Introduction To Financial Accounting:
In the contemporary globalised world, the organisations are seeking to control their financial activities to comply with various ethical standards of Financial Accounting. The professional accounting bodies help them in terms of maintaining the financial statements and take proper care of the stakeholders’ interests (Fleming and Vasigh, 2010). In the current study, the allocation of the ethics and governance Kickbacks related questions are done in terms of Australian organisations for Financial Accounting.and professional bodies. Moreover, three main questions will help the readers to gather a brief knowledge about the principles of the code of ethics, threats faced by the governing bodies and finally the safeguard concept is detailed out.
1. Identification and explanation of the five fundamental principles of the Code of Ethics of the Professional Accounting Bodies in Australia:
CPA Australia (Certified Practising Accountants) and Australian Financial Accounting Standards Boards are the major professional accounting bodies that control the accounting policies. On the other hand, in Australia, the Institute of Chartered Accountants controls the reporting of the financial transactions and payments.
CPA Australia is an accounting body that is having a membership of the different types of organisations in Australia. Almost 150,000 finance, accounting and business professionals take the help of the CPA. More than 121 countries from the world seek help from CPA to maintain sound and effective accounting principles (Chenhall, 2012).
CPA provides services for maintaining the education, training, and technical support for the members. CPA aims to provide protection to public interests by means of maintaining transparency of the Financial Accounting transactions and records. The body has also set member service standards to maintain the best possible support for the parties of the organisations. These type of stakeholders support the market share provisions can help in terms of the sustainability issues in the competitive market. The members and potential members of the CPA get the knowledge and advocacy of the financial regulation. Moreover the statistics and the allocation of the strategic direction will help in terms of the getting the better compatibility (Benedict and Elliot, 2011).
Fundamental principles of the Code of Ethics of Financial Accounting
The CPA certified professional accountant should be more accurate in terms of the providing the organisations with the impacts. They must be able to be clear and ideologist in terms of building professional and business relationships. The organisations of the Australia can be able to develop proper strategies with the guidance of the professional members of the accounting bodies to improve Financial Accounting. Moreover, the operation of the business can be more accurate in terms of the feasibility of the statistics and the globalised compatibility information (Chen and Deng, 2011).
The CPA professional accountant must be firm to employ the decisions regarding the development and maintenance of the transaction reports. Any biases in the process of employing the control will lead to a failure. Conflict of interest of the business and the professional guide will increase the possibility of biases and failure to achieve the objectives. They must be able to remove undue influence of the parties involved in the business operational process. The process of business judgment requires effective knowledge of the CPA member. They will try to maintain the objectives set by the CPA governance.
Professional compatibility and Care of the business entity:
A professional accountant is aimed to provide the support to the organisations in terms of reporting and managing the transactions. The major duty of a professional support member is to meet the balance between the professional knowledge and practical implementation (Bhattacharyya, 2010). The professional skills of the members will employ the compatibility of the organisation. The client or employer need to seeking for the competent level of professional services of Financial Accounting that will enable the development of operational actions, legislation supports and techniques of the various factors of the accuracy in the reports of the transactions. A professional accountant must be able to cope with the technical and professional standards that are set by the contrast of the organisational goals and the allocation ethical consideration of the professional services and the stakeholders.
Confident nature of the professionals:
A professional accountant must maintain the confidentiality of information of the member organisations. The CPA members must be able to build professional and business relationships so that the welfare of the organisation is possible. The professional must be dealing with the information and must be carefully dealt with in terms of safeguarding the information from the third parties or the competitors (Khan and Rehman, 2012). The authority of the access of the secure data needs to be maintained to maintain the safety. The professionals are trained with the legal or professional right and duty for any organisations. Confidential information can be utilised for the professional and business relationships but the ethical consideration needs to be maintained to safe the data from the third parties.
Professional Behaviour of the CPA members:
Professional accountant appointed in the business must be able to comply with the framework of the laws and regulations of the local government and regulatory authority. The professional will help in allocating various strategies of the organisational finance in terms of coping up with the challenges of the local market and the global stakeholder commitments. In the globalised firms the organisations needs to be efficient so that the safety can be maintained in terms of sustainability (Soumaya, 2012).
2. Identify and explain the five types of threats to the fundamental principles of the Code of Ethics:
In order to employ the fundamental principles of the Code of Ethics in the business process of the Australian based organisations, the CPA certified professionals face certain risks that will reduce the opportunity for the development of the organisation along with the profitability and sustainability. Five types of risks, an organisation can face during the process of implementation of the ethical checks which are as follows —
Self-interest threats: this type of risk can be faced due to conflicting interests of the CPA professionals. Financial or other interests developed in the professional accountant due to certain development of the professional skills and standards (Cooper, 2010).
