Chapter 14

Question 1

what are the aims of ethical codes?

Answer 1

• 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

Question 2

why is it important for professional accountants to act ethically?

Answer 2

• hold position of trust with investors, managers, employees, banks, the public and other stakeholders relying on their work

Question 3

what are the sources of ethical guidance?

Answer 3

• ICAEW Code of ethics
• FCR (financial reporting council) Ethical Standard
• IESBA Code of Ethics

Question 4

what is the IESBA Code of Ethics?

Answer 4

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

Question 5

What is the ICAEW code of ethics?

Answer 5

same principles is the IESBA code of ethics but applies to any employees working within member firms of the ICAEW

Question 6

what is the FRC ethical standards?

Answer 6

apples to UK auditors

Question 7

what are the 2 main approaches to ethical guidance?

Answer 7

principles based and rules based

Question 8

what is the principles based approach to ethical guidance?

Answer 8

• 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.

Question 9

What is the rules based approach to ethical guidance?

Answer 9

• 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.

Question 10

what approach is taken by most accountants?

Answer 10

principles based- including IESBA, ICAEW and FRC

Question 11

who is the issuing body of the IESBA code?

Answer 11

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.

Question 12

what are the 5 ethical principles the IESBA code contains?

Answer 12

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour

Question 13

what is meant by independence?

Answer 13

• 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

Question 14

what are the 3 steps the IESBA code sets out that accountants should take with independence issues?

Answer 14

1. identify threats
2. evaluate significance of threat
3. identify and apply safeguards

Question 15

what are safeguards?

Answer 15

steps that the accountant can take to eliminate the treat or reduce it to an acceptable level

Question 16

what happens if there are no safeguards available?

Answer 16

• eliminate interest or activities causing the threat
• decline or discontinue engagement

Question 17

what are the 5 threats to independence?

Answer 17

• self interest threat
• self review threat
• familiarity threat
• advocacy
• intimidation

Question 18

what is meant by advocacy?

Answer 18

the auditor takes management side, adopting a position closely aligned with management

Question 19

what are the 2 safeguards the IESBA Code identify which can be used to eliminate threats?

Answer 19

• Safeguards created by the profession, legislation or regulation
• Safeguards within the work environment

Question 20

what are examples of safeguards created by the profession, legislation or regulation

Answer 20

• education and training
• continuing professional development requirements
  -corporate governance regulations
• professional standards
• monitoring of professional work including disciplinary proceedings
• external reviews

Question 21

what are examples of safeguards within the work environment

Answer 21

• review procedures
• consultations with third parties
• rotation of senior staff
• discussions with those charge
• disclosing fees and services to those charged with governance

Question 22

what are the rules with the ICAEW code of ethics?

Answer 22

• 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

Question 23

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

Answer 23

-self review
- advocacy

Question 24

which ethical standard must UK auditors comply with?

Answer 24

FRC Ethical Standard

Question 25

what are the threats identified as part of the FRC ethical standard?

Answer 25

• same 5 as the threats to independence PLUS
• management threat- where the auditor becomes closely aligned with the views and interests of management

Question 26

Which of the following ethical threats applies to UK auditors only?
- self review
- familiarity
- advocacy
- management

Answer 26

management