Topic: Professional and Ethical Issues in Financial Reporting

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FR – Nov 2024 – L2 – Q5b – Ethical Issues in Government Grants

Identification of ethical issues in recording a government grant and recommended corrective actions.

Question

Dahn is a Chartered Accountant who works for a large Pharmaceutical Company, Nimely Company Ltd (Nimely), as an Assistant Financial Controller. The Financial Controller of Nimely is also a Chartered Accountant with more than ten years of experience.

During the year, Nimely received a vehicle worth GH¢800,000 from the government to support its operations. According to the Government Official who presented the vehicle to the management of Nimely, the company has been compliant in filing and paying its taxes.

At the year-end, the Financial Controller passed the following entry in the Tally Software of Nimely Company Ltd:

Dr	Vehicle	GH¢800,000
Cr	Income	GH¢800,000

Dahn explained to the Financial Controller that the grant should be treated in line with the provisions of IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. It is the company’s policy that such grants should be treated as deferred income.

The Financial Controller agreed that the treatment should have been in line with IAS 20, but mentioned that the entries should not be changed since the current treatment may help them meet their profit targets.

It is Nimely’s policy to depreciate its vehicles at a rate of 25% per annum on a straight-line basis.

Required:

i) Identify the ethical issues involved.
ii) Recommend the appropriate actions to be taken by Dahn.

Answer

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Tags: Ethics, Financial Integrity, Government Grants, IAS 20, Professional Conduct
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: Nov 2024

FR – May 2020 – L2 – Q5a – Ethical Dilemmas in Tendering Process

This question focuses on the ethical course of action in tendering when faced with insider information in the internal audit context.

Question

Mrs. Stella Amoah (Stella), a Chartered Accountant and Head of Internal Audit in Ningo Communications Authority (NCA), is about to tender for a contract in Internal Audit Service. A new member of her team, Mr. Stephen Appiah Coker (Stephen), has been recruited from the Internal Audit Service, where he previously worked in the department responsible for devising the tender contract. Although Stephen was not involved with the tender process, his former colleague and friend is responsible for the tender specification document and the evaluation process.

Stephen had sight of some of the requirements and has offered to share with Stella information that may be of use when preparing the tender. However, this information is confidential and should not be seen by any of the tendering parties.

It will be an open tender process for both external and internal providers. Bids from external providers are being encouraged. The evaluation process has been designed with this in mind. If the contract is awarded externally, Stella will be unsure of her personal position in the organization. She understands that using any insider knowledge of the tendering process would be inappropriate when preparing the tender proposal, but she feels she would have a better chance of success if she used this confidential information.

Required:
Advise Mrs. Stella Amoah on THREE (3) courses of action she should take in order to act ethically in the tendering process given in the above scenario.

Answer

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Tags: Confidentiality, Ethics, Internal Audit, Professional Responsibility, Tender Process
Level: Level 2

Topic: Professional and Ethical Considerations, Professional and Ethical Issues in Financial Reporting

FR – MAY 2021 – L2 – Q5a – Ethical Compliance

Identify and evaluate ethical threats faced by KK in Dibimame Ltd's financial statements.

Question

a) Kwadwo Kusi (KK), the Financial Accountant of Dibimame Ltd was reviewing the draft
financial statements prepared by an Accounts Officer and came across the following issues:
i) In calculating the interest on staff loan, the Accounts Officer in error applied 5% instead of
10% interest rate. KK is a beneficiary of the staff loan and a member of the staff loan
committee.
ii) The staff union has demanded a separate accounts for the staff loan. This they advise would
promote transparency and accountability in the process and approval of loans.
iii) Included in accounts receivables was a company known as Sede Ltd, owned by his motherin law. Instead of an outstanding amount of GH¢60,000, the account balance as per the
draft financial statements was GH¢80,000.
iv) The CEO who is known to be domineering has an outstanding balance of GH¢100,000.
This was as a result of cumulative unaccountable imprest which is against the accounting
policy of Dibimame Ltd.
Required:
Identify, evaluate and address the above threats to compliance with the fundamental
principles of good ethical behavior, KK is confronted with

Answer

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Tags: Accountability, Compliance, Ethical behavior, Professional Conduct, Transparency
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: MAY 2021

FR- MAY 2021 – L2 – Q5d – Significant Influence Factors

Identify five factors indicative of significant influence as per IAS 28.

Question

IAS 28: Investment in Associates and Joint Ventures defines an associate as an entity over which an investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not in control or joint control of those policies. Significant influence is presumed to exist where the investor entity holds more than 20% (but not more than 50%) of the voting power of the investee entity. In assessing significant influence, all facts and circumstances are assessed, including the term of exercise of potential voting rights and any other contractual arrangements.

