak out if they are concerned.
How could you encourage the staff member to
speak out?
You read the Section 54 statement1 for the previous
Or should you tell the company’s management
year and see that it makes no reference to the NGO’s
about the issue?
concerns or whether the company has investigated it, or
what remedial action it has deemed necessary, if any. If the manager says to leave the matter at that,
should you follow this advice?
You believe that this indicates that the company is not in
compliance with the Modern Slavery Act requirements.
You again speak to the audit manager, raising the fact
that you are concerned that the company’s Section 54 Is this correct?
statement might be inaccurate. The manager says the
Do auditors have any responsibilities on matters
statement is not part of the financial statements, it is not like this?
relevant to the audit so there is no need to follow this up
If the company has not followed up the NGO’s
. concerns or disclosed them this means that the
You have a look at the NGO’s website but cannot find company’s most recent published statement
any reference to accusations of misconduct against the was not compliant with the Modern Slavery Act.
company, and are unsure what to do. Is it an auditor’s role to point this out?

Were you aware of the Section 54 statement

before considering this scenario?
Have you come across circumstances which you
think questionable in terms of modern slavery?

1
Section 54 of the Modern Slavery Act 2015 (the Act) requires certain organisations
to produce a slavery and human trafficking statement each year.
ICAEW ETHICS IN PRACTICE SCENARIOS 28

SCENARIO 12 – MODERN SLAVERY

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation; and to act diligently in
accordance with these standards.
Confidentiality – To respect the confidentiality of information
acquired as a result of professional and business relationships.
Not disclose information outside the organisation.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.
ISSUES TO CONSIDER
Integrity – Auditors are required to ‘read’ all of the ‘other’
information that appears in the annual report as well as the
financial statements, and to deal with any actual or apparent
inconsistencies between the financial statements and the
other information, and any ‘misleading’ information. Section
54 statements are not part of the annual report but must be
published on the company’s website so are in the public
domain – therefore if the section 54 statement is misleading /
ACTIONS TO TAKE
untrue etc this could impact the financial statements.
Objectivity – Is the manager putting an undue pressure on • Although the line manager is technically correct to say
you by saying you should do nothing further? the Section 54 statement is not part of the audit, any
information regarding possible misconduct should be
Confidentiality – If you let the company’s management know
followed up.
that this has been drawn to your attention will this be breaking
the confidence of the staff member?
• This is the case even though you have no way of
Professional behaviour – Ignoring this matter could bring knowing if the staff member’s report is accurate.
discredit to the profession if allegations of modern slavery are Some NGOs do not name and shame companies, and
not taken seriously. others do so only after a full investigation, so the lack
of information on the NGO’s website may just be a
question of timing, not proof that there was no such
report.

• If your manager continues to be non-responsive to

your concerns, you should consult another senior
person within your firm. A lack of action by the
company could also be indicative of fraud, bribery or
money laundering, not just a desire to ignore modern
slavery.
ICAEW ETHICS IN PRACTICE SCENARIOS 29

SCENARIO 13 – MACHINE LEARNING PROMPTS FOR DISCUSSION

MACHINE LEARNING
You are an ICAEW Chartered Accountant working as a
consultant in a machine learning advisory company which What do you think about this dilemma?
specialises in agriculture. Your client list comprises agricultural
laboratories and large-scale farms. Your boyfriend, who works
for a micro-finance charity, often makes comments about the
high prices companies like yours charge and the ‘millions of
small-scale farmers across the globe who can’t afford your
products’. You don’t like to admit it but you do have a slight
dilemma about this yourself. Smart farming involves the use of
algorithms to drive efficiency. Your own specialism is presenting
the financial savings related to this.
How can you be certain to use your professional
Yield prediction is in increasing demand. You have often heard scepticism appropriately and be confident in
your computer analyst colleagues explaining the technology, your professional competence when technology
and you trust their word that these are well defined models, is becoming sophisticated at such a fast pace?
but they seem almost magic to you. You like the reassurance of
working on a spreadsheet or a calculator and directly seeing
how inputs affect outputs. Economic conditions are even
factored in.

