Martin Jones highlights the ethical dimension of the ACCA qualification by focusing on the Strategic Business Reporting exam.~
I’m quite sure that you were glad to hear the last of the Christmas tunes as you pulled down your decorations after new year. But be honest, there is one Christmas cracker that you miss. The Fairytale of New York has become a Christmas standard and everybody loves to shout “You scumbag! You maggot!” at the top of their voices when those immortal lines of Sean McGowen come dancing across the airwaves. “But what, pray, does this have to do with ACCA SBR?” I hear you ask.
There are five ethical principles that guide behaviour and guide the examining team when assessing the ethics of question 2 in the SBR exam. They can be listed with the mnemonic PICCO as follows:
- Professionalism: the avoidance of disrepute
- Integrity: honesty
- Competence: knowledge
- Confidentiality: keeping secrets
- Objectivity: independence
Undoubtedly the place to start any ethical analysis is with the pairing of integrity and competence. The question 2 set up is essentially always the same. The boss has drafted financial statements with a bunch of cock ups; ‘errors’, as the phrase goes. In the first part of your answer you identify those errors and explain how to correct those errors.
But in the second part of your answer you then go on to analyse why those errors occurred. It is this second part of the answer that makes question 2 different from the other three questions. It is this second part that makes the ethics question ethical.
And there are only two possibilities. Either the errors were deliberate or they were accidental. Either the boss made the errors because he is an idiot and does not know financial reporting. Or the boss is a scumbag and cleverly manipulated the rules to present the picture he wants to paint. And, of course, you have guessed from the title above that the boss is almost always a scumbag who has played with the standards to paint his picture in the manipulated financial statements. And you are going to call him a scumbag – by using the phrase: “The boss has questionable integrity.” This phrase rings loud and clear that you know the guy is a scumbag, but the phrase is wrapped up in the packaging of professionalism.
Frequently, the boss is primarily a scumbag but also has elements of idiocy, and you are going to call him and idiot. But, again, you are going to wrap up the words in professionalism and accuse the boss of ‘questionable competence’.
Here is an example from the magnificent ‘Fiskerton’ question in SBR Practice Exam 2.
I show the relevant extracts from the exhibits and then a possible answer.
Extract
“The managing director has argued that fair values should be referenced to an active market and is refusing to adjust the financial statements, even though he knows it is contrary to international accounting standards.”
Requirement
(c) Explain any ethical issues which may arise for the managing director and the accountant from each of the scenarios.
Answer
Integrity: The scenario tells us that he has used fair values that he knows are ‘contrary to international accounting standards’. Therefore the director appears to have questionable integrity.
And here is the rest of my answer to question Fiskerton. You will need to navigate to the ACCA SBR webpages to access the question in the practice exams.
Competence: The MD is an MD and not an FD and so may not be qualified. So it is possible that the MD lacks competence in financial reporting.
Objectivity: The MD appears to have manipulated the FS to keep on the right side of the loan covenant. The loan covenant appears to have undermined the MD objectivity.
Professionalism: The scenario also tells us that the MD “has persuaded the accountant to include the deposit and a percentage of the remaining balance of construction work in revenue to date”. This is evidence of workplace bullying and shows a lack of professionalism.
Action 1 – MD: First, the accountant should try to persuade the MD to change the FS to fit with IFRS. Perhaps the MD simply does not understand IFRS.
Action 2 – ACCA: The accountant might consider getting advice from the ACCA. This is a difficult scenario and the ACCA might be able to advise upon a course of action.
Action 3 – leave: This appears to be a toxic environment. The accountant should consider looking for a new job.
- Martin Jones is a lecturer at the London School of Business & Finance