Identify FIVE (5) factors that are indicative of significant influence.

Answer

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Tags: Corporate Governance, Factors, IAS 28, Investment in Associates, Significant influence
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: MAY 2021

FR – April 2022 – L2 – Q5c – Professional and Ethical Issues in Financial Reporting

Discuss safeguards for mitigating threats to ethical behavior in the context of tax compliance.

Question

Question:
Michael Onipa, a Chartered Accountant, is under pressure from his employees to under declare sales for the year ended 2021 to save the company from paying the due tax for the year. He has evaluated the threat to his professional obligations to comply with the fundamental principles of good ethical behavior, as significant. He has therefore considered safeguards to eliminate or reduce the threat to an acceptable level.

Required:
Discuss TWO (2) safeguards Michael Onipa could consider to either eliminate or reduce the threats to an acceptable level.
(5 marks)

Answer

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Tags: Ethical Dilemmas, Professional Ethics, Safeguards, Tax Compliance
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: APR 2022

FR – Nov 2023 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Discuss potential actions to avoid breaching the five fundamental ethical principles and recommend possible actions in dealing with an ethical situation.

Question

a)
i) Explain how you could potentially act in order not to breach each of the FIVE (5) fundamental principles of the IFAC’s code of ethics. (5 marks)

ii) Recommend FIVE (5) possible actions that you should take as a member of the Institute of Chartered Accountants, Ghana in dealing with the situation. (5 marks)

Answer

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Tags: Ethical Principles, Financial Reporting, Integrity, Objectivity, Professional Conduct
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: NOV 2023

FR – Nov 2019 – L2 – Q5b – Professional and Ethical Issues in Financial Reporting

Identify ethical principles and apply them to a scenario involving errors in previous accounts and inexperience with complex tax issues.

Question

Mr. Charles Agyekum is a qualified ICAG member who prepares accounts on behalf of a small independent trader. An annual practicing certificate is not required.

This is the first year the member has prepared these accounts. When compiling the most recent accounts, he noticed that some errors were noted in the previous accounts. It appeared that the accounts were based on incomplete records as certain costs were excluded, either intentionally or because records were not maintained.

The client has also requested some additional work to be completed on a complex tax issue. However, the member has no prior experience and does not feel competent to do the work. The client would also like him to provide an audit opinion as they are planning to apply for a bank loan and the bank would like some additional assurance.

Required:
In accordance with IFAC’s code of ethics, explain which ethical principles apply and comment on their relevance to the above scenario.

Answer

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Tags: Code of Ethics, Ethics, Financial Reporting, Professional competence, Professional Responsibilities

Topic: Professional and Ethical Issues in Financial Reporting
Series: NOV 2019

FR – July 2023 – L2 – Q5b – Professional and Ethical Issues in Financial Reporting

Discussion on the responsibilities of accountants in business and challenges they face under pressure from management.

Question

i) Identify two responsibilities of accountants in business. (2 marks)

ii) Discuss two difficult circumstances accountants in business may face. (3 marks)

Answer

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Tags: Business Environment, Challenges for Accountants, Ethical Responsibilities, Ethics
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: JULY 2023

FR – May 2017 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Compare and contrast Hire Purchase and Lease as methods of acquiring an asset.

Question

a) Compare and contrast Hire Purchase and Lease as a mode of acquiring an asset.

Answer

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Tags: Asset Acquisition, Hire Purchase, IAS 17, IFRS 16, Lease
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: MAY 2017

FR – Nov 2021 – L2 – Q5b – Professional and Ethical Issues in Financial Reporting

Advising a Chartered Accountant on how to handle an ethical dilemma in relation to confidentiality and fraudulent acts in compliance with IFAC’s code of ethics.

Question

Ata Kwaku, a Chartered Accountant, signed a confidentiality agreement with his employer, Therry Ltd, before accepting the offer of employment. Unfortunately, Ata Kwaku inadvertently came across a fraudulent act perpetrated by the shareholders of Therry Ltd. The shareholders also managed the business, and before Ata Kwaku’s appointment, one of the shareholders managed the accounts. The auditors of the Ghana Revenue Authority’s tax compliance unit are asking for documents that might expose the fraudulent act.

Required:

In accordance with IFAC’s Code of Ethics, advise Ata Kwaku on how to respond appropriately in relation to the ethical principles that apply. (5 marks)

Answer

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Tags: Confidentiality, Ethical dilemma, Fraud, IFAC Code of Ethics, Professional Ethics
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: NOV 2021

FR – March 2024 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Advise Esther on the appropriate actions to take in response to unethical pressure in financial reporting.

