• Internal Code :
  • Subject Code : APES110
  • University :
  • Subject Name : Accounting and Finance

Code of Ethics for Professional Accountants

Executive Summary of Ethical Theories

The report describes the different kinds of theories such as theories of egoism, the theory of Deontology and the theory of Utilitarianism and applying to the relevant case and the description of the AAA decision-making model and the APES110 which are applicable on the firm of Alex Caldwell, his accountants and the firm Caldwell, Burns and Burns Public Accountants and the report also describes the relevant fundamental principles of APES110, the threats which may occur and the safeguards which Caldwell, Burns and Burns Public Accountants would apply on the protections for its part.

Introduction to Ethical Theories

Fiona Willis is a newly qualified Chartered Accountant who has got the job in the firm Caldwell, Burns, and Burns Public Accountants. Alex Caldwell is his boss and she is in charge of the accounts of Marshall Mining Equipment and Services (MME&S) in the company of Hugo Marshall. The below report is describing the different types of theories of egoism, the theory of Deontology and the theory of Utilitarianism and applying to the relevant case and the description of the AAA decision-making model and the APES110 which are applicable on the firm of Alex Caldwell, his accountants and the firm Caldwell, Burns and Burns Public Accountants. The report also describes the relevant fundamental principles of APES110, the threats which may occur, and the safeguards which Caldwell, Burns, and Burns Public Accountants would apply on the protections for its part.

Ethical Theories - Part A

  • As per Learning to Give, The theory of egoism describes that self-interest of one's should always be motivation and the goal of one's action. The two types of egoism are, one is descriptive which describes that egoism is the factually description of the human affairs which means people are motivated by their own needs and the desires and they cannot be described by the others and also called as psychological egoism in which people acts in serving the ways though they try to disguise their selfish motives and the second normative egoism which states that the persons are to be motivated, despite of what actually motivates their behaviour in present. Psychological egoism does not show that the humans are not motivated to do such things which are beneficial for others. As in the given case study the Psychological egoism is present as the founder of the company Hugo Marshall is the very egoistic person as he always speaks against Fiona Willis who was the Chartered Accountant of his company and he believed that after her appointment his taxation liability has been increased and he was having the Psychological egoism because he was to acquire much local business and it includes on businesses in which Fiona Willis husband works so Hugo Marshall creates the conflicts of interest with her and he never motivated her to do the things just because he benefiting his husband by acquiring the business and making the payment for the same.
  • As per the Seven pillars Institute, The theory of Deontology states that the actions can be good or bad according to the set of clear rules. It is a Greek word which means duty. The actions which obey the rules made are ethical else not i.e. if they do not obey the rules they are not ethical. It creates a relationship between duty and the morality of human actions. It states that some of the acts are morally obligatory without looking at the consequences of human welfare. It acknowledges that the actions and the outcomes are the two independent things. As in the given case study, it has been clear that the founder of the company Hugo Marshall do not follow the above theory of Deontology as he is not having a clear set of rules which he has to follow in his company and hence he does not obey the rules i.e. he was doing the business unethically. So his duty is to have some rules in the company which everyone has to abide by but he is doing business unethically and he threatens Fiona Willis that his work is not satisfactory and he will cut his salary which is unethical from this theory as it is bad from the rules.
  • As per Kaylan Raman, 1994 the theory of Utilitarianism states that it advocates the actions which foster happiness and opposes the actions which cause harm. It states that an action is correct if it results in the joyness of the major number of people in society or either in a group. It is a kind of normative ethical theory that targets on the correct and incorrect outcomes of choosing one action or policy over another. As in the given case study applying the theory of Utilitarianism it is clear that earlier Alex Caldwell was having a good relationship with the Hugo Marshall and he was getting more income from him and Hugo Marshall was happy with the staff of the Alex Caldwell but now Hugo Marshall does not like his employees and retrenches them from the office. So earlier it brings happiness but afterward, it causes them harm. Earlier the results of action bring happiness but afterward not.
  • The theoretical knowledge of the ethics will helps Alex Caldwell deals with the Marshall problem as in the way that through the theory of egoism it is clear that the Hugo Marshall was following the psychological egoism in which it shows that humans are not motivated to do things which benefits people just because they benefit other persons. The theory of Deontology does not apply as it states that the actions can be good or bad according to the set of the clear rules but the rules have not been made by the company based on which it can be decided and the theory of Utilitarianism states that the advocates the actions which foster the happiness and opposes the actions which cause harm by applying this in the earlier case the Alex Caldwell was happy but in afterward case where Marshall have retrenched his employees on the basis that they are increasing his taxation liability his actions may harm Alex Caldwell. Hence by applying all the above theory of egoism, Deontology, and the theory of Utilitarianism theoretical theory, it is clear that Alex Caldwell will deal with the Marshall problem.

