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This module is structured in a particular way to help you in your journey towards professional status.
Section 2 of this module defines professionalism, distinguishing a profession from other occupations, and explains
Section 2 also briefly explains the origin and development of accounting as a profession; it identifies the professional
and regulatory bodies relevant to accountancy and their purposes; and it explains the principle of acting in the public
interest.
The rest of the module contains the following four broad themes:
The first level of the filter is about understanding how to comply with the law in all areas where the accountant works.
This means ensuring that nothing is done that is illegal or contravenes any regulations, and making sure that all legal
requirements are complied with. Legal obligations include preventing theft, fraud, bribery, corruption and money
laundering. They also involve complying with data protection, security, health and safety, record keeping, financial
As a professional it is not enough to behave in accordance with law alone. Many of the decisions that must be made
may not be affected by the law or regulation, so how should the accountant act in these situations?
If the law or accounting regulation is silent or unclear, the behaviour of the accountant should be guided by a
professional code of conduct. The relevant code of conduct will be based on compliance with the following
Objectivity
Confidentiality
Professional behaviour
These fundamental principles are embedded into the ACCA Code of Ethics and Conduct, and should act as a
Acting within the law, and behaving in accordance with these fundamental professional ethics, you may encounter
Once behaviour complies fully with the law and is consistent with fundamental principles of professional behaviour,
further choices are still available, but the scope becomes much narrower. For example there may be a choice to do
something in one way or another, such as how to communicate with someone, or whether to act immediately or delay
a decision. The choices that you make at this level of the filter require you to consider your personal values and use
The figure opposite can also be presented as a simple flow chart to guide your decision-making.
The decision flowchart below is a systematic way of thinking about how you act and behave at work and the
sequence in which you, as a professional, should normally filter your decisions.
The Foundations in Professionalism module will help you put this decision-making filter into practice. Now complete
this quick quiz to test your current understanding.
2.1 What is a professional?
There are many different definitions of a professional. Relevant factors include academic qualifications, specialist
knowledge, heightened ethical standards, and others. However, a professional is someone who has knowledge and
expertise which are recognised and valued by society. Doctors, lawyers and accountants are commonly thought of as
professionals.
They have trained in their fields to develop the highest levels of specialist skills and knowledge. They are trusted and
respected by the public and their peers. Professionals are expected to behave at work in accordance with minimum
standards, often set out in professional and ethical codes of conduct.
A professional has a duty to their employer, clients, colleagues and themselves, but should always put the public
interest above all, in guiding their behaviour and decision-making at work.
Becoming a professional involves passing examinations, gaining relevant experience and updating knowledge
periodically. It also involves developing the attitudes of a professional and behaving in a way that their profession
demands and society expects.
Professionals are required to know what they can and cannot do, they must decide on the right course of action and
they must carry out their work to the best of their ability.
Its not the job you do its how you do the job
Professionalism concerns how you conduct yourself, behave, are perceived by others, and whether you are
technically competent at work.
The key attribute of a professional is to exhibit a sense of trustworthiness. This provides the client or employer and
the public with the assurance that the professional will always perform to a consistently high standard, and do what is
expected of them.
Professional association: Professional bodies are intended to enhance the status of their members. They have
carefully controlled entrance requirements, including work-based practical experience, and being able to demonstrate
good character.
Extensive period of education: Passing a number of examinations and demonstrating a technical knowledge of
their subject.
Continuing professional development (CPD): The updating and development of knowledge and skills is essential.
Licensed practitioners: Professions seek to establish a register of membership. This provides recognition for the
professional, but also helps to protect the public.
Work autonomy: Professionals should retain control of their performance at work through the skills they possess,
which may be unique within the organisation.
Code of professional conduct or ethics: Professional bodies usually have codes of conduct or ethics for their
members, and disciplinary procedures for those who infringe the ethical code.
Self-regulation: Professional bodies usually benefit from a measure of self-regulation and independence from
government although this may vary.
High status and rewards: Successful professions achieve high status, public prestige and rewards for their
members.
