Introduction
APES (Accounting Professional and Ethical Standards) requires all the members in Australia to comply with its provisions when providing professional services. The provisions of the Standards apply to this case as follows.
Competence
(professional competence and due care)
According to APES 110, an accountant or auditor must always ensure that he/she has professional competence and maintain such knowledge and competence at a level that enables him/her to avail professional services to his clients while taking into consideration all the recent development in the practice and other changes in the law. As such, Li must first consider whether she has all the relevant skills to complete all the tasks allocated to her by Joe competently. If she is not competent, enough she should not take the task. Given the fact that Li handles taxation and superannuation affairs, drawing a business plan and legal agreements required in franchising might be beyond her skills and competence, and thus she would be unable to offer quality services to her client.
Objectivity
It requires
a professional to be focused on the issue at hand and not to allow a conflict
of interest and bias to prevail over professional judgment. Undoubtedly, Li
being Joe’s old friend means a lot of conflict of interest which would
undeniably affect the result of her task adversely.
Integrity
In professional conduct, integrity requires one to be not only straightforward but also honest in all the professional relationship (Hines, 1988). As such, by turning a blind eye to the drawings Joe has been making from the business, Li would be negating this code of conduct and acting in betrayal of her profession.
Ethical behavior
Closely tied to the public interest is ethical behavior. Solomons (1978) argues that by subscribing to ethical behavior, an accounting professional gains the ability to prevent fraudulent activity and restore/gain public trust. By adhering to all the professional standards and codes of ethics, an accountant acquires a compass to propel him toward ethical behavior which includes but not limited to integrity and honesty (APESB, 2006). By doing so, Li would object to Joe’s appointment owing to the conflict of interest that arises from the appointment. She would further freeze of Joe’s pleas to turn a blind eye to unethical behavior.
Superseding the
previous account
Previous
accounts assists an accountant in establishing the business trend and detect
any material misstatement in the financial statements. It is for this reason
that Li reviewed Joe’s previous year’s tax returns, otherwise she would not
have noticed the drawings Joe made. However, any material misstatements in the
previous years do not affect the current year income.
The engagement
letter
An engagement letter refers to a document that defines the engagement that exists between a professional firm and its clients (Richardson, 1988). According to Merly and Pedersen (2009), the letter details the scope and the nature of duties the professional firm will offer to the client to make sure that the client does not task any agent from the professional firm with astray tasks. Li must, therefore, check the scope of her activity as detailed in the engagement or contract letter to make sure that she’s not being tasked beyond the provisions of the engagement letter. Drawing a business plan and legal agreements required in franchising might be beyond the scope of Li’s engagement letter.
Technical and
professional standards
Though
not limited to integrity, objectivity, and competence, the three standards
serve as the pillar for technical and professional standards. Li should observe
the three pillars to avoid discrediting her profession.
Legal work
In
general application, legal work refers to technical tasks handled by lawyers
relating to the provisions of the law and other Acts. Preparing legal
requirements required for licensing and franchising constitutes legal work.
Given the condition that a professional must maintain his/her skills and
experience at a level that would ensure a client of competent services, it is
undeniable that Li would incompetently provide legal services to Joe owing to
the fact that she (Li) is a professional accountant.
Understanding
income in the current year
According
to the accounting standards, all the cash inflows constitute business incomes
for the current financial year provided that such incomes do not constitute
prepayments and accruals (Kaidonis, 2008).
Income tax returns
(Prior years)
All
the income should be included in the calculation of net income to be subjected
to taxation. Therefore, Joe’s drawings should have been included in the
calculation of the previous year’s tax returns.
Client evaluation
and quality control
Before
commencement of any audit work, a professional accountant should evaluate the
client and the quality control systems in the firm to establish the extent of
ethical threats so as to apply the necessary safeguards. As such, Li should
evaluate her client carefully while appealing to all professional standards to
avoid bias in her evaluation.
Public interest
According to Birts (2014), accounting professionals owes a considerable amount of responsibility to the public. They must at all time act in protection of public interest by revealing the facts given the fact that the public relies on such facts to make major decisions. Therefore, Li must act in protection of public interest by subscribing to honesty, integrity, and truthfulness by revealing all the material facts that would affect any decision. She must, therefore, not yield to Joe’s plea to turn a blind eye to his drawing and other taxes.
In
conclusion, several ethical dilemmas and ethical threats such as conflict of
interest exist in the case. However, the provisions of various accounting
standards coupled with the provisions of the code of ethics such as APES 110
would enable Li to wither these ethical dilemmas. She may opt not to take the
job due to conflict of interest, take the job and disclose all the relevant
facts such as Joe’s drawing, and object to providing services beyond her
competence and experience
References
Accounting Professional
and Ethical Standards Board, (2006). APES
110 Code of Ethics for
Professional
Accountants, Accounting Professional and Ethical Standards Board,
[Online] 21st June 2016. Available at
cpa/hs.xsl/588_19858_ENA_HTML.htm
Birts, J., 2014. Accounting: business reporting for decision making, 5th ed, John Wiley and Sons Australia, Milton, Qld, pp. 40-75.
Hines, R.D., 1988. “Financial
Accounting: In Communicating Reality, We Construct Reality”,
Accounting,
Organisations and Society, 13 (3), pp. 251-261.
Hoggett, J., Medlin, J., Edwards,
L., and Tilling, M.E., 2012. Financial Accounting. John Wiley
&
Sons
Jeffrey, C.A., 2015. Research on Professional
Responsibility and ethics in Accounting, Volume
19.
Emerald Group Publishing,
Kaidonis,
M.K., 2008. “The Accounting Profession: Serving the Public Interest or Capital
Interests” Australian Accounting Business Finance Journal, 2 (4), P. 3-7
Merly, S., and Pedersen, J., 2009. Accounting for Business: An Introduction.
Pearson Higher
Education,
AU, 110
Ratnutunga, J. eds (1995) Accounting Theory; a contemporary
review, Harcourt Brace, pp 225-235.
Richardson,
A.J., 1988. “Accounting knowledge and professional privilege”, Accounting,
Organizations
and Society, 13,
(4), pp 381-396.
Solomons, D., R., 1978. “The Politicisation
of Accounting”, in Jones, S., Romano C., and
Ratnutunga,
J. eds (1995) Accounting Theory; a contemporary review, Harcourt Brace,
pp 225-235.