Ethical Theories - Part B

The AAA decision-making model of Alex Caldwell is as follows-

  • Facts of the Case – Alex Caldwell is a senior partner in Caldwell, Burns, and Burns Public Accountants. His firm is earning good fees as compare to the other chartered accountant firms. His success was due to the major contribution of having a good relationship with Hugo Marshall. The efforts of the firms were quite good in the eyes of Hugo Marshall. The firm becomes unhealthy because it was dependent wholly on the Marshall and day by day Marshall become more arrogant with the firm staff. Marshall resigned the staff by saying he has not done anything. This forced Alex Caldwell to appoint young staff in which Fiona Willis became the accountant of Marshall as she had recently completed his Chartered Accountancy course. Now Marshall demand that the accountant has falsified his records and increases his taxation liability for the year. Marshall trapped him.
  • Ethical issues in the case- The Ethical issues in the case is that ethics in accounting practices as the firm maintains the ethical approach in the practices it follows but Marshall thinks that it is not following good accounting practices and hence lead to an increase in his tax liability.
  • The norms, principles, and the value related to the case- The accountant has to follow the fundamental principles in his work and he has to give true and fair books of accounts. The accountant does not impress the client so to get promotion in the company if this happens then the objectivity is at risk.
  • The Alternative course of action- option 1 is to be following the good accounting practices and do the work of Marshall or option 2 is to Do not wholly depend on Marshall and perform its work somewhere also for the revenue.
  • The best course of action which is in line with the norms, principles, and values identified in point 3- according to the norms, principles, and values Alex Caldwell should follow the fundamental principles and must give an ethical approach in presenting its work.
  • The results of each possible action- If we follow option 1 then the company will be unhealthy because it depends on the revenue only on the one company. If we follow option 2 then it is the best as we not wholly dependent on him for revenue.
  • The decision- It will choose option 2 and follow the fundamental principles of accounting and not wholly dependent on Marshall.

Ethical Theories - Part C

As per Accounting Professional and Ethical Standards Board, Limited (APESB) which issues APES 110 Code of Ethics for Professional Accountants. All members shall comply with AEPS 110 when providing the professional services. It is a kind of framework that guides the professional accountant that what actions have to take in the interest of the public when they became aware of the suspected illegal activity. The requirement to act in the interest of the public means that the auditor has to consider his action affects the client and the employer. They also consider its impact on the employees of the client, investors, and those who are having an indirect interest in the client, for example, broader business and the financial communities and the members of the public. Each person should be reliable on the auditor's work regardless of whether or not they are contract parties between the client and the audit firm. There are five main fundamental principles of the Code of Ethics for Professional Accountant APES110. They are-

  • Integrity Principle- According to the University of Texas (2020) This Principle of integrity states that the auditor should be honest in all aspects of all the professional and business relationships. He should be honest in all the dealings and be straightforward in his work.
  • Objectivity Principle- This Principle of Objectivity states that to not allow biasness, conflict of interest, and the undue influence of the others which overrides the professional judgments.
  • Professional competence and due care- This principle states that the auditor will maintain the professional knowledge and skills at such level which ensures that the client has received the professional services and the auditor has acted diligently and according to the applicable professional standards.
  • Confidentiality Principle- This principle states that the auditor will always respect the confidentiality of the information which he has acquired during his activities and the performance of his duties and should not disclose the information to the third parties without any proper authorization form the authority or the board and unless it is the legally or professional duty of him to disclose nor he can use the same information for its personal use (APESB, 2010).
  • Professional behavior- This principle states that to comply with the relevant laws and the regulations which apply to them and to avoid such action which disregards the profession.

