Professional ethics are essential for building trust and credibility with clients, colleagues and the society at large. The integrity and reputation of the profession are also maintained by members who are required to demonstrate ethical and globally accepted professional behaviours.

It is on this premise that a retreat on “Ethics and professionalism in tax management in Nigeria” is to be organised by a reputable professional accounting firm, for its newly employed audit officers and tax consultants.

Your professional accounting firm has been invited to send a resource person to present a paper at the workshop.

Required:

As the accounting firm‟s Senior Manager (Audit), you have been mandated by the Senior Partner to prepare and present the paper at the workshop. The contents of the paper should address the following pertinent areas:

a. Categories of threats that may pose a challenge to compliance with fundamental principles of accounting profession.

(3 Marks)

b. Safeguards that can be used to eliminate or reduce the identified threats.

(4 Marks)

c. Identification of specific legal and ethical issues that could arise from tax

engagements.

(7 Marks)

d. Powers available to The Institute of Chartered Accountants of Nigeria (ICAN) in enforcing the ethical standards of its members.

(6 Marks)

“Ethics and professionalism in tax management in Nigeria”, being a paper presented at a workshop organised for newly employed audit officers and tax consultants

This paper addresses the following thematic areas:

a.

Categories of threats that may pose a challenge to compliance with fundamental principles of accounting profession include:

(i) Self-interest: The threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behaviour. For instance, a firm having undue dependence on total fees from a client;

(iii) Self-review: The threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or service performed by the professional accountant, or by another individual within the professional accountant‟s firm or employing organisation, on which the accountant will rely when forming a judgment as part of providing a current service;

(iv) Advocacy: The threat that a professional accountant will promote a client‟s or employer‟s position to the point that the professional accountant‟s objectivity is compromised;

(v) Familiarity: The threat that due to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or to accepting their work; and

(vi) Intimidation: The threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant. For instance, a firm being threatened with dismissal from a client engagement.

b.

Safeguards that can be used to eliminate or reduce the identified threats include:

(i) Safeguards created by the profession, legislation or regulation, such as:

  • Continue professional development requirement;
  • Professional standards; and
  • Corporate governance regulations; and

(ii) Safeguards in the work environment, such as:

  • Leadership and transparency;
  • Recruitment procedures for high caliber staff; and
  • Continue professional development requirement.

c.

Some specific legal and ethical issues that could arise from tax engagements are:

(i) Technical competence: Failure of tax practitioners to maintain an appropriate level of professional competence due to lack of knowledge and skills in carrying out the engagement;

(ii) Reasonable enquiry: Failure to make reasonable enquiries where information or documentation as furnished by a client appears to be inaccurate or incomplete;

(iii) Continue to act: Continuing to act for a client in circumstances where incorrect or misleading information is not corrected by the client;

(iv) Tax avoidance: Conflicts which arise in distinguishing between legitimate tax planning/tax minimisation arrangements and tax avoidance activities/schemes;

(v) Supervision of tax audit: Failure to carefully plan for or otherwise supervise on behalf of the client, audit activities carried out by tax authorities;

(vi) Tax loopholes: Loopholes seeking to deliberately test the boundaries of the tax law;

(vii) Fee setting: Basing the amount of the fee charged for tax services on the amount of tax saved/liability, contingent fee setting;

(viii) Aggressive interpretation: Adoption of overly aggressive interpretations of questionable issues and reporting positions on the basis that detection of the issue by the tax authorities is unlikely;

(ix) Misleading advice: Provision of inadequate or misleading advice to clients as to the potential risks and consequences of adopting various reporting positions and tax arrangements;

(x) Misrepresentation: Misrepresenting or concealing limitations in a tax practitioner‟s competence or skills to perform particular tax services;

(xi) Personal gain: Conflicts between opportunities for personal financial gain (or other personal benefit) and proper performance of a tax practitioner’s responsibilities;

(xii) Conflict of interest: Conflicts of interest that providing services to competing clients such that the interests of one client may be prejudiced;

(xiii) Documentation: Preparing and signing a tax return without seeing full documentation;

(xiv) Communication: Failure to communicate to client’s unfavourable as well as favourable information and professional opinions;

(xv) Tax authority errors: Inaction by the tax practitioner in respect of a clear and significant mathematical or clerical mistake by the relevant authorities in favour of a client;

(xvi) Reporting position: Determining whether the client or the tax practitioner should make the final reporting decisions for contentious or ambiguous items;

(xvii) Public responsibility: Failure to acknowledge a public responsibility to contribute to the improvement of the tax laws and their administration (for example, reporting blatant tax avoidance arrangements;

(xviii) Professional judgment: Carrying out a client‟s instructions which are inconsistent with the professional judgment of the tax practitioner (professional judgment);

(xix) Poaching client: Poaching or soliciting potential clients from other practitioners/practices;

(xx) Authority: Dealing with a client‟s funds without client authority;

(xxi) Tax audit: Structuring a transaction, or the preparation of a tax return in such a way as to reduce the chances of a tax audit;

(xxii) Research: Failure to conduct adequate research on a problem as a

reasonable basis for identifying issues and forming carefully considered conclusions and recommendations;

(xxiii) Prior years errors: Inaction by the tax practitioner in respect of a clear and significant error detected in a client‟s prior year return(s);

(xxiv) Confidentiality: Failure to ensure confidentiality with regard to privileged

(xxv) Taxminimisation: Keeping a client informed of current tax minimisation arrangements which have no real commercial or family purpose.

d.

The powers available to the Institute of Chartered Accountants of Nigeria (ICAN) in enforcing the ethical standards of its members

(i) The power of the Institute to enforce ethical standards is derived from ICAN Act 1965. The power is conferred on the Accountants Disciplinary Tribunal. The Tribunal in this respect is independent of Council.

(ii) The Investigating Panel considers complaints against the conduct of members, and is empowered to initiate disciplinary action by referring appropriate cases to the Disciplinary Tribunal for adjudication.

(iii) Where a complaint is against the conduct of a firm having more than a partner, the complaint shall be deemed to have been made against each and every member who was partner in the said firm at the material time the engagement was carried out.

(iv) Any failure to follow the guidance in fundamental principles or in the statements shall also be taken into account by the Committee of the Institute responsible for regulating the work of members and member firms.