Sometimes the professionals are having the common financial interest from any business operations maintained by the clients. On the other hand they can be having the joint goals or financial interest in relation with the clients. Some times the capacity of the clients are not predictable the risk of the non-payments of the fees will create a risk. The fees paying capacity of the clients can be a cause of the Financial Accounting instability.
Sometimes close business relationship with the client can hamper the payment mode or the charge. In addition, this condition reduces the opportunity of the professional development and income generation. The fear of losing a client is another risk of the professional. Possibility of being employed by the client can hamper the ethical consideration of the CPA member. They can be working as per the interest of the clients only. Contingent fees are determined based on the engagement policies of the CPA executive (Soleimani and Salehfar, 2012).
Self-review threats: this type of threats are faced in terms of the allocating the strategies to cope up with the historical operational judgements. The re-evaluation can be recalculating the policies and control measures. The professional accountant can be facing the problem of the misleading nature of the professionals.
The process of the review can identify the significant error made by the past experts or the past activity. Professional accountant needs to be ethical but sometimes lack of support and attention will lead to a faulty position for the organisation. The professional can be intentionally manipulating the transactions for the benefit of the other party (Krishnan, 2012). Reports are prepared based on the feasibility of the control and code of ethics on the financial systems of the Australian based organisations. The process until designed for implementation of the Financial Accounting strategies is judged in terms of the action of the professional member. The original data that are used in the preparation of the records are used for the decision making. The assurance team can be consisting of individuals like the director or officer of client organisation. This will impose intense pressure on the professional. The client and have the power to manage the direction and influence of the engagement can employ any member of assurance team. Moreover, this process will induce the rate of the ambiguity and the biasness. Sometimes the specified client oriented service delivery can hamper the assurance engagement set by the ethical standards (Jennings, 2011).
Advocacy threats: a professional accountant can face such threat as because of the promotion of the individual opinion on the objectivity of the business.
Promoting of the shares of a listed entity by the CPA executive can be a non ethical action. The threat increases the effect as when the client is adopting the help of the financial statement audit. Moreover, the advocacy of the assurance client in terms of the settling the disputes with any third parties can impose the advocacy threats.
Familiarity threats: close relationship in the profession is itself threat. The CPA member needs to be developing a professional relationship not familiar or friendly relationship (Carlberg, 2011).
Some time the teams are having a family relationship with the client organisations directors and officers. Members of the engagement team can have good relationship with any employees of the client. This type of relationship will increase the rate of the influence in terms of the ethical decision-making. Moreover, the former partners of the professional accounting firms can be converted into the director or officer of client organisations. As a result they can influence their past colleagues and juniors to do according to clients interest.
Sometimes costly gifts or other amusement activities will increase the rate of the influence of the client on the experts. Moreover, the association of experienced members with the assurance client use to make more familiar or friendly relation (Mathuva, 2012).
Intimidation threats: a professional accountant will face such threat because of low motivation, less objectively actions and the perception or the lack of specialty. The expert can be facing the threat of non continuation of the client engagement or relationship. Some times the threats of the lawsuits can also happen as because of the non performance and proper support. Some the experts are forced to reduce the extent of work or service for the reason of the reduction of the fees.
3. The concept of safeguards and the usage of them:
The above-mentioned threats can be faced during the implementation of the fundamental principles of the code of ethics. Safeguards will mitigate the risk of the threats by the mean of the two categories;
Safeguards can be created by the professionalism and legislation or regulation maintained by the financial governing organisations. On the other, hand the safeguards can be imposed in the work environment of the professionals (Amihud and Mendelson, 2010).
Profession, legislation and regulation related safeguards use to set the safeguards in terms of the educational facilities to the experts, training and experience implementation so that the entry level candidates can be converted into professional experts. Maintenance of the professional development requirements will help the professional to deal with the contemporary situations. Corporate governance regulations will restrict the influence issues and actions. Professional standards will help in terms of the setting the benchmark of the service quality or the knowledge standards of the professionals.
Professional regulatory monitoring makes the imposition of the disciplinary actions so that the influence and fraudulent activities can be avoided (Jorion, 2008).
External review can be helpful to identify the fraudulent activities of the professionals. Employment of the third party with legal power can develop the allocation of the accurate check of the reports of the financial statements and returns on the investments. Communication and information is the most effective tool to meet the demands of the professional accountant.
In terms of meeting the different financial control and support, the Financial Accounting policy has implemented certain code of ethics to be followed by the professional accounting bodies in order to have better transparency.