Code of Ethics

110.1 The principle of integrity imposes an obligation on all Members to be straightforward and honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness.

110.2 A Member shall not knowingly be associated with reports, returns, communications or other information where the Member 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.

When a Member becomes aware that the Member has been associated with such information, the Member shall take steps to be disassociated from that information.

110.3 A Member will be deemed not to be in breach of paragraph 110.2 if the Member provides a modified report in respect of a matter contained in paragraph 110.2. 18

120.1 The principle of objectivity imposes an obligation on all Members not to compromise their professional or business judgment because of bias, conflict of interest or the undue influence of others.

120.2 A Member may be exposed to situations that may impair objectivity. It is impracticable to define and prescribe all such situations. A Member shall not perform a Professional Service if a circumstance or relationship biases or unduly influences the Member's professional judgment with respect to that service.

Application of the Conceptual Framework Approach to Independence

291.100 Paragraphs 291.104 to 291.159 describe specific circumstances and relationships that create or may create threats to Independence. The paragraphs describe the potential threats and the types of safeguards that may be appropriate to eliminate the threats or reduce them to an Acceptable Level and identify certain situations where no safeguards could reduce the threats to an Acceptable Level. The paragraphs do not describe all of the circumstances and relationships that create or may create a threat to Independence. The Firm and the members of the Assurance Team shall evaluate the implications of similar, but different, circumstances and relationships and determine whether safeguards, including the safeguards in paragraphs 200.11 to 200.15 can be applied when necessary to eliminate the threats to Independence or reduce them to an Acceptable Level.

291.101 The paragraphs demonstrate how the conceptual framework approach applies to Assurance Engagements and are to be read in conjunction with paragraph 291.28 which explains that, in the majority of Assurance Engagements, there is one responsible party and that responsible party is the Assurance Client. However, in some Assurance Engagements there are two or more responsible parties. In such circumstances, an evaluation shall be made of any threats the Firm has reason to believe are created by interests and relationships between a member of the Assurance Team, the Firm, a Network Firm and the party responsible for the subject matter. For assurance reports that include a restriction on use and distribution, the paragraphs are to be read in the context of paragraphs 291.21 to 291.27.

291.102 Interpretation 2005-01 provides further guidance on applying the Independence requirements contained in this section to Assurance Engagements.

291.103 Paragraphs 291.104 to 291.120 contain references to the materiality of a Financial Interest, loan, or guarantee, or the significance of a business relationship. For the purpose of determining whether such an interest is material to an individual, the combined net worth of the individual and the individual's Immediate Family members may be taken into account.

220.1 A Member in Public Practice shall take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may create threats to compliance with the fundamental principles. For example, a threat to objectivity may be created when a Member in Public Practice competes directly with a client or has a joint venture or similar arrangement with a major competitor of a client. A threat to objectivity or confidentiality may also be created when a Member in Public Practice performs services for clients whose interests are in conflict or the clients are in dispute with each other in relation to the matter or transaction in question.

220.2 A Member in Public Practice shall evaluate the significance of any threats and apply safeguards when necessary to eliminate the threats or reduce them to an Acceptable Level. Before accepting or continuing a client relationship or specific engagement, the Member in Public Practice shall evaluate the significance of any threats created by business interests or relationships with the client or a third party.

220.3 Depending upon the circumstances giving rise to the conflict, application of one of the following safeguards is generally necessary:

(a) Notifying the client of the Firm's business interest or activities that may represent a conflict of interest and obtaining their consent to act in such circumstances; or

(b) Notifying all known relevant parties that the Member in Public Practice is acting for two or more parties in respect of a matter where their respective interests are in conflict and obtaining their consent to so act; or

(c) Notifying the client that the Member in Public Practice does not act exclusively for any one client in the provision of proposed services (for example, in a particular market sector or with respect to a specific service) and obtaining their consent to so act.

220.4 The Member in Public Practice shall also determine whether to apply one or more of the following additional safeguards:

(a) The use of separate Engagement Teams;

(b) Procedures to prevent access to information (e.g., strict physical separation of such teams, confidential and secure data filing);

(c) Clear guidelines for members of the Engagement Team on issues of security and confidentiality;

(d) The use of confidentiality agreements signed by employees and partners of the Firm; and

(e) Regular review of the application of safeguards by a senior individual not involved with relevant client engagements.

220.5 Where a conflict of interest creates a threat to one or more of the fundamental principles, including objectivity, confidentiality, or professional behaviour, that cannot be eliminated or reduced to an Acceptable Level through the application of safeguards, the Member in Public Practice shall not accept a specific engagement or shall resign from one or more conflicting engagements. 32

220.6 Where a Member in Public Practice has requested consent from a client to act for another party (which may or may not be an existing client) in respect of a matter where the respective interests are in conflict and that consent has been refused by the client, the Member in Public Practice shall not continue to act for one of the parties in the matter giving rise to the conflict of interest.

QUESTION 1

(a) You are working as the CFO of Jeans Co. The company is currently seeking a new supplier for their goods. There are two main suppliers of choice, XYZ Ltd and ABC Ltd. The contract would be worth over $2 million in sales per annum to the successful supplier. You also own a large majority of the shares as shareholder in

XYZ Ltd. The directors have asked you for a recommendation.

Required:

Discuss the ethical issues involved in this situation.

What would be the best course of action by you as manager?

QUESTION 2

(a) Comment on the following three (3) ratios and provide analysis on the profitability, asset efficiency and liquidity of the entity: