Chapter 14 Flashcards
what are the aims of ethical codes?
- ensured qualified and trainee accountants observe proper standards of professional conduct
- help the accountancy profession act in the public interest by providing appropriate regulation of members
why is it important for professional accountants to act ethically?
- hold position of trust with investors, managers, employees, banks, the public and other stakeholders relying on their work
what are the sources of ethical guidance?
- ICAEW Code of ethics
- FCR (financial reporting council) Ethical Standard
- IESBA Code of Ethics
what is the IESBA Code of Ethics?
The IFAC Code of Ethics relates to the Code applied by the International Federation of Accountants. This code applies to all accountants globally, regardless of what accountancy body they are a member of, and whether or not they work as an auditor.
- it is issued by the IESBA
What is the ICAEW code of ethics?
same principles is the IESBA code of ethics but applies to any employees working within member firms of the ICAEW
what is the FRC ethical standards?
apples to UK auditors
what are the 2 main approaches to ethical guidance?
principles based and rules based
what is the principles based approach to ethical guidance?
- encourages accountant to use judgement
- requires compliance with the sprint of the guidance
- flexible so can be applied to new unusual or rapidly changing situations.
What is the rules based approach to ethical guidance?
- May be easier to follow because it is objective
- Needs frequent updating to ensure the guidance applies to new situations
- May encourage accountants to interpret requirements narrowly in order to get round the spirit of the requirements.
what approach is taken by most accountants?
principles based- including IESBA, ICAEW and FRC
who is the issuing body of the IESBA code?
The IFAC Code is issued by the International Ethics Standards Board for Accountants (IESBA). IESBA is IFAC’s ethics board
This code applies to all professional accountants.
what are the 5 ethical principles the IESBA code contains?
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
what is meant by independence?
- Assurance providers should be, and be seen to be independent.
- Independence is a state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgement
what are the 3 steps the IESBA code sets out that accountants should take with independence issues?
- identify threats
- evaluate significance of threat
- identify and apply safeguards
what are safeguards?
steps that the accountant can take to eliminate the treat or reduce it to an acceptable level
what happens if there are no safeguards available?
- eliminate interest or activities causing the threat
- decline or discontinue engagement
what are the 5 threats to independence?
- self interest threat
- self review threat
- familiarity threat
- advocacy
- intimidation
what is meant by advocacy?
the auditor takes management side, adopting a position closely aligned with management
what are the 2 safeguards the IESBA Code identify which can be used to eliminate threats?
- Safeguards created by the profession, legislation or regulation
- Safeguards within the work environment
what are examples of safeguards created by the profession, legislation or regulation
- education and training
- continuing professional development requirements
-corporate governance regulations - professional standards
- monitoring of professional work including disciplinary proceedings
- external reviews
what are examples of safeguards within the work environment
- review procedures
- consultations with third parties
- rotation of senior staff
- discussions with those charge
- disclosing fees and services to those charged with governance
what are the rules with the ICAEW code of ethics?
- Similar principles to the IESBA Code of Ethics
Differences: - applies to ICAEW members and trainees in all professional and business activities
- applies to personal activities such as volunteer roles
Preston and Co audits Sproatley Ltd. They also prepare their financial statements for them and provide taxation advice. Which ethical threats are created by this situation?
- self interest
- intimidation
- self review
- advocacy
-self review
- advocacy
which ethical standard must UK auditors comply with?
FRC Ethical Standard
what are the threats identified as part of the FRC ethical standard?
- same 5 as the threats to independence PLUS
- management threat- where the auditor becomes closely aligned with the views and interests of management
Which of the following ethical threats applies to UK auditors only?
- self review
- familiarity
- advocacy
- management
management
