3 Ethics and acceptance

Question 1

What does professional accountants have a responsibility for?

Answer 1

To act in the public interest

Question 2

What is independance?

Answer 2

Independence is freedom from situations and relationships would be perceived to be impaired by a reasonable and informed third party.

Question 3

What are the two approaches to ethical guidance?

Answer 3

Principle based and rules based

Question 4

What approach does the conceptual framework relies on?

Answer 4

Rules-Based approach

Question 5

What does the principle based approach encourage accounts to do?

Answer 5

Use judgement

Question 6

What does the ethics based approach encourage?

Answer 6

May encourage accounts to interpret requirements narrowly in order to get round the spirit of the requirements.

Question 7

What are the 5 fundamental ethical principles?

Answer 7

1. Integrity
2. Objectivity
3. Professional behaviour
4. Professional competence and due care
5. Confidentiality

Question 8

What is the definition of integrity?

Answer 8

Members should be straightforward and honest in all professional and business relationships

Question 9

What is the definition of objectivity?

Answer 9

Members should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

Question 10

What is the definition of professional behaviour?

Answer 10

Members should comply with relevant laws and avoid any action that would discredit the profession.

Question 11

What is the definition of confidentality?

Answer 11

Information on clients must not be disclosed without appropriate authority or used for personal advantage or members or third parties.

Question 12

What is the definition of professional competence and due care?

Answer 12

Members should maintain professional knowledge and skill at an appropriate level and should act diligently ub accordance and professional standards.

Question 13

What are the threats to independence?

Answer 13

Self Interest
Familiarity 
Self review
Advocacy
Intimidation

Question 14

What is a self interest threat?

Answer 14

Where the auditor has a financial or other interest that will inappropriately influence their judgement or behaviour

Question 15

What is a familiarity threat?

Answer 15

The auditor becomes too sympathetic to or trusting of a client and loses professional scepticism

Question 16

What is a self review threat?

Answer 16

The auditor will be unlikely to admit to errors in their own work, or may not identify the error in their own work

Question 17

What is a advocacy threat?

Answer 17

Promoting the position of the client or representing them in some way

Question 18

What is a intimidation threat?

Answer 18

Actual or perceived threat pressures from the client, or attempts to exercise undue influence over the assurance provider.

Question 19

What are some examples of self interest threats?

Answer 19

Owning shares, fee dependancy, gifts and hospitality, employment with the client, overdue fees

Question 20

What are some examples of familiarity threats?

Answer 20

Long association
Personal relationships
Movement of staff between staff/client

Question 21

What are some examples of self review threats?

Answer 21

Self reviewing, accounts prep, internal audit, tax calculations

Question 22

What are some examples of advocacy threats?

Answer 22

Representing the client, promoting the client or negotiating on the clients behalf

Question 23

What are some examples of intimidation threats?

Answer 23

Fee dependancy, audit partner leaves to join the client, personal relationships and litigation with the client

Question 24

When can confidential information about a client be released?

Answer 24

1. Permitted by law and is authorised
2. Required by law
3. Professional duty or right to disclose when not prohibited by law

Question 25

What can a conflict of interest arise?

Answer 25

When a audit firm is appointed for two companies that interact with each other

Question 26

What must an audit firm do when conflict on interest arises?

Answer 26

Work must be arranged to avoid the interests of one being adversely affected. The firm must contact all affected parties and obtain consent.

Question 27

What safeguards should be put in place when a conflict of interest arises?

Answer 27

Separate engagement teams, procedures to prevent access to information, signed confidentiality agreements by the team members, regular review of the applications of safeguards by an independent partner.

Question 28

What does ISA 210 Agreeing the terms of audit engagements require?

Answer 28

1. Determine whether the financial reporting framework to be applied in the preparation
2. Agreement of management that is acknowledge and understands its responsibilities (preparing statements, internal control necessary for the preparation to be free from material misstatement, providing the auditor with access to information)