Your boyfriend shares your concerns, saying, ‘How do you

know what you are selling people will turn out to be correct? Should you be making this judgement on the
Particularly when you are showing them 5 and 10 year forward clients’ behalf?
plans. You will probably be long gone from your role by then.’ Or should you be completely transparent with all
You must admit you would be happier if you could understand data you have, however confusing?
the uncertainties in the predictions. The analysts have given you
some details on them, but would it really be helpful to share
them with the clients? They would probably understand them
even less than you.

Your advice to clients inevitably involves both showcasing

and sometimes specifically recommending certain software Is there a conflict of interest here?
and hardware. These are supplied by separate, unrelated Is it acceptable for the consultancy to earn the
companies. However, your company earns a percentage fee for fees?
any of your clients who you put in direct touch with suppliers.
Does this make any difference to the ethical
You always feel slightly uneasy about this, wondering whether
dilemma?
there is a conflict of interest and whether the fee arrangement
should be in place. The fact that your company earns this
commission is made clear to your clients.

One of the latest packages that you are advising farming

businesses on is species selection and weed/disease
identification. Deep learning algorithms take data from
satellites and drones and analyse crop performance in relation
to local climate patterns and soil nutrients. Farms can be
advised to run these programmes in such a way that their own Is this acceptable professional behaviour?
live-time data is constantly fed in, advising them of optimum
Does the greater sustainability goal justify not
planting combinations for forthcoming seasons. On advising
being fully transparent with the client as to
the clients you produce histograms and other financial
whether there will be a financial gain to them?
presentations to convince the enterprises of the benefits of
operating in this way. These include optimum water utilisation Could it be argued that there would necessarily
and minimum waste. You feel as though these ends justify the be a long-term financial gain to them as it would
use of the technology in themselves leading to sustainability be really costly to introduce irrigation systems at
gains. Sometimes when the financial result isn’t totally clear-cut a later stage if water isn’t used wisely?
you are aware you are slightly ‘creative’ in order to encourage
environmental best practice.
ICAEW ETHICS IN PRACTICE SCENARIOS 30

SCENARIO 13 – MACHINE LEARNING

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation; and to act diligently in
accordance with these standards.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.
ISSUES TO CONSIDER
Integrity – Are you being misleading if you know that there
could be a short-term cost for the farms, but you want to
encourage them on environmental grounds, and you believe
there will be a longer-term cost gain?
Objectivity – Does the fact that your company earns a fee
when clients purchase software and hardware from third
parties you have recommended impact your objectivity?
Professional competence – Are you ensuring a competent
professional service if you don’t fully understand the ACTIONS TO TAKE
mathematics and coding behind the models you are
presenting to clients? • You should clearly be transparent with the clients
about the source of the models you are presenting.
Professional behaviour – Is it behaviour likely to cause
You should also be honest about what you understand
discredit if you are not fully transparent with the client; about
and don’t understand in terms of the uncertainties in
the uncertainties in the data and about the full picture of the
the predictions.
cost versus the environmental sustainability gain?
Could your consultancy also be criticised for not taking into • You should make every effort to meet with the
account the welfare of the smaller farms around the globe scientists, mathematicians and coders within your
who cannot afford access to this technology? company to improve your understanding. However, in
such advanced technical areas as the use of machine
learning you cannot be expected to understand
everything. What is important is to not be afraid to
ask questions and to ask for help. Your professional
scepticism will need to be heightened in areas where
you are not an expert.

• You will need to constantly keep re-learning and

checking in such a fast-moving area. This should be a
vital part of your continued professional development.

• You also need to be honest about any commissions

your company is earning. Your company should have
company-wide procedures with regard to this.

• Stakeholders, including those far-removed from your

company such as smallhold farmers in other parts of
the globe, should be part of your awareness.

• You should find the balance, helping your company be

successful whilst also remembering the public interest
in a wider sense.
ICAEW ETHICS IN PRACTICE SCENARIOS 31

SCENARIO 14 – ACCOUNTING FOR REVENUE PROMPTS FOR DISCUSSION

ACCOUNTING FOR REVENUE

You are the European financial controller for S plc, a large
listed software supplier. S provides applications, and
implementation and training services to healthcare providers.
You are responsible for the finance function and for the monthly
management accounts and are the principal point of contact for
the auditors.

