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ACCA Applied Knowledge · Business and Technology · Regulation and financial crime

A professional accountant discovers that a client has deliberately understated income in a tax return. Which action is most consistent with the accountant's ethical and legal duties?

The accountant should advise the client to correct the return and, if the client refuses, consider the legal duty to report suspicions under money laundering rules and whether to withdraw. Confidentiality does not protect evasion, and amending the return secretly or repeating the approach would be improper.

  1. AIgnore it, as confidentiality prevents any further action
  2. BAdvise the client to correct the return, and consider the duty to report under money laundering rules if the client refusesCorrect
  3. CAmend the return secretly without telling the client
  4. DContinue the engagement and prepare next year's return in the same way

Explanation

Deliberate understatement is evasion, so the proceeds of it can amount to criminal property. The accountant should urge correction and, if the client refuses, consider reporting obligations and withdrawal. Confidentiality does not override legal reporting duties, and secret amendment breaches client authority.

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