AAFR Ethics

ETHICS

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1. Fundamental principles

2. Potential threats

3. Safeguards
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Mirza Ali Hassan

AAFR Ethics

ETHICS

AH
1. Fundamental Principles
A chartered accountant shall comply with the following fundamental principles:
(a) Integrity – to be straightforward and honest in all professional and business relationships.
(b) Objectivity – to not allow bias, conflict of interest or undue influence of others to override professional
or business judgments.
(c) Professional Competence and Due Care – to maintain professional knowledge and skill at the level
required to ensure that a client or employer receives competent professional services based on
current developments in practice, legislation and techniques and act diligently and in accordance with
applicable technical and professional standards.
(d) Confidentiality – to respect the confidentiality of information acquired as a result of professional and
business relationships and, therefore, not disclose any such information to third parties without proper and
specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for
the personal advantage of the chartered accountant or third parties.
(e) Professional Behavior – to comply with relevant laws and regulations and avoid any action that discredits the
profession.
Each of above principles are discussed in more detail as follows:
1.1 Integrity
1.1.1 The principle of integrity imposes an obligation on all chartered accountants to be straightforward and
honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness.
1.1.2 A chartered accountant shall not knowingly be associated with reports, returns, communications or
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other information where the chartered accountant believes that the information:
(a) Contains a materially false or misleading statement;
(b) Contains statements or information furnished recklessly; or
(c) Omits or obscures information required to be included where such omission or obscurity
would be misleading.
1.2 Objectivity
1.2.1 The principle of objectivity imposes an obligation on all chartered accountants not to compromise their
professional or business judgment because of bias, conflict of interest or the undue influence of others.
1.2.2 A chartered accountant may be exposed to situations that may impair objectivity. It is
impracticable to define and prescribe all such situations. A chartered accountant shall not perform a
professional activity or service if a circumstance or relationship biases or unduly influences the
accountant's professional judgment with respect to that service.
1.3 Professional Competence and Due Care
1.3.1 The principle of professional competence and due care imposes the following obligations on all chartered
accountants:
(a) To maintain professional knowledge and skill at the level required to ensure that clients or
employers receive competent professional service; and
(b) To act diligently in accordance with applicable technical and professional standards when
performing professional activities or providing professional services.
1.3.2 Competent professional service requires the exercise of sound judgment in applying professional
knowledge and skill in the performance of such service. Professional competence may be divided into
two separate phases:
(a) Attainment of professional competence; and
(b) Maintenance of professional competence.
1.3.3 The maintenance of professional competence requires a continuing awareness and an understanding of
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AAFR Ethics

relevant technical, professional and business developments. Continuing professional development

enables a chartered accountant to develop and maintain the capabilities to perform competently

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within the professional environment.
1.3.4 Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
1.3.5 A chartered accountant shall take reasonable steps to ensure that those working under the chartered
accountant's authority in a professional capacity have appropriate training and supervision.
1.3.6 Where appropriate, a chartered accountant shall make clients, employers or other users of the
accountant's professional services aware of the limitations inherent in the services or activities.
1.4 Confidentiality
1.4.1 The principle of confidentiality imposes an obligation on all chartered accountants to refrain from:
(a) Disclosing outside the firm or employing organization confidential information acquired as a
result of professional and business relationships without proper and specific authority or unless
there is a legal or professional right or duty to disclose; and
(b) Using confidential information acquired as a result of professional and business relationships to
their personal advantage or the advantage of third parties.
1.4.2 A chartered accountant shall maintain confidentiality, including in a social environment, being alert to
the possibility of inadvertent disclosure, particularly to a close business associate or a close or
immediate family member.
1.4.3 A chartered accountant shall maintain confidentiality of information disclosed by a prospective client or
employer.
1.4.4. A chartered accountant shall maintain confidentiality of information within the firm or employing
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organization.
1.4.5 The need to comply with the principle of confidentiality continues even after the end of relationships
between a chartered accountant and a client or employer. When a chartered accountant changes
employment or acquires a new client, the chartered accountant is entitled to use prior experience.
The chartered accountant shall not, however, use or disclose any confidential information either
acquired or received as a result of a professional or business relationship.
1.4.6 The following are circumstances where chartered accountants are or may be required to disclose
confidential information or when such disclosure may be appropriate:
(a) Disclosure is permitted by law and is authorized by the client or the employer;
(b) Disclosure is required by law; and
(c) There is a professional duty or right to disclose, when not prohibited by law.