Question

Esther is a Chartered Accountant who works in a team that reports to Ameka, the Finance Director of Novak Ltd. Ameka is also a Chartered Accountant and has a domineering personality. Novak Ltd revalues commercial properties in line with IAS 16: Property, Plant and Equipment. Valuation information received last year showed that the fair value of the property portfolio was 2% less than the carrying amount of the properties (with no single property being more than 4% difference). A downward revaluation was not recognised on the grounds that the carrying amount was not materially different from the fair value.

This year’s valuation shows a continued decline in the fair value of the property portfolio. It is now 5% less than the carrying amount of the properties with some properties now being 15% below the carrying amount. Esther submitted workings to Ameka in which she had recognised the downward revaluations in accordance with IAS 16. Ameka has sent Esther an email in response in which he wrote: “Stop bothering me with this rubbish. There is no need to write the properties down. The fair value of the portfolio is only 5% different from its carrying amount. Restate the numbers immediately.”

Required:
Advise Esther on the appropriate actions to take.
(5 marks)

Answer

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Tags: Ethical dilemma, Financial Reporting, IAS 16, Professional Ethics, Revaluation
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: MAR 2024

FR – Nov 2016 – L2 – Q5b -Professional and Ethical Issues in Financial Reporting

Discuss the ethical considerations for partners and accountants in the amalgamation process.

Question

Amalgamating two or more firms into one presents ethical challenges.

Required:
Discuss TWO ethical considerations that the partners and their accountants should take into account in the process of the amalgamation of the partnerships.

Answer

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Tags: Ethics, Integrity, Partnership Amalgamation, Professional Conduct, Transparency
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: NOV 2016

FR – Nov 2018 – L2 – Q5b – Professional and Ethical Issues in Financial Reporting

Explanation of the importance of 'Substance Over Form' and features indicating that the economic substance of a transaction may differ from its legal form.

Question

Under the IASB’s Conceptual Framework for Financial Reporting, certain qualitative characteristics of useful financial information are identified. These are subdivided into characteristics considered fundamental and those considered to be enhancing. The two fundamental characteristics identified by the framework are ‘relevance’ and ‘faithful representation’. In order for financial transactions to be represented faithfully in the financial statements, the principle of ‘substance over form’ should be applied. This means that wherever there is a difference between the legal form of a transaction and its economic substance, the financial statements should reflect the economic substance.

Required:
i. Discuss the importance of the concept of ‘substance over form’.
(4 marks)

ii. Describe FOUR (4) features of a transaction that suggest that its economic substance may differ from its legal form.
(6 marks)

Answer

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Tags: Accounting Standards, Economic Substance, Professional Ethics, Substance Over Form
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: NOV 2018

FR – Aug 2022 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Discuss the potential ethical issues in breaching IFAC’s Code of Ethics and recommend actions to deal with the ethical dilemma in the context of project reporting.

Question

You are a newly qualified accountant in practice, and you lead a team providing management consultancy services. In recent years, your practice has undertaken several assignments on manufacturing efficiency improvements for medium-sized, listed groups of companies in Ghana. One of the Regional Directors has requested an urgent investigation into Project A due to delays and potential cost overruns. After some initial investigation, your team discovers significant issues that could cause a delay of at least three months and additional costs of GH¢7 million to GH¢10 million, not including possible compensation claims.

One week before the final report is due, the Finance Director of the group calls you and asks for an update on Project A’s status. He mentions that the Regional Director informed the Board that the additional costs would only be GH¢4 million to GH¢5 million, with a delay of about six to eight weeks. He asks for confirmation of this information before the upcoming Board meeting, where they will discuss remedial actions for the group’s cash flow.

Required:

i) Discuss the potential ethical issues involved in breaching the fundamental principles of IFAC’s Code of Ethics. (5 marks)
ii) Recommend the possible actions that you should take as a newly admitted member of the Institute of Chartered Accountants, Ghana, in dealing with this ethical dilemma. (5 marks)

Answer

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Tags: Confidentiality, Ethics, IFAC Code of Ethics, Integrity, Objectivity, Project Reporting
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: AUG 2022

FR – May 2019 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Explanation of differences between dissolution of a partnership and a limited liability company.

Question

The dissolution of a partnership is the process during which the affairs of the partnership are wound up. This should not be confused with the term dissolution when applied to a limited company, which is the event that marks the conclusion of the winding-up.

Required:

Explain THREE (3) differences between the dissolution of a partnership and the dissolution of a limited liability company.

Answer

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Tags: Legal Differences, Limited Liability Company Dissolution, Partnership Dissolution
Level: Level 2