In 20X1 S plc is approved as a supplier by a health authority Did you realise the contract is not binding?
(SHA) for a multi-agency Hospital Information System
procurement process. The contract is potentially an extremely Does this have any impact?
profitable one for S plc. You are uncertain whether you will be
able to include it in the interim results; you know it would be
highly material. Complex negotiations in respect of the services
to be provided are taking place. Knowing that T Group was going to be making
merger decisions about valuation based on your
Eventually a draft contract with SHA is produced. You meet figures should have made you even more aware
with the FD, who you report to. He tells you the formality of that everything needed to be transparent and
ministerial approval is imminent. He also shares with you that not misleading.
he is suffering from depression and has now sought medical
advice. He is highly stressed by discussions that are also taking
place with regard to a merger with T Group.

Your boss instructs you to recognise the £20m licence fee Are ethical principles now being breached?
revenue from the contract and has advised you not to disclose Which ones?
to the auditors the fact that the contract has not yet been
Can you argue that it will be a simple timing
signed by SHA.
difference?
Negotiations are also underway for the sale of cash flows What should you have done at this point?
receivable from the contract to an Asset Finance company
(AF). A letter from AF agreeing to the arrangement is received.
Although no funding has actually been received, you authorise
the £15m to be posted in S plc’s books as cash received. The You know that the auditors are relying on it.
auditors ask you for evidence supporting the AF cash. You So you know it is misleading.
supply the letter AF had sent. The half-year results are approved
and published.

At the full year end the auditors ask further about the SHA
contract. You know that the situation is still pending. You agree
with the FD to relabel an amount of cash received from a This is deliberate improper conduct.
genuine customer and show it as from the SHA contract in
order to satisfy the auditors.

By the 20X2 year end the FD has gone off on sick leave. The
T Group merger is now looking likely and their auditors are
carrying out due diligence on S plc. You are asked to sign off
Your involvement is now worse, as you need to
their report which includes historical financial results.
make the cash balances agree again.
You would have known those are inaccurate.
Eventually during the year to 20X3 the SHA contract is finally
signed. When the actual funding for the SHA contract is
received, you explain this to the auditors as funding being
unwound and replaced with a new funding arrangement. Later
that year the stress is getting too much for you and you contact
the auditors to say you would like to explain the whole situation. Does speaking up about this improper
behaviour excuse your part in it?
ICAEW ETHICS IN PRACTICE SCENARIOS 32

SCENARIO 14 – ACCOUNTING FOR REVENUE

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation; and to act diligently in
accordance with these standards.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.
ISSUES TO CONSIDER
Integrity – Clearly this was breached when you were
responsible for the booking of the contract when it was
not legally binding. The situation then gets compounded
when you also account falsely for the AF funding. You also
intentionally made statements to your own auditors and to
those carrying out the due diligence which you knew to be
untrue. The fact that you do eventually admit your role in the
affair would only be taken account of in terms of what degree
of sanction should be imposed.
ACTIONS TO TAKE
Objectivity – You have allowed yourself to be influenced by
others. When the FD said to not let the auditors know the
precise picture, you should not have been influenced by him • The scenario shows a picture of you getting more
to act improperly. and more embroiled in an extremely serious matter.
At every step of the way, you should have thought to
Professional competence – This has not been ensured. You bring this to a close. There would be a number of
did not carry out your work with skill, care and diligence. It ways to do this. It could have been by speaking to a
would not be acceptable to try to say these were just timing non-executive director or consulting ICAEW.
difference matters. They were matters of considerable
substance. Revenue has been recorded incorrectly. Cash
entries have been manipulated. Inaccurate published
accounts have been produced.
Professional behaviour – Clearly there are issues throughout
the scenario where the behaviour brings discredit to the
profession. The scenario shows repeated incidents over a
period of time. Financial statements are critically important to
the market, investors and to financial institutions.
ICAEW ETHICS IN PRACTICE SCENARIOS 33

