Professional Documents
Culture Documents
Code of Ethics
Code of Ethics
Code of Ethics
03. Ibrahim is member of ICAP working as a unit accountant. He is a member of a bonus scheme under
which, staff receive a bonus of 10% of their annual salary if profit for the year exceeds a trigger level.
Ibrahim has been reviewing working papers prepared to support this year’s financial statements. He
has found a logic error in a spreadsheet used as a measurement tool for provisions. Correction of this
error would lead to an increase in provisions. This would decrease profit below the trigger level for the
bonus.
Which threat to fundamental principle Ibrahim is facing?
(a) Self-interest threat
(b) Intimidation threat
STICKY NOTES
04. Ibrahim is member of ICAP working as a unit accountant. He is a member of a bonus scheme under
which, staff receive a bonus of 10% of their annual salary if profit for the year exceeds a trigger level.
Ibrahim has been reviewing working papers prepared to support this year’s financial statements. He
has found a logic error in a spreadsheet used as a measurement tool for provisions. Correction of this
error would lead to an increase in provisions. This would decrease profit below the trigger level for the
bonus.
Which fundamental principle is mainly affected in above situation?
(a) Integrity
(b) Objectivity
(c) Professional behaviour
(d) Confidentiality
05. Fortune Limited (FL) is quoted on the stock exchange, with revenue of over Rs. 5 billion per Annum.
During the year ended 30 June 2015, FL has incurred a loss of Rs.26 million.
The Chief Executive is of the view that declaration of loss may result in the bankers’ refusal to renew the
credit facility. Therefore, he wants to incorporate certain adjustments in the books of account that will
result in a net profit of Rs.100 million. However, the Chief Financial Officer (CFO), who is a chartered
accountant, is of the view that all possible adjustments allow able under the applicable accounting
regulations have already been considered and incorporated.
Identify TWO categories of threats to the fundamental principles of objectivity or professional
competence and due care
(a) Self-interest threat
(b) Self-review threat
AT A GLANCE
(c) Advocacy threat
(d) Intimidation threat
06. Zia is a Chartered Accountant and works as a financial controller in Unique Engineering Limited (UEL).
UEL is currently considering the acquisition of Top Storage Limited (TSL) and Zia is a member of the
team which is currently negotiating the acquisition with the management of TSL. After becoming aware
of the prospective acquisition, Zia purchased 1,000,000 shares of TSL in the name of his wife and son.
Which of the following fundamental principles of ICAP code of ethics, Zia has breached?
(a) Objectivity and Confidentiality
(b) Confidentiality and Professional behaviour
SPOTLIGHT
(c) Objectivity and Professional behaviour
(d) None of above
07. Zia is a Chartered Accountant and works as a financial controller in Unique Engineering Limited (UEL).
UEL is currently considering the acquisition of Top Storage Limited (TSL) and Zia is a member of the
team which is currently negotiating the acquisition with the management of TSL. After becoming aware
of the prospective acquisition, Zia purchased 1,000,000 shares of TSL in the name of his wife and son.
Which potential threat is involved in above circumstances?
(a) Self-interest threat
STICKY NOTES
(b) Self-review threat
(c) Advocacy threat
(d) Intimidation threat
08. Atif is a chartered accountant and has been working as Manager – Accounts in an unlisted public
company MNZ Limited.
While preparing the financial statements for the year ended 31 December 2016, CFO of MNZ who is also
a chartered accountant informed Atif that the directors are considering to have the company listed on
Pakistan Stock Exchange.
Consequently, CFO wants to show higher profit and has asked Atif to identify areas where book
adjustments can be made. He has also informed that if MNZ is able to list the shares at a price of Rs.35
or more, all managerial staff would be given an additional bonus this year.
Which fundamental principles of ICAP code of ethics have been breached by CFO?
(a) Integrity
(b) Objectivity
(c) Professional behaviour
(d) All of above
09. Atif is a chartered accountant and has been working as Manager – Accounts in an unlisted public
company MNZ Limited.
While preparing the financial statements for the year ended 31 December 2016, CFO of MNZ who is also
a chartered accountant informed Atif that the directors are considering to have the company listed on
Pakistan Stock Exchange.
AT A GLANCE
Consequently, CFO wants to show higher profit and has asked Atif to identify areas where book
adjustments can be made. He has also informed that if MNZ is able to list the shares at a price of Rs.35
or more, all managerial staff would be given an additional bonus this year.
Which threat to fundamental principles is being faced by Atif?
(a) Self-interest threat
(b) Self-review threat
(c) Advocacy threat
(d) Intimidation threat
SPOTLIGHT
(b) Members should not allow bias, conflicts of interest or undue influence of others to override
their professional or business judgements.
(c) Members have a duty to maintain their professional knowledge and skill at such a level that a
client or employer receives a competent service, based on current developments in practice,
legislation and techniques.
(d) Members must comply with relevant laws and regulations and should avoid any action which
discredits the profession.
AT A GLANCE
(b) Members should not allow bias, conflicts of interest or undue influence of others to override
their professional or business judgements.
(c) Members have a duty to maintain their professional knowledge and skill at such a level that a
client or employer receives a competent service, based on current developments in practice,
legislation and techniques.
(d) Members must comply with relevant laws and regulations and should avoid any action which
discredits the profession.
