6. Threats and Safeguards to Fundamental Ethical Principles Flashcards
When providing other services for clients, what must you do?
-make recommendations
-DON’T make management decisions
-DON’T take responsibility for management decisions
What is a principle based approach?
-identify, evaluate and address threats to their compliance with the principles
What is the rules based approach?
-following a set of rules
What are the advantages of the principles based approach?
-applicable to all circumstances as you can evaluate
-less chance of finding loopholes
What are the 5 types of threats to accountants in practice?
- self interest
- self review
- familiarity
- intimidation
- advocacy
What are self interest risks?
-these may occur where a financial or other interest will wrongly influence the accountant’s behaviour
Where can self interest risks arise?
-direct or indirect financial interest in a client
-loans to or from a client
-holding a financial interest in a joint venture with a client
-concern about losing a client
-potential employment with a client
-discovering a significant error
What are self review threats?
-these may occur when an accountant has to re-evaluate a judgement or data they have previously produced
What are some example of self review threats?
-discover a significant error when reviewing work that they have previously carried out
-when you are asked to report on the operation of a financial systems after being involved in the design
-performing a service for a client then being involved in the assurance agreement
What is the familiarity threat?
-occur when you have a personal relationship with the client or a key member of the client’s staff
What are some examples of familiarity threats?
-preferential treatment
-long association between senior and client
-accountant who was formerly a partner, is now an employee at the client
What are intimidation threats?
-when you may be deterred from acting objectively because of real or perceived threats
What are some examples of intimidation threats?
-threat to dismiss the accountant by the client
-litigation
-pressure to reduce quality to reduce fees
-pressure to agree with client as they have more ‘experience’
What does advocacy mean?
-you are seen to support the client’s point of view publicly
-you go beyond the advisory role to actively speak
What are some examples of advocacy?
-promoting shares in a listed entity when the entity is an audit client
-acting as an advocate on behalf of an assurance client in litigation