SCENARIO 15 – QUALIFYING AND JOB HUNTING PROMPTS FOR DISCUSSION

QUALIFYING AND JOB HUNTING

Was it ok to accept the flowers?
Two weeks ago, you received the fantastic news that you had
Does this breach the rules of hospitality?
passed all your Advanced Level ACA exams. The financial
accountant at the audit client where you were working,
on being told your news, came back an hour later with an
enormous bouquet of flowers to congratulate you. You then Does this breach any ethical principles?
went straight to the gym near your home after work before If the comments are quite vague, and
celebrating your success. At the gym you happened to be complimentary, is this ok?
next to an old school friend. You told them about the financial
accountant and went on to chat about your audit team Does the fact that the gym is near your home,
colleagues too and how nice the audit partner is. not near to the client, mean you can be any freer
in what you say about the client?
The next day you proudly changed your profile on your social
media sites to add ‘ACA Chartered Accountant’ in bold letters.
At the weekend, you receive a message from a fellow trainee
saying, ‘Noticed your profile change on LinkedIn. Do you realise Is the other trainee correct in this?
you shouldn’t put that title yet? You need to formally apply for Is it ok to have changed the profile straight
membership with ICAEW before you can call yourself an ACA’. away?
This colleague has been really helpful as a ‘study buddy’. You What about the other elements of the ACA
message back saying, ‘Ever the perfect auditor! You are a rule- (Professional Development, Practical Work
follower extraordinaire! However, I really don’t think ICAEW are Experience and Ethics?)
going to be worried about this, it’s only a case of admin from
now on! By the way, are you being bombarded by recruitment
people? Every time I look at my work emails there has been a
flood of approaches come in. I can hardly get any work done
Is it inappropriate that the recruitment people
for being distracted at looking at what they are offering.’
send these to your work email?
You have really enjoyed your time at your firm. Your training Is there anything you can do about this?
has been excellent. However, having chosen the audit route
four years ago, without having really understood what audit
was, you are ready for something different. You are starting to
spend lots of time during your working day searching through Is it acceptable to use work time to seek out new
new opportunities. You keep not being able to re-find adverts positions?
that you might be interested in, so decide that since you are
working in the office at the moment, the best thing is just to
print off anything you are interested in and keep them in a ‘job
hunt’ cardboard folder.
Is it acceptable for employees to use work
You see a position with a film company; production facilities like this?
accountant. This is the exciting sort of role you would like.
The advertisement says, ‘Candidates with sector experience
are sought’. You did once get called in to help on some audit
analysis work for a media company. It was really just putting
together a simple spreadsheet. You contact the relevant
recruitment consultant, who tells you to ‘be creative’ when Where is the boundary between over-selling
tailoring your CV. You describe yourself as having, ‘a sound yourself and being honest?
basis of knowledge in the arts and media sector’.

The other thought that starts to run through your head is that,
while on one of your assignments, when you chatted about
what you might do once qualified, the client said to get back
in touch if you ever ‘go it alone’. They had a quite separate Can you see any ethical problems from
small business that they could do with some freelance help on following this up?
from someone with accountancy skills…maybe this could be
interesting…
.
ICAEW ETHICS IN PRACTICE SCENARIOS 34