14. Which of the following are correct responses, where it is not possible to reduce the threats to an
acceptable level:
(i) The member must refuse to remain associated with information which may be misleading
SPOTLIGHT
(ii) The member must report the matter to audit committee or other governance authority within
organisation.
(iii) The member may seek legal advice if it seems necessary to report the matter to legal
authorities.
(a) (i) and (ii) only
(b) (i) and (iii) only
(c) (ii) and (iii) only
(d) (i), (ii) and (iii) all
STICKY NOTES
15. Naveed is a chartered accountant, recently employed by KK Limited as deputy to the finance director,
Harris (also a chartered accountant). KK Limited is listed on the Pakistan stock exchange.
On Naveed’s first day on the job he met with Harris who said ‘Look, keep it to yourself but I am having
a second interview next week for a new job. The first thing that I need you to do is to review the financial
statements before the auditors arrive. I passed exams few years ago and I am not up to date on all of the
little technicalities in IFRS. You should know these better than me and you will know more about what
the auditors might focus on. Also keep in mind that you and I would be entitled to bonus if the profits
are 10% higher than last year, so I hope you understand that you do not want to find any irregularity in
the financial statements. Do well at this and your chances of promotion are quite high.”
Which of the following fundamental principles, Harris is failing to comply with?
(a) Integrity
(b) Professional competence
(c) Professional behaviour
(d) All of above
16. Members should be straightforward and honest in all professional and business relationships. Name the
fundamental principle indicated by above statement:
(a) Integrity
(b) Objectivity
(c) Professional behaviour
(d) Confidentiality
17. Members should not allow bias, conflicts of interest or undue influence of others to override their
professional or business judgements. Name the fundamental principle indicated by above statement:
AT A GLANCE
(a) Integrity
(b) Objectivity
(c) Professional behaviour
(d) Confidentiality
18. Members should behave with courtesy and consideration towards all with whom they come into contact
in a professional capacity. Name the fundamental principle indicated by above statement:
(a) Integrity
(b) Objectivity
SPOTLIGHT
19. A threat to fundamental principles occurs when a previous judgement needs to be re-evaluated by
members responsible for that judgement. Name the type of threat:
(a) Self-interest threat
(b) Self-review threat
(c) Advocacy threat
STICKY NOTES
20. A threat to fundamental principles occurs when, because of a close relationship, members become too
sympathetic to the interests of others. Name the type of threat:
(a) Self-interest threat
(b) Self-review threat
(c) Advocacy threat
(d) Familiarity threat
21. You are working in finance department of Kamyaab Motors Limited (KML), a listed company. The draft
results of KML for the year are encouraging and are likely to increase KML’s share price upon public
announcement. Your best friend is heavily in debt and has recently asked for your assistance. He has
helped you on numerous occasions in the past. In the context of ICAP’s Code of Ethics, you should:
(a) keep confidentiality about KML’s results; however, you can buy KML’s shares to use the gain
upon disposal to help your friend
(b) tell your friend about KML’s results and let him decide whether he should buy KML’s shares or
not
(c) keep confidentiality about KML’s results by all means
(d) keep confidentiality about KML’s results but just tell your friend to buy the KML’s shares
AT A GLANCE
(b) Members and students only
(c) Members, students and affiliates only
(d) Members, students, affiliates and employees of member firms
SPOTLIGHT
STICKY NOTES
ANSWERS
01. (d) All three statements are correct.
04. (b) Objectivity is mainly affected as Ibrahim may not be able to make an independent
judgment due to his self-interest threat.
05. (a) & (d) Self- interest threat & Intimidation threat
06. (b) Zia has breached confidentiality by using inside information for his persona
AT A GLANCE
advantage.
07. (a) He has not behaved professionally as he disregarded the law and regulations.
08. (d) Since Zia is part of a team which is negotiating the price of the shares and he has
purchased shares in the name of his wife and son, it creates self-interest threat and he
would be reluctant to take any decision that would be against his own interest.
10. (a) Integrity means members should be straightforward and honest in all professional
and business relationships.
11. (b) Objectivity means members should not allow bias, conflicts of interest or undue
SPOTLIGHT
12. (c) Professional competence and due care means members have a duty to maintain their
professional knowledge and skill at such a level that a client or employer receives a
competent service, based on current developments in practice, legislation and
techniques.
13. (d) Professional behaviour means members must comply with relevant laws and
regulations and should avoid any action which discredits the profession.
22. (d) The Code is applicable to members, students, affiliates and employees of member
firms.
STICKY NOTES
Fundamental Principles
1. Integrity
2. Objectivity
3. Professional competence and due care
4. Confidentiality
5. Professional behaviour
AT A GLANCE
Threats to compliance with fundamental principles
1. Self-interest threat
2. Self-review threat
3. Advocacy threat
4. Familiarity threat
5. Intimidation threat
SPOTLIGHT
Available safeguards
1. Discuss the concerns that the information is misleading with superior (e.g.
CFO/CEO/audit committee) for appropriate action.
2. Consult the policies and procedures of the employing organisation (e.g. ethics
policy, whistle blowing policy) regarding how to address such matters
internally.
3. Consider consulting with relevant professional body, internal/external auditor,
legal counsel, etc.
STICKY NOTES
4. Consider communication with third parties and/or regulatory and oversight
authorities.
5. If after exhausting all feasible options, the chartered accountant determines that
appropriate action has not been taken and he has reason to believe that
information is misleading, it might be appropriate to resign from employing
organisation.