Chap 6 Code Of Ethics

Question 1

Integrity

Answer 1

•Be straightforward and honest
•Not to associate with false reports or information
Disassociate if so.

Question 2

Objectivity (independence)

Answer 2

•Not to compromise judgement because of influence, bias, conflict of interest
•Don’t perform service if judgement may be influenced

Question 3

Confidentiality

Answer 3

Auditor and others working with him
Don’t disclose
Don’t use
It applies to •Ex and prospective client
•Within the firm
•social environment

Question 4

Exception of confidentiality

Answer 4

1. Authorised by client
2. Required by law (legal proceeding (judge), Non compliance with laws and regulations disclose to NAB)
3. Professional right/ duty to disclose
   •QCR - quality control review (stock count kiya ya nhi ICAP)
   •investigation (secp kahe)
   •Comply with standard or ethics (lawyer ko batao to review work done)
   •Interes in legal proceeding (auditor pe case hojaye)

Question 5

Factors to consider in deciding disclosure

Answer 5

1. Information known and substantiated (verified)
2. Interest of third parties
3. Proposed type of communication (oral or written)
4. Addressee and whether they are appropriate recipients

Question 6

Application of Code of ethics

Answer 6

1. If law prevents compliance
   •follow law
2. If compliance will not be in public interest
   •consult with professional/regulatory body
3. If compliance with one principle conflicts with others
   •consult with other appropriate individuals
   •Apply safeguards

Question 7

General safeguards

Answer 7

Notify firm about interest
Dispose off interest (all or upto immaterial)
Remove relevant member from audit team
Appoint appropriate reviewer

Question 8

Factors evaluating significance

Answer 8

Nature of relationship
Position of individual working at client
Postion of indv in audit team
Materiality of financial interest
Ordinary course of buss
Period/time
Nature of work

Question 9

Threats

Answer 9

1. Self interest
2. Familiarity
3. Self review
4. Intimidation
5. Advocacy

Question 10

Self interest threat?

Answer 10

Judgement or behavior of an assurance team member will be inappropriately influenced becoz of financial internet of member (or his relative) in audit client

Question 11

Familiarity?

Answer 11

Assurance team member will be too sympathetic to the interest of client because of long or close relationship

Question 12

Self review

Answer 12

Assurance team member will not appropriately evaluate work performed by himself or his team in separate non assurance engagement

Question 13

Intimidation

Answer 13

Assurance team member is deterred from acting objectivity because of threats, undue influence or pressure

Question 14

Advocacy

Answer 14

Assurance team member will promote client’s position on a matter (to third parties) and comprise his objectivity

Question 15

Fee less than predecessor auditor

Answer 15

Should not quote unless scope and quantum of work is materially different from previous year

Question 16

Contingent fee means

Answer 16

Means based on outcome eg. profit, type of opinion, success of case, or saving in tax

Question 17

Referral fee or commission
Threat

Answer 17

Self interest threat to compliance with objectivity and professional competence and due care is created if CA pays or receives referral fee or receives commison

Question 18

Course of action for referral fee threat

Answer 18

Disclose the arrangement to client
Obtain advance agreement from client

Question 19

Business relationship

Answer 19

1. Partnership or joint venture with client
2. Client obtain goods/other services from team member

Question 20

Threats of Business Relationship

Answer 20

1. Self interest threat
2. Intimidation threat

Question 21

Business relationship safeguards

Answer 21

1. If insignificant, no action
2. If significant
   Reduced to insignificant level
   Remove or firm should withdraw

Question 22

Purchase of goods and services (by auditor) Threat

Answer 22

Self interest

Question 23

Purchase of goods and services (factors)

Answer 23

1. Whether normal course of business
2. Whether tendering process were followed
3. Whether undue favour accepted
4. Magnitude of transaction

Question 24

Inducement examples

Answer 24

1. Gift
2. Hospitality
3. Entertainment
4. Political or charitable donation (by client to partner)
5. Appeal to friendship and loyalty (friend request)
6. Preferential treatment ( PCB k tickets)

Question 25

Inducement threat

Answer 25

Self interest threat Familiarity Intimidation threat

Question 26

Safeguard (inducement)

Answer 26

Significant inducement do not accept Disclose and documented If accepted by team then . Return or reimburse . Remove form team . Work should be reviewed

Question 27

Safeguard of purchase of goods and services

Answer 27

If threat is significant reduce Or if past transaction then remove member

Question 28

Listed client is

Answer 28

A public interest entity

Question 29

Accounting and book keeping services

Answer 29

**Self review threat** If client is listed company/public interest entity - Cannot be provided to an audit client If client is an unlisted company - routine or mechanical procedure can be provided

Question 30

Examples of accounting and book keeping services

Answer 30

Recording transaction approved by client Posting transaction to ledger and trail balance Preparing f/s based on trial balance and information from client approved records

Question 31

Safeguards of accounting and bookkeeping

Answer 31

1. Use different professionals to perform services 2. Appoint appropriate reviewer

Question 32

Actual or threatened litigation threat

Answer 32

Self interest threat Intimidation threat

Question 33

Factors evaluating actual or threatened litigation

Answer 33

Materiality of litigations Whether litigation related to prior audit Engagement

Question 34

Safeguards of litigation

Answer 34

Remove the individual or refuse the Engagement (if firm involve) Appoint appropriate reviewer

Question 35

Compensation and evaluation policies Threat

Answer 35

Self interest threat

Question 36

Action/safeguards - Compensation and evaluation policies

Answer 36

Revise compensation plan Remove individual from audit team

Question 37

Tax services- Tax return

Answer 37

Do not create any threat

Question 38

Assistance in resolution of tax dispute

Answer 38

Threat : self review Advocacy

Question 39

Tax calculation threat

Answer 39

Self review

Question 40

Factors to evaluate tax calc threat

Answer 40

Materiality Nature of client (listed or unlisted)

Question 41

Safeguard of tax calculation

Answer 41

Not allowed for listed co For other case Separate team Independent reviewer

Question 42

Assistance in resolution of tax dispute safeguards

Answer 42

Not allowed if material For other case Separate team Independent reviewer

Question 43

Aaap bande bhejo

Answer 43

Temporary personnel assignment

Question 44

Aap f/s bana kar do

Answer 44

Accounting and book keeping

Question 45

Content of Engagement letter

Answer 45

1. The purpose and scope of the audit 2. Identification of the applicable financial reporting framework 3. The responsibilities of the auditor 4. The responsibilities of the magmt 5. Reference to the expected form and content of report + statement of change

Question 46

Content of Engagement letter

Answer 46

1. Elaboration of scope of audit 2. Inherent limitation of audit and internal control 3. Arrangement of planning and perf of audit 4. Fee or basis of fee 5. Agreement to inform subsequent event 6. Expectation to provide written reps and other information 7. Reference to any other communication/ agreement 8. Involvement of predecessor auditor, expert, internal auditor, quality control reviewer, component auditor 9. Providing working papers to other parties