1.5 Professional Behavior

The principle of professional behavior imposes an obligation on all chartered accountants to comply with
relevant laws and regulations and avoid any action that the chartered accountant knows or should know
may discredit the profession. This includes actions that a reasonable and informed third party, weighing all
the specific facts and circumstances available to the chartered accountant at that time, would be likely
to conclude adversely affects the good reputation of the profession.

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AAFR Ethics

2. Threats

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Threats may be created by a broad range of relationships and circumstances. When a relationship or circumstance
creates a threat, such a threat could compromise, or could be perceived to compromise, a chartered accountant's
compliance with the fundamental principles. A circumstance or relationship may create more than one threat, and a
threat may affect compliance with more than one fundamental principle. Threats fall into one or more of the
following categories:
(a) Self-interest threat – the threat that a financial or other interest will inappropriately influence the
chartered accountant's judgment orbehavior;
(b) Self-review threat – the threat that a chartered accountant will not appropriately evaluate the results of
a previous judgment made oractivity or service performed by the chartered accountant, or by another individual
within the chartered accountant's firm or employing organization, on which the accountant will rely when
forming a judgment as part of providing a current service;
(c) Advocacy threat – the threat that a chartered accountant will promote a client's or employer's position to
the point that the chartered accountant's objectivity is compromised;
(d) Familiarity threat – the threat that due to a long or close relationship with a client or employer, a chartered
accountant will be too sympathetic to their interests or too accepting of their work; and
(e) Intimidation threat – the threat that a chartered accountant will be deterred from acting objectively because
of actual or perceived pressures,including attempts to exercise undue influence over the chartered accountant.

2.1 Examples of circumstances that may create self-interest threats for a chartered accountant in business
include:
• Holding a financial interest in, or receiving a loan or guarantee from the employing organization.
• Participating in incentive compensation arrangements offered by the employing organization.
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• Inappropriate personal use of corporate assets.
• Concern over employment security.
• Commercial pressure from outside the employing organization.
2.2 An example of a circumstance that creates a self-review threat for a chartered accountant in business is
determining the appropriate accounting treatment for a business combination after performing the
feasibility study that supported the acquisition decision.
2.3 An example of a circumstance that creates a advocacy threat for a chartered accountant in business is when
furthering the goals and objectives of their employing organizations, chartered accountants in business may
promote the organization’s position by making false and misleading statements.
2.4 Examples of circumstances that may create familiarity threats for a chartered accountant in business
include:
• Being responsible for the employing organization's financial reporting when an immediate or close
family member employed by the entity makes decisions that affect the entity's financial reporting.
• Long association with business contacts influencing business decisions.
• Accepting a gift or preferential treatment, unless the value is trivial and inconsequential.
2.5 Examples of circumstances that may create intimidation threats for a chartered accountant in business
include:
• Threat of dismissal or replacement of the chartered accountant in business or a close or immediate
family member over a disagreement about the application of an accounting principle or the way in
which financial information is to be reported.
• A dominant personality attempting to influence the decision making process, for example with regard
to the awarding of contracts or the application of an accounting principle.