SCENARIO 15 – QUALIFYING AND JOB HUNTING

PRINCIPLES AT STAKE
Integrity – To be straightforward and honest in all
professional and business relationships. Not being associated
with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation; and to act diligently in
accordance with these standards.
Confidentiality – To respect the confidentiality of information
acquired as a result of professional and business relationships.
Not disclose information outside the organisation.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.
ISSUES TO CONSIDER ACTIONS TO TAKE
Integrity – Indicating skills or experience you don’t really
possess on your CV/resumé suggests a lack of integrity. • In receiving any gifts from an audit client, you should
check your firm rules with regard to hospitality and
Objectivity – Need to consider whether accepting the flowers
what is acceptable.
from the financial accountant is likely to influence behaviour
and impartiality on the audit. • Confidential matters should not be disclosed to
others nor talked about in a public place. The fact that
Professional competence – Need to consider whether,
the gym is not near to the client does not make any
were you to get the job at the film company, you would be
difference.
compromised by not having the experience to perform a
competent job. • If you have passed all your ACA exams but not yet
completed 450 days of practical work experience,
Confidentiality – Talking about client and employer
you are not yet an ICAEW Chartered Accountant. You
personnel in a public place could breach this principle.
shouldn’t be using the letters ACA after your name
The comments don’t have to be disparaging to result in an
or on any of your networking profiles until you have
inadvertent leak of confidential information. (And could still
received confirmation of your membership from
result in disciplinary action.) That said, some proportionality
ICAEW.
needs to be considered. Simply telling a friend about how
nice people have been during your day without specific • It is not fair on your employer to use their time
identifying details such as names, should be acceptable. or resources on tasks that do not relate to your
employment, unless they have expressly given their
Professional behaviour – Relating to the job hunt, care
permission to do otherwise.
needs to be taken not to take advantage of your employer
resources in terms of use of your chargeable time and the • You should make sure that any claims you make in
use of employer equipment. You also need to be careful not your CV/resumé or in any covering letters are true.
to breach any of your firm’s rules with regard to considering You should not be influenced by keen recruitment
following up a connected opportunity with one of your firm’s consultants to do otherwise.
clients.
• You must ensure you check any restraint of trade
clauses in your current employment contract before
following up any possibilities from your employer
clients.
• If you do go on to carry out freelance work as an
ICAEW Chartered Accountant, you will need to check
and comply with all practice regulations with regard
to this, including having a practising certificate and
the appropriate professional indemnity insurance. It
would be advisable to contact ICAEW if in doubt on
any matters.
ICAEW ETHICS IN PRACTICE SCENARIOS 35

SCENARIO 16 – DIVERSITY PROMPTS FOR DISCUSSION

DIVERSITY
You are an audit manager in a large firm of chartered
accountants. One of the trainees in your team has asked
if they could have a meeting with you. At the meeting the
trainee tells you that they are wondering why they never get
assigned to audit certain high-profile Government Agencies or What would you do if something similar was
Royal Charities. The trainee says they are seeking your advice happening in your workplace?
because they have raised this with their People Manager, who What is the most appropriate action to take?
is responsible for audit scheduling. The People Manager said
that due to the profile of these clients the audit team members
require the highest level of security clearance to be assigned
to the client, and that the trainee probably didn’t have the right
immigration status to be allowed access to those clients. The
trainee is clearly unsettled by this. It is not at all true. The trainee
simply has a heritage that is non-white. The trainee pointed out Does this add weight to your actions?
to the People Manager that they were born in the UK and raised
in the UK. This conversation with the People Manager took
place six months ago and the trainee can see that there has
been no effort made to redress this scheduling of audit work.
You tell the trainee you will look into this and get back to them. Should you use your work time to investigate
this?
Your firm frequently makes statements that it makes every effort Should you have handed it over elsewhere
to promote diversity. You take it upon yourself to investigate and stepped back?
further. This ends up taking a lot more time than you had
expected, which brings your own dilemmas as you have a
number of audit work responsibilities that are at a crucial stage.
Initially you try emailing the head of diversity, however you get
a rather generic response that the individual themselves would Should you have spent more time trying to
need to come forward on this and it wouldn’t be appropriate persuade the trainee to make more of a stand?
for them to enter into an email correspondence that seems to Whose responsibility is it to challenge the
be critical of a member of staff. situation - the person who suffered the potential
discrimination or others?
You decide to take the matter into your own hands, which
involves you persuading various staff members to let you see
records of the audit personnel assigned to jobs. You are not
certain whether they are breaking any confidentiality rules in Do you think confidentiality rules are being
showing you, but you feel someone has to make a stand on this. broken?
Is it ok to undermine one ethical principle for the
You try speaking to Human Resources (HR), explaining to them
sake of another?
what you are researching, and asking if they could give you any
sort of listing of staff with some sort of indication as to ethnicity.
Again, you cannot obtain the information. You are told this
information cannot possibly be disclosed. You ask if HR would
like to carry out the research, but you just get told the names How do you deal with this when you don’t feel
of various initiatives that they are already involved with that are HR has acted appropriately?
related to promoting diversity in the firm.