Mobility: The skills, knowledge and authority of a professional belong to the professional, and not the organisation
for which they work. Professionals are therefore occupationally mobile.
As a trainee working within a profession, you will not be able to display all of the badges of a professional. However,
in order to be accepted into a professional body, you will need to be able to demonstrate professionalism, as well as
Recognise that there is always more to learn than you already know
commerce have taken place, there has been a need to record transactions and 'keep account'.
You can view some of the main historical developments in accountancy by clicking on the dates below. Drag
The following landmarks are not exhaustive, and many other professional accountancy bodies have been
formed throughout the world, to educate and train accountants in their regions. Whilst they represent and
support their members, some also take responsibility for regulating their members, whether subject to
independent oversight (as in the UK) or not. These bodies are continuously developing and increasing their
membership and creating alliances and strategic collaborative initiatives with other organisations to promote
the interests of their members, or to enhance the regulatory structures in their regions.
The development and growth in popularity of accounting as a profession continues today, despite its reputation being
damaged by the corporate scandals of the early part of the 21st century. With the demise of companies like Enron,
Worldcom, Parmalat and more recently Lehman Brothers, the role of accountants in providing a 'true and fair' view of
the performance and position of these companies has often been brought into question.
The profession has had to become even more vigilant and responsible for the behaviour and reputation of its
members. Through its education and training programmes, it has had to ensure that professional accountants
develop a greater ethical and responsible attitude to their work. ACCA and other professional bodies recognise their
members' duty to act in the public interest, as well as the interests of identified stakeholders.
Accountants, like other professionals, must 'act in the public interest'. 'Acting in the Public interest is a difficult phrase
to define exactly.
The public is everyone who is affected or could potentially be affected by the work or shortcomings of accountants
The interest is the potential impact of accountants work on the public, whether that be beneficial or harmful.
What actions are the public interested in as far as accountancy is concerned?
For the purposes of this module we will assume that they have an interest in:
Financial statements and reports portraying a true and fair view of the financial position and performance of
an organisation
Performance and financial positions of organisations being reliably and objectively compared for the purpose
In order to achieve a high level of confidence, the public perception should be that accountants / auditors are:
Acting diligently
3.1.1 Theft
Globally theft is a crime. All countries have laws on theft, although how it is defined and the penalties available will
vary quite considerably.
Theft can be defined as follows (from the Theft Act 1968 in the UK):
'A person is guilty of theft if he dishonestly appropriates property belonging to another with the intention of
permanently depriving the other of it.'
Theft can take many forms, from openly stealing money or property from another person or organisation (such as a
bank), to overcharging a customer for a product, getting on a bus without paying, or over-claiming business
expenses.
3.1.2 FRAUD
Fraud is a branch of theft.
No succinct legal definition of fraud exists. Many of the offences referred to as fraud are covered by laws on theft that
However, in a report by the UK Law Commission in 2002, fraud was defined as:
where a person dishonestly makes a false representation, or wrongfully fails to disclose information, or secretly
abuses a position of trust with intent to gain or to cause loss or expose another to the risk of loss.
For practical purposes fraud may be regarded as the use of deception with the intention of obtaining an advantage,
Fraud is increasing in most countries. It can take various forms, from claiming benefits from the authorities to which
one is not entitled, to travelling on public transport without a ticket, or being an employee abusing their position of
trust and authority to illegally divert business funds for private gain.
Dishonesty
Motivation
Opportunity
Businesses should attempt to reduce or prevent fraud by ensuring that these pre-requisites are minimised.