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3. Safeguards

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The significance of any threat shall be evaluated and safeguards applied when necessary to eliminate the threat or
reduce it to an acceptable level. Such safeguards include:
• He may consult with superiors with in the employing organization.
• He may consult with audit committee or those charged with governance of the organization.
• He may consult with a relevant professional body.
• Where it is not possible to reduce the threat to an acceptable level, he shall refuse to be or remain associated
with information the chartered accountant determines is misleading.
• He may have been unknowingly associated with misleading information. Upon becoming aware of this, he shall
take steps to be disassociated from that information. In this respect, he may consider obtaining legal advice.
• In addition, he may also consider whether to resign.
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AAFR Ethics

PRACTICE QUESTIONS

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Question No. 1
List the fundamental principles as mentioned in the ICAP’s Code of Ethics and describe the guidance expressed in
respect of ‘principle of integrity’. (05)
{Autumn 2014, Q#7}
Question No. 2
According to the ICAP’s Code of Ethics, in complying with the fundamental principles, a chartered accountant in
business may be subject to various threats.
List categories of such threats in business and give one situation which may create such threats. (05)
{Spring 2015, Q#5}
Question No. 3
Fortune Limited (FL) is quoted on the stock exchange, with revenue of over Rs. 5 billion per annum. During the year
ended 30 June 2015, FL has incurred a loss of Rs. 26 million.
The Chief Executive is of the view that declaration of loss may result in the bankers’ refusal to renew the credit facility.
Therefore, he wants to incorporate certain adjustments in the books of account that will result in a net profit of Rs. 100
million. However, the Chief Financial Officer (CFO), who is a chartered accountant, is of the view that all possible
adjustments allowable under the applicable accounting regulations have already been considered and incorporated.
Required:
Identify the categories of threats to the fundamental principles of objectivity or professional competence and due care,
that may be created in the above situation and discuss the safeguards available to the CFO in this respect, under the
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ICAP’s Code of Ethics. (06)
{Autumn 2015, Q#2}
Question No. 4
Ali and Bashir are chartered accountants and have been working as Managing Director (MD) and Chief Financial Officer
(CFO) in a listed company. In a recent meeting of the Board, the directors have decided to expand the business within six
months by opening 20 retail outlets. This expansion would require financing of Rs. 300 million which may be arranged
through bank loan.
MD has advised the CFO to arrange the loan from MN Bank. He has also informed that the President of the bank is his
good friend and the loan can be arranged on a fast track basis at a mark-up of 15% per annum, subject to the following
conditions:
• current ratio and quick ratio should be at least 2: 1 and 1: 1 respectively;
• gearing ratio should not exceed 40%; and
• interest cover should be at least 3.
CFO is not comfortable with this deal as the mark-up offered by the bank is much higher than the rate on the existing
loan and it is difficult for the company to meet the gearing requirements of the bank. However, MD has asked him to
make certain changes in the draft financial statements before submission to the bank; which according to the CFO are
not in accordance with the IFRSs.
Required:
Briefly explain how the MD may be in breach of the fundamental principles of ICAP’s code of ethics. Also state the
potential threats that CFO may face under the circumstances, along with available safeguards (if any). (06)
{Spring 2016, Q#3}

