ICAEW Code of Ethics vs CISI Code of Conduct - Essay Example

ICAEW of Ethics, CISI of Conduct and Tax Avoidance 13 April Comparison between ICAEW of Ethics and CISI Code of Conduct Every professional organisation, company, nongovernmental organisations or any institution has codes of ethics and conduct that guide its members how they carry themselves. According to Bucholtz and Carroll (2012), the codes help the organizations in establishing good relationships with their clients and customers, thus balancing their pursuit of autonomy and the requirement for accountability. The primary aim of the codes of ethics is to articulate highest behavioural standards in the organizations. Therefore, a code of ethics can be clearly understood as established principles of an organization that influence how staff and members carry and conduct themselves (Fisher and Lovell, 2006). The code of ethics is developed by a professional body such as the ICAEW and often, it is monitored and enforced by the body especially where governmental regulations are of little or no effect. Members are, therefore, to follow the code in order to be in good standing with the institution or organization. Ethics is concerned with operations of the organization; thus to handle client relationships, a code of conduct is required in an institution. The code of conduct refers to a practical document of set standards and principles that govern client relationships with staff members in the organization. The Institute of Chartered Accountants in England and Wales (ICAEW) defines a professional code of conduct that accountants are supposed to follow. It is applicable to everyone affiliated to ICAEW, i.e. students, staff members and employees of member firms in professional and business activities. According to the CISI code of conduct, members are required to demonstrate high standards of professional conduct and take into consideration the interests of the general public. Ethical behaviour is essential in gaining public trust in financial reporting and business practice hence to uphold ones accountancy reputation ICAEW outline the principles under which the accountants should operate. Similarly, the Charted Institute of Security Investment (CISI) has a code of conduct that aims at boosting banking finance integrity through raising professional standards of the financial services offered. According to CISI, an essential component of professionalism is integrity that is the effective recipe of knowledge skills and behaviour. In essence, both the ICAEW code of ethics and the CISI code of conduct are concerned with professionalism For CISI, the professionals who operate in the securities and investment industry are obligated to the clients, the industry, market, and society. The obligations are outlined in regulations thence they must adhere and comply with them in a transparent manner to meet institutions underlying principles. Similarly, the ICAEW code of ethics applies to all members and affiliates and they are required to demonstrate professional behaviour when handling business or organization matters. Goodwin (2000) asserts that, Individual behaviour affects organizational reputation thence members are expected to show proper behaviour to help build the reputation of the organization thus gaining public approval. In general both CISI and ICAEW codes stress individual behaviour and members are therefore required to carry themselves diligently within and outside the business. The ICAEW code follows guidance stipulated in the basic principles of professional and business activities in a similar way as the CISI ethical code that follows the principles of investment and security. Both should be followed to the later by the professional accountants otherwise failure will bring discredit to the profession and hence the institution. Accountants are therefore required to follow certain requirements that include prohibition or mandatory actions that are analogous to the issues that are addressed. Failure to adhere to the guideline may be justified in both cases if the principles are not followed to the latter. Any individual actions are likely to affect the firm thus failure may result in financial loss and tainting the reputation of the company. The bottom line for both codes is to cultivate a culture of transparency, trust integrity, and greater professionalism which will boost the general public’s confidence thus growing the reputation of the firm in the market. Therefore, the accountants responsibility does not solely rely on them satisfying personal needs or the employer but they should strive to act in the interest of the general public through compliance with the code. Professional behaviour applies to both codes in that, an individual supposed to comply with the relevant rules and regulations to avoid any action that may discredit the profession. Professionalism requires one to present himself in courteous way in consideration to who they are associating with in the cause of their work. When members find themselves in situations that may make them breach the principles the ICAEW ethical code and the CISI code of conduct have outlines in place that are to be followed. The chartered institute for securities and investment has it that if members find themselves in a position contrary to the principles of the code they should report to the relevant authority or seek guidance from their compliance department (Higgs-Kleyn and Kapellians, 1999). Further, they are advised to approach non-executive directors or the firm for any clarification. In contrast, the ICAEW Code entitles the accountant with the responsibility to handle whichever difficult situations they find themselves. The accountant should follow the laid framework to identify any threats regarding compliance with the basic principles and then evaluate the extent of the identified risks. He is obligated with the responsibility to apply safeguards where applicable to minimize or eliminate the risks. Safeguard are essential when one determines the scale of the risks when they will require third party involvement that is likely to make conclusions on the facts presented by the accountant. Therefore, there is a difference in the approach followed when handling threats or non-compliance with the fundamental