You decide you will have to resort to carrying out an analysis

based on whether a name sounds to be of a BAME (Black, Asian
or ethnic minority) origin. You are rather concerned as to what What should you do now?
timesheet code you can allocate the work to but press ahead
with the project regardless.
ICAEW ETHICS IN PRACTICE SCENARIOS 36

SCENARIO 16 – DIVERSITY

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Confidentiality – To respect the confidentiality of
information acquired as a result of professional and business
relationships.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER
Integrity – You are concerned that you are associated with
misleading information if you know of a circumstance of
discrimination taking place within your firm and yet the firm
also promotes its strong diversity credentials.
Objectivity – If the firm really isn’t putting forward people
of certain ethnicity for high profile audits, it is potentially not
taking a fair and balanced approach.
Confidentiality – Can it be justified to ask for staff details
ACTIONS TO TAKE
in order to further some other ethical purpose? This is a
very difficult balance. Are there some circumstances where
• Actions for this scenario will very much need to follow
maintaining confidentiality would almost be in breach of the
individual firm procedures.
public interest?
• You have clearly done right in supporting the trainee in
It is important that in investigating the matter you don’t
this matter of potential discrimination.
put undue pressure on other staff members to contravene
their own confidentiality rules for their departments. Senior • Collecting evidence is a sensible way of going about
authority should always be sought. researching this, however permission should always be
gained for accessing records.
Professional behaviour – Discriminatory behaviour is the sort
of behaviour that brings discredit to the profession. It could • It may well be necessary to escalate this matter up
also be that unfair procedures on the basis of race contravene the various channels of seniority in the different
legislation (In the UK the Equality Act 2010). departments in order to ensure this.
• It is appropriate that others look into this for the
trainee. It would be compounding the unfairness if not
only did they suffer the potential discrimination but
also, they had to put their work time in jeopardy by
trying to investigate the scale of the matter further.
• That said, it would be important that you didn’t let
any of your own audit work timeframes become
compromised because you are working on this matter.
ICAEW ETHICS IN PRACTICE SCENARIOS 37

SCENARIO 17 – DIRECTOR’S LOAN ACCOUNT PROMPTS FOR DISCUSSION

DIRECTOR’S LOAN ACCOUNT

You were delighted when invited to join a property
development company as finance director. The company is Does this connection create a threat?
owned by a family who your own family have been friends with
for several years. You are in charge of the small accounting
team. You soon become concerned about the record keeping.
Expenditure of a general nature is just split against all the
properties with no attempt to properly allocate it. You wonder
whether the staff are competent at their jobs but you are unsure How should you deal with this?
how to deal with this.

Approaching the financial year end there is a charge in

the accounts for a replacement of a roof. You can see this
is for the managing director’s (MD) private residence. The
bookkeeper tells you the transaction was going to be posted
to the director’s loan account, but the MD instructed that it
be included as business expenditure. The MD is the majority
shareholder. The other family member shareholders are not
aware of the transaction in the accounts and are not actively
involved in the business.
What should you do?
You have discussions with the MD advising that the transaction Should you speak to the external auditors about
is not an allowable expense. But he refuses to accept this. The the posting?
MD is your employer and you are concerned about job security.

You anticipate that the transaction will be identified by the

external auditors, but this doesn’t happen.
Who should you speak to about this?
You don’t feel you can discuss this with anybody else in the
business. Is this the appropriate thing to do?

Despite the pressure you are put under, you refuse to approve
the statutory accounts.

That issue gets resolved, it is correctly treated and disclosed

and then you do sign. However, the MD continues to have a
slightly hostile attitude to you now, and you have lost your trust
in the way the company operates.
Was this necessary?
It is now four months later, and you decide to resign from your
position.