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AAFR Ethics

Question No. 5

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Zia is a Chartered Accountant and works as a financial controller in Unique Engineering Limited (UEL). UEL is
currently considering the acquisition of Top Storage Limited (TSL) and Zia is a member of the team which is currently
negotiating the acquisition with the management of TSL.
After becoming aware of the prospective acquisition, Zia purchased 1,000,000 shares of TSL in the name of his wife and
son.
Required:
Briefly explain how Zia is in breach of the fundamental principles of ICAP’s code of ethics. Also explain the potential
threats that may be involved in the above situation. (06)
{Autumn 2016, Q#6}
Question No. 6
Atif is a chartered accountant and has been working as Manager – Accounts in an unlisted public company MNZ
Limited.
While preparing the financial statements for the year ended 31 December 2016, CFO of MNZ who is also a chartered
accountant informed Atif that the directors are considering to have the company listed on Pakistan Stock Exchange.
Consequently, CFO wants to show higher profit and has asked Atif to identify areas where book adjustments can be
made. He has also informed that if MNZ is able to list the shares at a price of Rs. 35 or more, all managerial staff would
be given an additional bonus this year.
Required:
Briefly explain how the CFO is in breach of the fundamental principles of ICAP’s code of ethics. Also state the
potential threats that Atif may face under the above circumstances and how he should respond. (08)
{Spring 2017, Q#2}
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Question No. 7
Usman is a Chartered Accountant and has been working as Finance Director in Mehran Limited (ML) for the past one
year. He reports to the CEO who is also a Chartered Accountant.
Recently, Usman has received a bill issued by an advertising agency which is duly approved for payment by the Director
Marketing. Usman believes that the amounts agreed to be paid under the contract far exceed the value of services to be
provided by the advertising agency and that the payment would be redirected to obtain a sales contract. He has
discussed the matter with CEO who has advised him to process the payment in ML’s business interest. The CEO also
informed Usman that if the said contract is secured, the management staff will be entitled to a handsome bonus.
Required:
Briefly explain how CEO is in breach of the fundamental principles of ICAP’s code of ethics. Also state the potential
threats which Usman may face under the circumstances, along with available safeguards (if any). (08)
{Autumn 2017, Q#5}
Question No. 8
Umer Sheikh, ACA is Manager Finance at Charming Limited (CL) and reports to Abid, FCA who is the Chief Financial
Officer of CL. Abid is also a close relative of the major shareholder of CL.
CL is negotiating an important financing arrangement with Union Standard Bank (USB) in order to expand its business in
foreign markets. The rate quoted by USB is comparatively higher than existing rates being paid by CL.
During a meeting with the Executive Vice President (EVP) of USB, where Umer Sheikh was also present, Abid revealed
that his son has applied for a house financing in USB last month but has not received any response from USB so far. Abid
requested EVP to consider his application. EVP agreed to look into the matter. On conclusion of the meeting, Abid asked
Umer Sheikh to prepare a note for the board of directors proposing the acceptance of the rate offered by USB.
Required:
Briefly explain how Abid may be in breach of the fundamental principles of ICAP’s code of ethics. Also state the potential
threats that Umer Sheikh may face in the above circumstances and how he should respond. (08)
{Spring 2018, Q#5}
Question No. 9

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AAFR Ethics

Baqir, ACA is working as Finance Manager at Kiwi Limited (KL), a listed company, and reports to Shahid, FCA who is the
Chief Financial Officer of the company.

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Before the date of authorization for issuance of KL’s financial statements for the year ended 30 June 2018, Zahoor (a
mutual friend of Baqir and Shahid) informed Baqir that Shahid has recommended him to purchase KL’s shares as higher
EPS is expected this year. Zahoor also sought Baqir’s advice on this matter.
Required:
Briefly explain how Shahid may be in breach of the fundamental principles of ICAP’s code of ethics. Also state the
potential threats that Baqir may face in the above circumstances and how he should respond. (08)
{Autumn 2018, Q#3}
Question No. 10
Amir Ali, ACA is CFO at Circle Limited (CL) and reports to Junaid, FCA who is the CEO. The financial year of CL ends on 30
April and its profit for the nine months ended 31 January 2019 was below target. In a management meeting held in
February 2019, Junaid has proposed the following measures to improve the results.

(i) Annual maintenance of the manufacturing plant which is due in March 2019 should be deferred to
May 2019. Production manager has warned that the deferral may affect the safety of the plant. However,
Junaid is of the view that the maintenance was delayed two years ago as well and nothing adverse happened at
that time.
(j) Incorporation of the new revaluation report of CL’s buildings should be deferred to the next year as the
resulting increase in valuation is substantial and would result in increase in the deprecation for the year. Amir
had initiated the revaluation during the year since the fair values of the buildings had increased materially.
Junaid is of the view that the buildings were revalued last year and there is no need of such frequent
revaluations.
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Due to the dominant nature of Junaid, none of the participants opposed his views. The summary to implement the
above actions has been received by Amir.