principles of the code as one should be channelled through the structure, and one remains solely on the accountant. Confidentiality is one of the basic principles that are common to both codes in that the accountant is required to respect client information by keeping it secure. Davidson (2010) affirms that information confidentiality is essential in professional and business relationships hence disclosure of any information to third parties without proper authorization is prohibited. Confidential information can only be revealed in situations where there is legal or professional right to disclose. It not only requires one to keep the information confidential but also calls for the accountant to take the necessary measures to preserve it. The best approach for professional accountants to take is the assumption that all information about clients or employee in whichever manner attained should be kept secret. It is punishable to use the information for the individual advantage of the accountant or third parties as it depicts a sign of unprofessionalism. Members are required to exhibit professional competence and due care in maintaining knowledge and skills at the required level to make sure that both client and employer get competent services based on developments in practice and legislation techniques. Keeping the information confidential does not just stop on the accountants only but it extends to clients, employers and any affiliated parties from whom information might have been sourced. Although the principle does not prevent one from using skills acquired elsewhere it, however, limits one from using that may be obtained from the access to confidential information. Integrity is of essence according to both codes as members are required to be straightforward and transparent in professional and business activities. According to the CISI, the accountant is supposed to act with professional integrity in fulfilling his duties and should avoid any acts of omission or business malpractice that may bring the firm’s reputation into question. ICAEW ethical code imposes an obligation for the accountant to be honest and straightforward in all professional and business activities. In both cases, therefore integrity is important and individuals are required to exercise just dealings and truthfulness. Both codes require an accountant not to associate themselves with false or misleading information regarding their profession. Obscuring or omitting information that is essential or furnishing information recklessly is considered a breach of the conduct as it brings the integrity of the work under scrutiny. In the event, an accountant finds themselves in such situation they should try their best to dissociate themselves by following the right channels. Effectiveness of ICAEW Code in Tax Planning ICAEW stipulates the illegality of evading tax and the consequence of such action is punishable hence members are obliged to follow necessary laws. ICAEW member should at no circumstance whether knowingly or unknowingly engage in actions related to tax evasion and members are advised to act for clients who comply. Therefore considering this, tax planning is necessary for any corporation and taxpayers are required to plan their activities within the law to reduce the amount of tax they pay (Myles, 2000). Involving in tax avoidance could subject the ICAEW member and client to significant compliance requirements, investigations and scrutiny from the general public and other stakeholders thus tainting the reputation of the corporation. Of the fundamental principles of ICAEW individual reputation and that of the organization are essential thus following the code is profound. Avoidance is an evolving niche that depends on the complex tax legislations rules in various countries, different interpretation of the laws and varying perceptions of affiliated stakeholders. Members of ICAEW, therefore, are required to ensure the basis of tax planning is legal and clearly documented to avoid any misleading language. According to Murphy (2013), the United Kingdom faces serious incidences of tax avoidance from multinational corporations such as Google and Amazon, who deal in large scale business in the country. Although the British tax system is complex, the international framework governing multinational companies seems to be more complex. These complexities between national and international tax regulations and the nature of global businesses offer an avenue of manipulating the system hence reducing or avoiding corporation tax by a shift of profits to low-tax jurisdictions. Exploiting the differences between the global economy and national tax codes makes payment of corporate tax by the multinationals in any country a voluntary matter adept of system manipulation. According to Bergin (2012), in the UK Starbucks reported in 2013 that they followed directives of customers and decided against particular deduction that could have made them liable to pay 10 million pounds in corporation tax and a further same amount the following year. It implies that Starbucks took advantage of the regulations to minimize its corporation tax liability in the UK and then opted to make a voluntary payment to avoid consumer boycott. It’s evident from the example that multinational companies have made payment of corporation tax a voluntary matter that is not a sound basis for a system of taxation. Similarly, Google made almost 400 million profits but paid only 6 million in corporate tax. Literary these companies are operating within the legal framework in that, what they are doing is avoidance and not evasion. Starbucks argument is that they are within the regulation in that the arms-length regulation shields them. Her majesty’s revenue and customs, UKs tax authority allows companies to make deductions for intellectual property fees provided the firms prove that the charges are made at arms length implying companies can show the agreements made even if they were not connected. Starbucks, therefore, says they have been abiding with the principle of arms length, even though their venture has not been profitable in the UK. ICAEW code of ethics holds that members who offer tax schemes that are aggressive bring the profession into disrepute under the laid down guidelines. The