You are concerned about what you will say to future potential
employers about your reasons for leaving your current job, and
What should you say to future employers?
what references you will be given for this role.
What will you do about references?
You also have a nagging feeling that you ought to have
done something about the auditors who you didn’t feel were
performing a competent task, as they did not pick up the
charge, and were fellow accounting professionals. Should you do/or have done anything about the
auditors?
ICAEW ETHICS IN PRACTICE SCENARIOS 38

SCENARIO 17 – DIRECTOR’S LOAN ACCOUNT

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not compromising judgement because of
undue influence.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation.
Confidentiality – Respecting the confidentiality of
information.
Professional behaviour – complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER
Integrity – The incorrect inclusion of the MD’s roof
expenditure.
Objectivity – The pressure put on you by the MD could have ACTIONS TO TAKE
led to you compromising your professional judgement. It was
important to stand firm. • Having taken a new position, you should have raised
the fact that you felt uneasy about the competency
Professional competence and due care – The accounting
of the staff in the accounting team with other senior
team you are in charge of who don’t seem competent.
members of the company. To do otherwise would
Confidentiality – Who to talk to about this matter? The other compromise your own professional competence
family shareholders? The external auditors? and due care. Your area of responsibility will only
be as good as the staff working within it. You should
Professional behaviour – Ensuring appropriate accounts in
have devised a plan and a budget for improving the
the role of Finance Director so as not to bring discredit to the
situation, either through additional training or possibly
profession.
further qualified staff.
• You correctly refused to sign the accounts when you
knew there was a non-allowable expense included.
• What should you have done with regard to the
external auditors? Should you have spoken to them
about the posting at the time that the MD was still
refusing to accept the treatment? As it turns out you
were able to resolve the matter internally.
• It would have been appropriate to ring the ICAEW
helpline if the matter wasn’t resolved.
• It might not have been necessary to resign your
position. Standing up for what is right and challenging
decisions is often respected, even if resisted initially.
However, it is understandable that you had lost your
confidence in the MD and wanted to look elsewhere.
• What about your future references? Might you have
trouble asking the MD for a reference now, since
he developed a hostile attitude after you forced the
correct treatment in the accounts?
• If necessary, you will need to be transparent with future
employers that there was a difficulty in a previous
role. However, you must ensure confidentiality is not
breached, therefore you should not disclose any of the
details.
ICAEW ETHICS IN PRACTICE SCENARIOS 39

SCENARIO 18 – GOING CONCERN PROMPTS FOR DISCUSSION

GOING CONCERN
You are the head of management accounting at a large travel
and rental company. The company’s key activity is renting Should you be wary of these high volumes
out everything from private jets to small electric cars for use of subsidiary companies and the separation
in urban areas. It also has an extensive group of subsidiary between ownership and the renting parties?
companies. Some of these companies are the owners of the Or are they just normal arrangements in
assets that the parent company rents out. today’s commercial world?

As an ICAEW Chartered Accountant you take a keen interest

in your company’s published accounts. You will be having
lunch with the head of financial accounting (also a qualified
accountant) and so that you are well prepared you take a look What should you do as an ICAEW member if you
over the most recent published financial statements. One thing were not involved in preparing your company’s
you want to explore with him is why published accounts have to published accounts but spot something in them
be so long, with hundreds of pages of disclosures. that concerns you?
Could long, complex published accounts like
When you look you find that, in the current year, your company this create any ethical problems?
has lent almost £100 million cash to its subsidiaries and How could they impact stakeholders?
has received a similar sized dividend back from them. The
dividend ends up in profit and distributable reserves, and
means that your company is able to pay a large dividend to
its shareholders, despite a loss-making year. When you take a
closer look at the subsidiaries’ financial statements, it is clear Is this suspicious? Ethically ok?
that, while profitable, none has an excess of cash and a number Are there any other considerations eg, tax
have significant outstanding bank loan liabilities. implications for any overseas subsidiary?
How recoverable is the loan?
At your lunch meeting, your colleague acknowledges the
What if the subsidiary goes into administration?
circular nature of these transactions, adding, ‘What is good
news is that as a result the parent company dividends can What about directors’ responsibilities?
still be paid out.’ As a shareholder yourself you feel slightly
conflicted about this. It is good news from a personal
perspective, but should the company be paying out, particularly
when you can also see there are a number of long-term loans As your colleague is head of financial accounts
as well? and is happy with the accounting treatment, do
you need to consider this further?
You can see some familiar faces from the external audit team in
Is this a conflict of interest?
the canteen at the same time. You know they want to come and
talk to you about the increasing trend for all the variances your
department produces to be adverse. One of your team has let
you know that a junior audit team member had raised this. They
would like to discuss with you whether this suggests your team Are you breaching the principle of professional
are not particularly competent at producing variances. competence yourself if your staff are not
performing their work properly?
Your team member had reassured them that the comp any had Is your responsibility different if they are
an optimistic outlook. You admit to yourself you are actually qualified themselves?
wondering whether it is a rather too optimistic company
culture.