Amir has recently applied for an interest free car loan from CL which is expected to be approved in few days.

Required:
Briefly explain how Junaid may be in breach of the fundamental principles of Code of Ethics for Chartered Accountants.
Also state the potential threats that Amir may face in the above circumstances and how he should respond. (09)
{Spring 2019, Q#4}
Question No. 11
Atif Anwar, ACA is Finance Manager at Hot Coffee Limited (HCL) and reports to Jamal Ahmed, FCA who is the CFO.
On returning from leaves, Atif noted that draft financial statements for the year ended 31 December 2019 have
been prepared. He found that financial statements have not been updated for the revision in decommissioning
cost related to a plant, as advised by the engineering department at the start of 2019. Atif discussed the matter
with Jamal who advised him to finalize the financial statements without revising the decommissioning cost as
HCL’s profit would be decreased if revised cost would be taken into account.
Decommissioning cost related to the plant has increased from initial estimate of Rs. 50 million to Rs. 88 million.
Applicable discount rate is 12%. This plant had a useful life of 6 years when it was purchased on 1 July 2017 at a
purchase price of Rs. 860 million. HCL uses cost model for subsequent measurement of its property, plant and
equipment and follows straight line method for charging depreciation.
Required:
(a) Compute the change in net profit, assets and liabilities if revised decommissioning cost is included in
the financial statements for the year ended 31 December 2019. (05)
(b) Briefly explain how Jamal may be in breach of the fundamental principles of ICAP’s Code of Ethics for
Chartered Accountants. (03)
{Spring 2020, Q#3}

Mirza Ali Hassan

AAFR Ethics

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Mirza Ali Hassan

AAFR Ethics

SOLUTIONS TO PRACTICE QUESTIONS

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Solution No. 1
Fundamental principles:
(i) Integrity (ii) Objectivity
(iii) Professional competence and due care (iv) Confidentiality
(v) Professional behavior

Guidance in respect of integrity:

Members should be straight forward and honest in all professional and business relationships. A chartered accountant
should not be associated with reports, returns, communication or other information where they believe that the
information:
• Contains a materially false or misleading statements;
• Contains statements or information furnished reckless; or
• Omits or obscures information required to be included where such omission or obscurity would be misleading.

Solution No. 2
According to the ICAP’s Code of Ethics, the threats which a chartered accountant may face while complying with
the fundamental principles have been categorized as under:
Threats Situations
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(i) Self interest • Incentive compensation schemes
• Concern over employment security
• Commercial pressure from outside the employing organization
(ii) Self-review
• Business decisions or data being subject to review and justification by the same
chartered accountant in business responsible for making those decisions or
preparing that data.
(iii) Advocacy
• Providing misleading and false information to promote its organization’s
position.
(iv) Familiarity
• A chartered accountant in business in a position to influence financial or non-
financial reporting or business decisions having an immediate or close family
member who is in a position to benefit from that influence.
• Long association with the business contacts influencing business decisions.
• Acceptance of a gift or preferential treatment, unless the value is clearly
insignificant.
(v) Intimidation
• Threat of dismissal or replacement over a disagreement about the application
of an accounting principle or the way in which financial information is to be
reported.
• A dominant personality attempting to influence decisions of the chartered
accountant.

Solution No. 3

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AAFR Ethics

Fortune Limited

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Categories of threats:
The given situation may create following threats to the fundamental principles of objectivity or professional
competence and due care:
• Self-interest
• Intimidation
Safeguards available to the CFO:
If, these threats are significant, the CFO should consider and apply the following safeguards to eliminate or reduce them
to an acceptable level:
• Consultation with superiors within the employing organization, for example audit committee.
• Consultation with other body responsible for governance
• Consultation with a relevant professional body.
Where it is not possible to reduce the threats to an acceptable level, a CFO:
• should refuse to remain associated with information which is or may be misleading.
• if issuance of misleading information is either significant or persistent, he should consider informing appropriate
authorities keeping in view the confidentiality and the legal requirements.
• may seek legal advice or resign.