This can be achieved by adopting the following measures to tackle the above pre-requisites:
Dishonesty Checking that employees have no previous record of dishonesty before they are appointed is a means
of preventing the recruitment of dishonest employees. This can be achieved by requesting details of any criminal
convictions and other misconduct, and seeking appropriate references (if permitted to do so). In some cases, the
potential employees will need to provide further evidence of their honesty, and checks with the relevant authorities,
Motivation - Employees are motivated by receiving fair levels of remuneration for their roles and ensuring, as far as
possible, that they have fulfilled roles within the organisation. Employees are often better motivated by having access
to necessary training and development and the potential to advance within the organisation thereby offering greater
It is not possible to identify all those who are capable of dishonesty, or to be familiar with individuals personal
circumstances which may motivate them to commit fraud. Organisations should not readily present opportunities (or
Opportunity Implement systems to ensure that employees do not have the opportunity to commit fraud. This can
be achieved by having appropriate internal controls within the organisation. Managers checking and authorising
expenses and other payments should ensure that there is appropriate segregation of duties (e.g. ensuring that the
person who takes cheques and cash to the bank is not also responsible for processing the associated receipts in the
sales ledger).
In the UK, the Bribery Act 2010 sets out offences relating to bribing and offences relating to being bribed. The latter
offences are often referred to as corruption, although the act does not use this term. The Act was finally
implemented from 1 July 2011, its purpose being to reform the criminal law of bribery to provide for a new
consolidated scheme of bribery offences to cover bribery both in the United Kingdom and abroad. The extra territorial
provisions mean that the Act applies to the conduct of UK companies and partnerships overseas, and to overseas
companies and partnerships which conduct business in the UK. The offences include bribing another person, being
bribed, bribing of foreign officials (directly or indirectly), and failure (of an organisation) to prevent bribery.
A person will be guilty of bribery if they offer, promise or give a financial or other advantage to another person,
intending to induce another person to do something improper, or to reward someone for behaving improperly. These
Request, agree to receive, or accept an advantage, intending that they, or another person, should in
advantage
Request, agree to receive, or accept an advantage and the request, agreement or acceptance in itself
In most countries, bribery and being bribed are considered to be extremely serious offences. Both involve taking
unfair advantage of the circumstances, and can damage public confidence and trust in business and commerce.
Within an organisation, bribery and corruption may have a negative impact on commercial activities.
Issues:
(a) The link between the company accountant being offered the use of the property and his recommendation
that the firm be appointed as auditors is not proven. However, in such a situation as this, a well-informed third
party may easily be able to present the case that the offer of the use of the property was a bribe.
(b) To accept that the act of offering the use of the property was a bribe, then by offering that bribe, the audit partner
was putting pressure on the company accountant to act against the wider interests of the company, its
stakeholders, and possibly themselves.
(c) The client company could be paying more for their external audit than they would have needed to had they
appointed another audit firm. They may not be the best firm for the assignment.
Inside the proposal form is a banker's draft payable to the contract manager to whom the letter is addressed.
Despite the bid not being the lowest or of the best specification, the contract is awarded to this bidder.
Issues:
(a) The government is paying more than is necessary for a contract with an inferior specification,
leading to a waste of tax payers money.
(b) The officer received a prison sentence of four years for committing this offence
Following the meeting, the price of oil from all three suppliers was raised by an average of 10%, and their prices were
equalised.
Issues:
(a) This is a price fixing issue, where normal competition is being suspended. Each oil company has agreed to
maintain a certain price level in order to allow the other companies to do the same. Although the arrangement is
mutually beneficial, it is nevertheless an inducement, and a form of bribery.
(b) While the suppliers within the cartel are making greater profits through eliminating the
pressures of competition, costs to all the businesses to whom they supply oil become
artificially high, leading to higher prices being charged to their customers,
and contributing to inflation within the economy.
An officer in a local authority was convicted of accepting payments and preferential services over a period of six
years in return for putting companies names on the authoritys contracts list, so that they could tender for large
contracts with the authority. The officer received a prison sentence of four years for committing this offence.
The OECD Convention obliges Parties to make it a crime to bribe foreign public officials in international business
transactions which should be punishable by effective, proportionate and dissuasive criminal penalties.
Council of Europe Criminal Law Convention on Corruption (1998) and additional Protocol (2005)
The Convention requires states to establish as criminal offences, the active and passive bribery of domestic and
foreign officials. It also covers private sector corruption, trading in influence, money laundering and accounting
offences connected with corruption offences.
The Convention obliges State Parties to implement a wide and detailed range of anti-corruption measures affecting
their laws, institutions and practices.