There may be some situations in which it becomes difficult for the accountant to comply with the above fundamental principles because the situations create specific threats to the compliances. The situations can be the consequence of many different factors. Some of the threats are-

  • Self-interest- This type of threat influence the financial or the other interest of the accountant and which influences the judgments or behaviours of the accountant. For example Undue reliance on fees from the client and pointing out the error in the work of another member of the accountant firm.
  • Self- review- From this type of threats the accountant will not measure or evaluate the consequences of the previous work by himself or another member of the firm. For example the results of audit of the financials which are installed.
  • Advocacy- Through this type of threat the accountant will promote the employer's position to such point that the objectivity of the accountant is anyhow compromised. For example: promoting shares in an audit client or acting as an advocate in any legal disputes.
  • Familiarity- This threat is caused due to the close relationships with the clients. The client will be too sympathetic to their interest in work. For example: Having a close family member who is an officer of the client who is in a position of influence over the subject matter of engagement.
  • Intimidation- This threat is caused because the accountant will be deterred from acting objectively due to the pressure of undue influence. For example: Being threatened with dismissal and the threat from the client that he will take the legal action and the pressure for the reduction of the fees.

As per Accounting Professional & Ethical Standards Board, Safeguards are the requirement for the auditor which results that the threats which are identified are at such level at which the compliance with the fundamental principles is compromised. Safeguards will apply there where it is required to eliminate or reduce the threat to an acceptable level. Safeguards ore of two types i.e. the safeguards which are created by profession and another safeguard if of the work environment. An acceptable level is a level at which the third party would conclude regarding all facts and circumstances available to the member that compliance with the fundamental principles is compromised. Alex Caldwell must comply with the above APES 110 as it applies to him, his accountants, and the firm. He must comply with the relevant provisions of the particular section of part1 and also comply the provisions under subheadings 'General' and 'all audit clients’ along with specific provisions under the heading 'audit client' which are not public interest entity or 'audit clients' which are public interest entity and will comply all relevant provisions together with additional provisions. So Alex Caldwell must know all the APES110 provisions which apply to him i.e. the fundamental principles which should they have to follow and the threats which might occur while performing his duties and relevant safeguards which they should know about and at which time they have to apply that. So the compliance of APES 110 is necessary if the firm did not follow the same it has to bear the charges or penalty i.e. criminal or civil penalties for the non-compliances. When Alex Caldwell saw that the Marshall is doing such acts that force him to take the action or where he thinks that the safeguards are necessary because the fundamental principles are compromised, then he should apply them because Marshall is forcing him to apply the safeguards which are provided by the AEPS110.

Conclusion on Ethical Theories

It has been concluded from the report considering all the theories and the cases that the Marshall has done wrong with Fiona Willis and Alex Caldwell and its firm as because of his ego he has not only resigned her and her firm but also has degraded his reputation in the market. Hence the firm should take legal action against him and he is levied civil and criminal actions under the court of law.

References for Ethical Theories

Accounting Professional & Ethical Standards Board. (n.d.). Code of ethics for professional accountants (including independence standards). Retrieved from https://apesb.org.au/uploads/home/02112018000152_APES_110_Restructured_Code_Nov_2018.pdf

APESB. (2010). APES 110 code of ethics for professional accountants. Retrieved from https://apesb.org.au/uploads/standards/apesb_standards/23072019055710_APES_110_Code_of_Ethics_for_Professional_Accountants_December_2010_-_Final.pdf

Kaylan Raman. K. (1994). Utilitarianism and the criminal law in colonial India: A study of the practical Limits of Utilitarian Jurisprudence. Modern Asian Studies.28 (4).739-791. Retrieved from https://www.jstor.org/stable/313021?seq=1

 Learning to Give. (n.d.). Egoism. Retrieved from https://www.learningtogive.org/resources/egoism

Seven Pillars Institute. (n.d.). Kantian duty based (deontological) ethics. Retrieved from https://sevenpillarsinstitute.org/kantian-duty-based-deontological-ethics/#:~:text=Introduction,and%20rules%20regardless%20of%20outcome.

University of Texas. (2020). Ethics uncapped. Retrieved from https://ethicsunwrapped.utexas.edu/glossary/integrity

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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