Solution No. 4
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The existence of threats to fundamental principles will depend on following factors:
 Whether financing from other banks is available at lower mark up;
 Whether it is feasible to borrow @15% for the expansion.
If financing from other banks is available or it may not be feasible to finance the project at the rate of 15%, and still
MD is pressurizing the CFO to obtain financing at higher rate of markup the MD may be in breach of :
(i) Principle of objectivity
It can be a bias decision on part of MD, as he may be favoring his friend who is the president of the bank or may
have any other interest in taking loan from that particular bank.
(ii) Principle of integrity
MD may be in breach of principle of integrity because he is asking CFO to manipulate the financial information.
Potential threat to CFO along with safeguards:
Preparation of financial information as per the instructions of MD, will result in intimidation threat to integrity and
objectivity.
Identified threat is significant as the CFO is being instructed from the highest level of management. In order to reduce
the threat to an acceptable level, the following safeguards should be applied.
 Consult with superiors such as audit committee or those charged with governance or with a relevant professional
body.
 Where it is not possible to reduce the threat to an acceptable level, CFO shall refuse to be remain associated with
the financial information.
 CFO may consider to obtain legal advice or may consider resigning from the post of CFO.

Solution No. 5
Mirza Ali Hassan
AAFR Ethics

Following fundamental principles were violated by Zia:

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Integrity

A member should be straightforward and honest in all professional and business relationships. It also implies fair
dealing and truthfulness. Zia's purchase of shares for his family was not an honest act in respect of his professional
duty.
Objectivity

A member should be unbiased, however, his decision making input will become biased as he had already invested in
those shares in anticipation of rising prices after acquisition.
Confidentiality

Zia has also breached confidentiality principle as he used confidential information acquired as a result of professional
and business relationship for personal advantage.

The only apparent threat involved in this transaction is self-interest threat as his action was for the benefit of his
close family members.

Solution No. 6
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Breach of principles by CFO:
- CFO is not following objectivity and Integrity as he wishes to show higher profits by misstating financial
Statements
- He is also not following Professional behavior as he is asking another member of ICAP to indulge in
fraudulent activity.

Potential threats to Atif:

- Atif is facing Self interest threat as he too would be entitled to an additional bonus.

- He may also face Intimidation threat as denying his CFO may cost his employment.

Possible safeguards:
If these threats are significant, following safeguards should be applied to reduce threats:
- Consult with superiors such as audit committee or those charged with governance or other professional
body.
- Where it is not possible to reduce threat to acceptable level, Atif should refuse to remain associated
with the financial information.
- Atif may consider to obtain legal advice or resign from job.

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AAFR Ethics

Solution No. 7

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Breach of principles by CEO:

- CEO is not following objectivity and Integrity as he is involved in a fraudulent activity which will

eventually result in generating bogus sales.

- He is also not following Professional behavior as he is asking another member of ICAP to indulge

in a fraudulent activity.

Potential threats to Usman:

- Usman is facing Self interest threat as he too would be entitled to an additional bonus.

- He may also face Intimidation threat as denying his CEO may cost his employment.

Possible safeguards:

If these threats are significant, following safeguards should be applied to reduce threats:

- Consult with superiors such as audit committee or those charged with governance or other

professional body.

- Usman should refuse to process such payment.

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- Usman may consider to obtain legal advice or resign from job.

Solution No. 8

Breach of principles by Abid:

- Abid is not following objectivity and Integrity as he is sacrificing benefit of CL in favor of his son's interest by
entering into a financing arrangement at higher interest rates.
- He is also not following Professional behavior as he is asking another member of ICAP to indulge in an unfair deal
for CL.
Potential threats to Umer:
- Umer may face Intimidation threat as denying his CFO may cost his employment.
Possible safeguards:
If these threats are significant, following safeguards should be applied to reduce threats:
- Consult with superiors such as audit committee or those charged with governance or other professional body.
- Umer should refuse to proceed with this transaction
- Umer may consider to obtain legal advice or resign from job.