These measures aim to promote the prevention, detection and punishing of corruption, as well as cooperation
between State Parties.
Insider trading is another form of corruption. This is making investor decisions based on confidential information.
Insider trading is a criminal offence in most countries, although the effectiveness of enforcement varies. The reasons
It may deter investors from participating in the market at all, undermining the basic purpose of markets,
It involves profiting from a breach of confidence, at the expense (at least partially) of people to whom the
insider has a duty (such as their employer, and their employer's shareholders)
Defenders of insider trading claim that it improves market efficiency by allowing confidential information to influence
Because insider trading is usually illegal, insiders who wish to benefit personally from price sensitive information will
collaborate with others who cannot easily be traced to themselves, both to exploit the trading opportunities and make
it harder to trace the transactions back to the original insider information and its source. This is known as an insider
trading ring.
Not all information that is not publicly available is likely to be defined as insider information, but anything that can
reasonably be expected to have a significant effect on a company's share price is. The source of the information and
the way in which it is acquired also affects the legality of trading on it.
Investors, especially employees of companies who benefit from acquiring confidential information, likely to affect
share prices, should be cautious about using any information that is not publicly available. Not only may they be
Investors can sometimes legally obtain advantage over others by ensuring that they make use of all possible sources
of information. Information that is not technically price sensitive may be useful, but not well circulated. A frequently
useful example is information of a technical nature rather than related to finance or sales.
However, those who possess or gain access to confidential information are well advised to be cautious and to get
appropriate professional advice when in doubt, particularly when that information has commercial sensitivity and
where that information is obtained as a result of employment and access to privileged sources.
3.2.6 Why bribery and corruption are against the wider commercial and public interest
Considerable (unfair) commercial or financial advantage can be obtained by individuals and / or organisations who
distort the normal market mechanism through bribery, corruption or insider trading. These practices are completely
against the wider stakeholder and public interest and prevent fair competition. They also destroy trust in the market
mechanism.
If bribery, corruption and insider trading are generally accepted in society or accepted as a normal way of doing
business, then commercial transactions between organisations become highly distorted and shareholder value in
these organisations can be seriously damaged.
For example, if a companys procurement officer accepts a bribe to order an inferior and more expensive component
from a supplier, the consequences will be that the company purchasing these components will lose profitability
through higher input costs, potentially greater waste or returns, or higher after sales service costs. The company
which offers the lower cost and higher quality product will therefore lose business which is a perverse economic
outcome.
The normal market mechanism should ensure that the most efficient organisations are rewarded. They offer products
and services of greater quality and better value for money; this encourages efficiency and effectiveness in the
economy. Such companies should make the greater profits and enjoy the highest share prices.
Bribery and corruption badly interferes with this process. It makes it difficult for those who refuse to engage in such
practices to compete with those who do. Potential investors and customers will also be deterred from investing or
purchasing from organisations under these circumstances. They fear that the markets may not be as efficient as they
should be.
Countries where bribery, corruption and insider trading become endemic (and are accepted) become very
unattractive for most individuals, companies or other countries to invest in. This is where a lack of confidence and
trust in capital markets develops and investor confidence is undermined.
the United States in the 1930s. Those who may have obtained their wealth illegally have often tried to find ways to
conceal or disguise the source of this wealth. Money laundering may well have been taking place as long as 4,000
years ago.