institutes help sheet sets out all the hallmarks of tax avoidances scheme that its members should consider. It warns of contrived tax planning that is against the code of ethics despite prior concerns from practitioners to hold them of negligence for failing to draw the attention of the client from all possible options. Issues of tax avoidance are growing on the limelight and the idea of Starbucks paying more tax voluntarily more than is legal calls for effectiveness in tax shaming. The issue of voluntary tax payment has a reputational effect on the company, and it seems odd in terms of the tax system (Schreiber, 2013). The ICAEW code of ethics safeguards the reputation of the business and members have to follow its code in matters of tax planning. Amazon, Google, and Starbucks are by no means distinctive in minimizing their tax liabilities in the UK. These corporate bodies try to lower their tax bill by exploiting inheritance tax rules or gifting to charity. A good example is Starbucks, who gave royalties to their Swiss counterparts from whom they purchase the coffee beans thus lowering the income taxable by the UK Exchequer. According to Seely (2013), however, the methods employed by these multinationals to make them tax efficient through avoidance have probably been working for their business practice. Issues though arise when there is feeling that the company has crossed the line, and their actions towards being tax efficient are not legally or morally appropriate. However, there are differences, and it becomes frustrating for other companies to pay large tax bills while some multinationals avoid paying such large sums. Therefore to provide a solution to the issue is to simplify the tax system so that the corporations do not take advantage of the loopholes in the tax regulations (Great Britain, 2013). Taxes ought to be simpler so as to minimize avoidance and relieve the burden of intricate tax code placed on companies who engage in malpractice. The ICAEW Code holds that any member who engages in activities of aggressive tax avoidance is liable to punishment. In the UK following the incidence of Starbucks, the rules were updated for the disclosure of tax avoidance schemes (Devereux, Freedman and Vella, 2012). Under the new updates members providing any tax avoidance schemes to their clients, could be compelled to disclose the clients to the taxman. There is also consultation into an anti-abuse rule that is designed to clamp down on the contrived tax avoidance schemes. The ICAEW help sheet provides members with some of the characteristics of tax avoidance schemes that are supposed to help them in tax planning. Members are warned to be wary when something sounds too good to be true, in the event that the activities involve contrived arrangements, or something proves difficult to what an individual intends to do. Confidential arrangements should always be questioned similarly to the upfront fees payable for these arrangements (Maynard, 2013). Among other factors that should be taken into consideration is accelerated or delayed taxation of income, disproportionate tax benefits, and involvement of offshore trusts for no commercial purposes, vetting of the scheme by a top accountant without provision of details of their opinion and banking secrecy among others. Conclusion What can be said is that the impact of a companys tax planning venture not only goes beyond what the company pays as a tax, but it also has reputational effects on the corporation. Given the different interpretations of the law, it is, however, necessary to encourage taxpayers to desist from transactions that seem perfectly compliant with the tax regulations but in the end dodges tax payment. The diversity of the issues raised pertaining tax avoidance must be disaggregated so as to come up with better ways to limit such behaviours that are considered unethical in a business sense. The reforms need to be carried out without deterring investment or unreasonably creating conflict with compliant taxpayers. However, some of the intricate issues that need to be addressed include the need to establish alternative tax structures that can curtail avoidance, foster investment and maintain international competitiveness. Strict penalties should be put in place to punish those organizations that avoid tax. Similarly, tax advisors who engage in such act should be punished for falling short of the laid down standards. References Bergin, T., 2012. Special Report: How Starbucks avoids UK taxes. Available: http://uk.reuters.com/article/2012/10/15/us-britain-starbucks-tax-idUKBRE89E0EX20121015. [Last accessed 28 September 2014]. Buchholtz, A. K. and Carroll, A. B., 2012. Business and Society: Ethics and Stakeholder Management, 8th Edition, South-Western, Cengage Learning. Fisher, C. and Lovell, A., 2006. Business ethics and values: individual, corporate and international perspectives, London: Prentice Hall. Davidson, A., 2010. How the City Really Works: The Definitive Guide to Money and Investing in Londons Square Mile. London: Kogan Page. Devereux, M., Freedman, J. and Vella, J., 2012. Review of DOTAS and the Tax Avoidance Landscape. [online] Available at: [Accessed 13 April 2015]. Great Britain, 2013. Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed? 1st Report of Session 2013-14: report. London: Stationery Office. Goodwin, B., 2000. Ethics at Work. Dordrecht: Kluwer Academic Publishers. Higgs-Kleyn N. and Kapellianis D., 1999. The Role of Professional Codes in Regulating Ethical Conduct, Journal of Business Ethics, 19, pp. 363-374. Maynard, J., 2013. Financial Accounting, Reporting, and Analysis. Oxford: Oxford University Press. Murphy, 2013. Over Here and Undertaxed: Multinationals, Tax Avoidance and You. [online] Available at: http://www.amazon.co.uk/Over-Here-Undertaxed-Multinationals-Avoidance-ebook/dp/B00BCZY378/ref=sr_1_1?ie=UTF8&qid=1408196783&sr=8-1&keywords=over+here+and+under+taxed+richard+murphy (Accessed 16 August 2014). Myles, G. D., 2000. Taxation and Economic Growth, Fiscal Studies, 21 (1), pp. 141-168. Schreiber, U., 2013. International Company Taxation an Introduction to the Legal and Economic Principles. Berlin: Springer. Seely, A., 2013. Tax Avoidance: A General Anti-Abuse Rule. Library Standard Note: SN6265, House of Commons, 9. Read More