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AAFR Ethics

Solution No. 9

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Breach of principles by Shahid:
- Shahid is not following professional behavior principle as he has not followed regulations pertaining to
confidential information.
- He is also not following confidentiality principle as he has provided confidential information for the
benefit of his personal friend

Potential threats to Baqir:

- Baqir may be facing familiarity threat as his friend has sought his advice for his benefit. [Alternatively it
can also be considered as self-interest threat as it relates to Baqir’s close friend.]
- He may also be facing intimidation threat because if he criticizes Shahid for not following confidentiality
principle

Possible safeguards:
If these threats are significant, following safeguards should be applied to reduce threats:
- Baqir should consult with superiors such as audit committee or those charged with governance or other
professional body.
- Baqir should refuse to disclose confidential information to Zahoor
- Baqir may consider to obtain legal advice
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Solution No. 10
In the given situation, Junaid may be in breach of the following fundamental principles of Code of Ethics for Chartered
Accountants:

(i) Professional behavior:

This principle imposes an obligation on all chartered accountants to comply with relevant laws and regulations
and avoid any action that discredits the profession. Junaid has breached this principle as his proposed
suggestion in respect of incorporation of the new revaluation report is not in accordance with IAS 16. Under IAS
16, carrying amount of property carried at revaluation model should not be materially different from its fair
value so his proposal is against the requirement of IAS 16.

(ii) Integrity:
Chartered Accountant should be straight forward and honest in all professional and business relationship. It
seems that Junaid’s decision to defer the maintenance of plant despite warning of production manager in
terms of safety of plant and non-incorporation of new annual report in financial statement would make them
misleading.

(iii) Objectivity:
Chartered Accountant should not compromise his professional or business judgment because of bias, conflict
of interest or the undue influence of others. In this circumstance, he has compromised his professional and
business judgment by proposing unethical/unlawful measures to just improve the falling profit of the company.

Potential threats:
Amir may face following threats:
Mirza Ali Hassan
AAFR Ethics

(i) Self-interest threat:

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Amir may face self-interest threat as the disbursement of his car loan may be at stake if he refuses to obey the
instructions.

(ii) Intimidation threat:

Amir may face intimidation threat from Junaid as refusal to obey instruction may risk his job.

Safeguards:
Identified threats are significant as the CFO is being instructed from the highest level of management. In order to reduce
the threat to an acceptable level, one or more of the following safeguards should be applied:
(i) Discuss the matter with CEO and persuade him to follow code of ethics.
(ii) Consider informing appropriate authorities like audit committee.
(iii) Refuse to implement the given proposals.
(iv) Seek legal advice.
(v) Resign.

Solution No. 11
Change in net profit: Rs. in million
Increase in depreciation expense 22.82(W-1)÷4.5 (5.07)
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Increase in finance cost 22.82(W-1)×12% (2.74)
Decrease in net profit (7.81)

Change in assets:
Increase in property, plant and equipment 22.82–5.07 17.75

Change in liabilities:
Increase in decommissioning liability 22.82+2.74 25.56

W-1: PV of change in decommissioning liability 22.82[(88–50) ×1.12‒4.5

(b) In the given scenario, Jamal may be in breach of the following fundamental
principles of Code of Ethics for Chartered Accountants:

(i) Principle of integrity:

Chartered Accountant should be straight forward and honest in all
professional and business relationships. It seems that the decision to
defer incorporation of new decommissioning cost would make
financial statements misleading.

(ii) Principle of professional behaviour:

This principle imposes an obligation on all chartered accountants to comply with the relevant laws and
regulation and avoid any action that discredits the profession. Jamal has breached this principle as his
decision to defer incorporation of new decommissioning cost is not in accordance with IFRSs

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