The moral maze

August 2020

Steve Widberg has some advice to help you tackle the ethics question in the Strategic Business Reporting paper.

Question 2 in the ACCA Strategic Business Reporting (SBR) exam typically presents candidates with a scenario and asks them to discuss accounting treatments and ethical issues. This article focuses on the latter requirement.

Consider the following scenario: “The accountant at Boxo, a public listed company, is concerned that the directors are refusing to disclose a very significant transaction between the Managing Director and the company. She is also worried that a loss-making subsidiary disclosed as a discontinuance should really be classified as continuing in the profit and loss account. The directors’ remuneration has a significant share-based pay element.”

Having discussed the relevant accounting treatments as set out in IAS 24 (Related Party Transactions) and IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations), we need to consider how to structure the ethical issues.

Firstly, make reference to the fact that the accountant (and any directors who are ACCA qualified) will be bound by the ACCA Code of Ethics and Conduct.

Secondly, think which ACCA principles may be relevant – do NOT write out all five principles. Select one or two and ensure that your sentences combine the name of the principle, the meaning of the principle, and an explanation of how the principle is relevant to the scenario.

For example: “Integrity requires straightforward business conduct. The directors are showing a lack of integrity by claiming that continuing activities are discontinued. This tactic may be used in order to make shareholders believe that the loss-making subsidiary has been closed down or will shortly be sold off.”

You could also have linked these issues to professional behaviour – conduct which may lower the reputation of the accounting profession.

In some scenarios it is clear that the company is unaware of a particular accounting rule – in this case we would use the principle of professional competence and due care (maintaining up-to-date knowledge).

Thirdly, consider the threats to objectivity that you learned in Audit and Assurance. Self-interest is relevant here; but we must again ensure that our explanation is linked to the scenario.

For example: “ACCA members must not allow bias to override objectivity. A self-interest threat arises at Boxo because of the share-based remuneration. Directors would be concerned that disclosure of the very significant transaction involving the Managing Director could make the share price fall, reducing the value of their shares/share options.”

Finally, there may be easy marks available if you are asked what actions the accountant should take at this stage – whistleblowing/ discussion with audit committee/legal advice/ resignation, etc.

It is important that you practise ethics questions – it’s far too tempting to just read the model answer in what appears to be an ‘easy question.’ Remember too that two marks are available for clarity and application of ethical knowledge to the scenario.

• Steve Widberg is a tutor at Open Tuition