There are various definitions available for money laundering. The European Communities (EC) Money Laundering
Directive (2005/60/EC) says that the following will be regarded as money laundering:
the conversion or transfer of property, knowing that such property is derived from criminal activity or from an
act of participation in such activity, for the purpose of concealing or disguising the illicit origin of the property
or of assisting any person who is involved in the commission of such activity to evade the legal
the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect
to, or ownership of property, knowing that such property is derived from criminal activity or from an act of
Expressed in simpler terms, money laundering is: 'the process by which illegally obtained funds are given the
If successful, the practice of money laundering allows criminals to maintain control over and access to their illicit
proceeds. It can provide a legitimate cover for the illegal source of their income. Money laundering can help protect
drug traffickers, terrorists, organised criminals, insider dealers, and tax evaders from justice and hide their illicit
In some countries, any conduct which would lead to a sentence of imprisonment is regarded as a crime from which
any proceeds could be money laundered. In other countries, only offences appearing on a prescribed list are
regarded as crimes from which the proceeds are subject to money laundering legislation. Some countries will allow a
person to be prosecuted for laundering the proceeds of criminal conduct in another country, provided the conduct
Some countries also have anti-money laundering laws where individuals, such as accountants, may be responsible
for implementing procedures, in order to increase the probability of identifying criminal acts and proceeds, and to
A person may be guilty of an offence if there was reasonable cause for suspicion of criminal activity, and they failed
to make a report. Therefore, a person could be punished if they knew, suspected, or ought to have known or
suspected, that there had been criminal activity resulting in some benefit (or proceeds).
Money laundering can be viewed as a continuing offence. So long as a crime goes unreported, the proceeds of that
crime are being concealed. The date of the original crime is irrelevant.
Ignorance of the law is no defence; therefore, it is important that organisations and employees at risk are aware of
their obligations under legislation in their country. Onerous obligations are placed on companies and their staff to
report any suspicions and the penalties can be severe for ignoring these obligations.
In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering
(FATF) was established by the G-7 Summit that was held in Paris in 1989. The FATF was set up as an inter-
governmental body whose purpose is the development and promotion of policies, both at national and international
levels, to combat money laundering and terrorist financing. It currently has in excess of 30 member countries.
The FATF has driven the effort to adopt and implement measures designed to counter the use of the financial system
by criminals. It established a series of recommendations in 1990 (revised in 1996 and in 2003) that set out the basic
framework for anti-money laundering efforts and are intended to be of universal application.
Legitimate businesses can unwittingly be the vehicle or host for money laundering activities, unless there are
processes and procedures in place to prevent and detect such activities. The accountant or bookkeeper is, in many
jurisdictions, required to play an important and responsible role in preventing this.
One of the main responsibilities of an accountant or bookkeeper is to be vigilant in their role to detect unusual
patterns, volumes or frequencies of sales or receipts, and to report such unusual transactions or events where
appropriate.
A business should have anti-money laundering policies and procedures to prevent it being used for money laundering
Reporting
Record keeping
Internal controls
Effectively communicating policies and procedures within your business and to external parties
A business is also expected to apply a risk-based approach to ensure their policies and procedures are capable of
The key issues that the business and its staff need to consider are:
Are there any particular types of customer behaviour that pose a risk?
Does the method or frequency of contact with the customer increase risk?
When a relevant business (which would include a firm of accountants) establishes a business relationship, it must
undertake due diligence procedures (acting prudently and with caution), by identifying the customer and verifying
their identity.
There is doubt regarding the authenticity of previously obtained customer identification data
A customers identity should be verified by means of photographic evidence (such as a passport).
Identifying the beneficial owner of an entity, and verifying that persons identity
Obtaining sufficient information regarding the purpose and intended nature of the business relationship
There are also customer due diligence recommendations in respect of politically exposed persons and cross-border
relationships.
If a relevant business suspects, or has reasonable grounds to suspect, that funds are the proceeds of a criminal
activity, the FATF Recommendation is that it should be required to report promptly its suspicions to the financial
Relevant businesses should develop programmes against money laundering. These programmes should include:
The development of internal policies, procedures and controls, including appropriate compliance
management arrangements, and adequate screening procedures to ensure high standards when hiring
employees
3.3.6 Record-keeping
According to FATF Recommendation 10, relevant businesses should maintain, for at least five years, all necessary
records on transactions to enable them to comply swiftly with information requests from the competent authorities.
Such records must be sufficient to permit reconstruction of individual transactions so as to provide, if necessary,
evidence for prosecution of criminal activity.
Relevant businesses should keep records on the identification data obtained through the customer due diligence
process (for example copies or records of official identification documents like passports, identity cards, driving
licences or similar documents), account files and business correspondence for at least five years after the business
relationship has ended.