AAA ETHICS Flashcards
What concern arises from business partnering with a client?
Self-interest concern may arise.
What issue does holding shares in a client create during an audit?
It creates a self-interest issue, potentially biasing the auditor towards the client. Adverse report will affect valuation of shares.
Who holding shares increases the threat during an audit?
If shares are held by a partner, the threat is higher due to greater influence on opinion.
Even if partner is not the engagement partner then also it creates threat as partner other partner is sufficient to influence opinion
What should be evaluated regarding ethical policies if someone holds shares during an audit?
It needs to be evaluated whether the firm’s ethical policies are operating effectively.
What should be done with shares held in a client entity?
Any such shares should be immediately sold.
What issue may arise when providing services to two clients in the same industry?
Confidentiality issues may arise.
A conflict of interest may be created as both clients may expect auditor to take actions to promote their interest and cause loss to other
Is it acceptable to provide services to two clients in the same industry?
Yes, it is normal as firms develop expertise in a particular area.
What can be done to address confidentiality issues when serving two clients in the same industry?
Separate teams can be used for each client.
What should team members sign when working with two competing clients?
An undertaking to ensure that data does not get disclosed.
How should both clients be informed about services provided to their competitor?
Both clients will be informed to avoid later claims of conflict of interest.
Undertaking from client may also get signed that they have knowledge of competitor audit and they will ensure that no unfair demands are made
What must be considered when accepting two clients from the same industry?
Whether the auditor has sufficient resources to handle both clients.
What should an auditor consider if auditing two competing clients and conflict of interest threat is high?
The auditor may consider resigning from one to resolve the conflict of interest.
What threat does a family member of an auditor in a client entity create?
1- A familiarity threat may arise.
May not be able to exercise independent skepticism.
2-Self interest threat: The auditor may not act independently to protect their family member.
3- intimidation threat-Family relations may intimidate the auditor to become biased.
What needs to be considered if a family member is involved in the audit?
The level of audit team member’s influence on the audit opinion.
The level of influence that family member has at client and whether they can influence FS
What should be done if a family member poses a familiarity threat?
The person must be immediately rotated from the audit team, OR assign an area of audit where family member cannot influence
Fees is overdue
-Consider the reason for overdue fees.
-Intimidation threat: may feel pressured that if he modifies opinion fees will get delayed
-Self interest threat if credit period was offered as auditor has receivable at client, and thus it is not allowed to conduct audit
-Politely decline for further engagement if dues not cleared
-Consider financial viabillity
What should an auditor do if a client does not agree to reasonable fees?
-consider whether the fees balance against the risk and work required. too low fees will sacrifice quality
-communicate to TCWG the Detail of hours required during engagement to encourage agreement for higher fees.
-if they dont agree then Politely decline the engagement as quality cannot be sacrificed.
How should samples be selected during an audit?
Samples should be a true representation of the entire population, not based on fees.
first stratify population then take sample from each proportion, this will ensure true representation
What should materiality levels be based on during an audit?
Materiality levels should be set according to the risk of the client.
Does auditor always have to perform substantive procedures? even if controls are effective?
Substantive audit procedures must be performed regardless of control effectiveness.
extent of these may depend on control effectiveness.
What should be discussed with TCWG regarding fees?
Discuss hours required and average cost of each audit team member, to justify the fees.
What should audit fees reflect?
Audit fees should reflect the work required and risk at the client, not the competitors fees
What should be considered when accepting a client in financial services or any other specialized industry
Whether the firm has relevant expertise.
What risk exists if a client deals in financial services?
A risk of money laundering may arise.
Legal concerns may arise for auditor.
What should be considered if a client has weak systems or controls?
Whether the client is at reasonable risk, otherwise may need to be rejected.
What should be taken from a client with weak systems before acceptance?
An undertaking to improve the control environment.
Risk when client is in financial difficulties
-They may be willing to manipulate accounts.
-May not be able to pay audit fees
-Going concern issue
What should be considered if a previous auditor has resigned?
The basis of the previous auditor’s resignation. Client may lack integrity or intimidating the auditor
What should be obtained before accepting a new client?
Professional clearance/ ettiquite letter from the previous auditor to understand reason
What should be done if the previous auditor does not respond?
The client should be asked to get the clearance letter. otherwise do not accept.
Inform the regulator about their failure to reply then accept engagement
What concern arises if a client asks for accompanying in bank loan negotiation?
-It creates a concern of advocacy as auditor is not allowed to promote client interest
-Risky from commercial perspective. The bank may sue the firm for providing false references.
-Consider role at meeting, just sitting , telling FS view or giving any guarantee?
-Politely decline would be best
What should be done if a client intimidates for client rotation?
-Intimidation threat, as due to undue influence auditor may be unable to exercise independent skepticism
-Discuss undue influence with TCWG as they are responsible to address auditors issues
-Allocate senior members so they dont come under influence
-Auditor may get biased, perform review