At the end of your lunch meeting the head of financial

accounting had headed off saying, ‘Wish me luck, I’ve got to Do you have a duty to act if your accountant
fend off an over-zealous audit partner who wants further written colleague is not acting in the public interest?
statements to back up the going concern assumption.’ Is there an ethical impact in publicly raising
going concern doubts, when that could alarm
markets and investors and add to the difficulties?
ICAEW ETHICS IN PRACTICE SCENARIOS 40

SCENARIO 18 – GOING CONCERN

PRINCIPLES AT STAKE
Integrity – Not being associated with misleading information.
Objectivity – Not to compromise professional or business
judgements because of bias, conflict of interest or undue
influence of others.
Professional competence and due care – Ensuring
competent professional service based on technical and
professional standards and legislation; and to act diligently in
accordance with these standards.
Professional behaviour – Complying with relevant laws and
regulations and avoiding conduct that might cause discredit
to the profession.

ISSUES TO CONSIDER
Integrity – Once your professional scepticism has lead
you to have concerns about accounting arrangements at
your company, as a senior member of accounting staff, you
will need to consider whether you should try to speak out
further about this, for example at a senior management team
meeting in order to satisfy yourself that you are not at risk
of being associated with misleading information? Published
accounts necessarily have a wide range of professional
ACTIONS TO TAKE
judgement decisions behind them, it is important that the
resulting picture that they give to stakeholders is honest and
that there is transparent disclosure of relevant matters. • It is highly relevant to potential actions that you are
a senior member of staff, as well as being a qualified
Objectivity – You will need to ensure that the potential finance professional. While some matters might
conflict of interest threat of you having shares in the company well be outside your remit and control, such as the
doesn’t influence your views about the right accounting published accounts being so long, other matters are
treatment and a fair consideration as to whether a dividend more immediately ones where you should speak out.
should be paid out.
• You should not need to remind your colleague that
Professional competence and due care – As the head of published accounts are relied upon by a wide group
the Management Accounting department, you need to take of stakeholders, however, it sounds as though you do
responsibility for the competence of the department overall. need to be honest with him that you take transparent
This would include ensuring staff have enough training disclosures about going concern status very seriously.
and supervision, as well as that enough qualified staff are
recruited. • If you have doubts about your colleague’s integrity in
the matter, you should raise this with another senior
Professional behaviour – Ensuring that the public interest colleague or with the board.
is taken account of is a responsibility of all ICAEW Chartered
Accountants. If your colleague is being judicious with • You cannot turn ‘a blind eye’ to potential doubts you
evidence to present a more confident picture of going might have as to whether dividends should be being
concern status to the auditors than judgement would suggest, paid. At any top level company meetings you are at,
his behaviour may well cause discredit to the profession. you should make your views known; a responsibility
is owed to those suppliers, staff, pension funds who
might not be able to be paid if the company runs in
to difficulties and cash has already been paid out in
dividends.
• You should ensure that your department is producing
competent information and should engage fully
with the auditors to hear their suggestions to aid
improvements to be made.
ICAEW ETHICS
Chartered IN PRACTICE
accountants SCENARIOS
are talented, ethical and 41
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