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Assurance > Chapter 15 > Flashcards

Chapter 15 Flashcards

1
Q

what is objectivity

A

This is one of the fundamental principles.

  • a state of mind which excludes bias and has regard to all considerations relevant to the task in hand

This is particularly relevant for the auditor as they may have to scrutinise figures which contain bias from the client.

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2
Q

what is integrity

A

This is another one of our fundamental ethical principles.
- Implies not merely honesty, by fair dealing and truthfulness.

For an auditor this means not knowingly being associated with information that contains materially false or misleading statements, significant omissions, or has been produced recklessly.

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2
Q

what is independence?

A

this is not one of the fundamental ethical principles, but is relevant to an auditor
- freedom from situations and relationships that may lead a reasonable and informed third party to conclude that objectivity is impaired

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3
Q

What is the ethical guidance for (Self interest threat)- Financial Interest

A

the audit firm, nay partner in the firm or member of the audit team (or immediate family memebers) must not hold a financial interest in a client

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4
Q

What is the ethical guidance for (Self interest threat)- Business relationships

A

the audit firm must not participate in a business relationship with a client

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5
Q

What is the ethical guidance for (Self interest threat)- employment with audit firm and client

A

duel employment is prohibited

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6
Q

What is the ethical guidance for (Self interest threat)- audit partner leave to take up employment with a client as a director or in another key management position

A

the firm should resign as auditor

cannot take on the audit again for 2 years

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7
Q

What is the ethical guidance for (Self interest threat)- employee of audit firm negotiating employment with a client

A

employee to inform audit firm

firm to remove the employee from the engagement and perform a review of their recent work on the client

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8
Q

What is the ethical guidance for (Self interest threat)- close personal and family relationships

A

staff with close personal or family relationships with a member of client staff should not work on the engagement

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9
Q

What is the ethical guidance for (Self interest threat)- gifts and hospitality

A

do not accept gifts or hospitality from a client unless the value is trivial

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10
Q

What is the ethical guidance for (Self interest threat)- loans

A

loans from the auditor to client are prohibited

loans from client to auditor are prohibited unless made by a normal course of business

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11
Q

What is the ethical guidance for (Self interest threat)- overdue fees (akin to a loan)

A

consider resignation if fees remain unpaid

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12
Q

What is the ethical guidance for (Self interest threat)- contingent fees

A

contingent fees are prohibited

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13
Q

What is the ethical guidance for (Self interest threat)- fee dependence (non-listed client)

A

Fees exceed 10% of firms fee income:

  • disclose to ethics partner
  • disclose to those charged with governance at the client
  • implement independent quality management review of the audit

Fees exceed 15% of firms fee income:

cannot act as auditor

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14
Q

What is the ethical guidance for (Self interest threat)- fee dependence (listed client)

A

Fees exceed 5% of firms fee income:

  • disclose to ethics partner
  • disclose to those charged with governance at the client
  • implement independent quality management review of the audit
  • seek to reduce fees

Fees exceed 10% of firms fee income:

cannot act as auditor

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15
Q

What is the ethical guidance for (Self interest threat)- lowballing

A

firm may charge any audit fee but the engagement partner should document that adequate resources have been allocated in order t comply with Auditing and Ethical Standards

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16
Q

What is the ethical guidance for (Self interest threat)- fee cap for listed clients

A

Total fees from non-audit services must be no more than 70% of the average audit fee of the last 3 years

17
Q

What is the ethical guidance for (Self review threat)- client staff joins the audit firm

A

no involvement in the audit for 2 years

18
Q

What is the ethical guidance for (Self review threat)- audit staff complete loan assignment to client

A

it is prohibited for audit staff to be temporarily ‘loaned’ to a client

19
Q

What is the ethical guidance for (Self review threat)- accounting services offered to an audit client

A

non listed client: allowed with safeguards
- separate teams
- mechanical/ technical work only
- quality management review of audit

NOT ALLOWED with listed clients

20
Q

What is the ethical guidance for (Self review threat)- valuation services offered to an audit client

A

Non listed clients: not allowed if material and subjective
If immaterial item, allowed with safeguards:
- separate teams
- second partner review
- management acknowledge responsibility for valuation

listed clients NOT allowed if material

21
Q

Which two of the following safeguards would be suitable to reduce the threat arising from providing tax services to an audit client?
a) Use different teams for each service
b) keep the total fee as low as possible
c) review the audit testing of the tax work by an independent partner
d) regularly rotate the audit partner

A

a & c

22
Q

What is the ethical guidance for (Self review threat)- preparing tax calculations for accounting entries in an audit client

A

Non-listed clients: allowed with safeguards
- separate teams
- review of tax work by independent tax partner
- quality management review of audit

Listed clients: do not prepare tax calculations for the purpose of making material accounting entries

23
Q

What is the ethical guidance for (Self review threat)- internal audit services offered to an audit client

A

NOT allowed to listed or unlisted companies

24
Q

What is the ethical guidance for (Self review threat)- IT services offered to an audit client

A

IT services are prohibited for both unlisted and listed entries where they relate to the accounting or financial management system, or where they involved taking the role of management

25
Q

What is the ethical guidance for (Familiarity threat)- recruitment services provided to an audit client

A

Not allowed ever

26
Q

What is the ethical guidance for (Familiarity threat)- close family or personal relationships

A

Audit firm employees who have close relationships with client staff should not work on the audit

27
Q

What is the ethical guidance for (Familiarity threat) Long association scenarios: non-listed engagement partner

A
  • Review independence after 10 years.
  • Either rotate or continue with safeguards
28
Q

What is the ethical guidance for (Familiarity threat) Long association scenarios: Listed engagement partner

A

Rotate off after 5 years (can extend to 7 years with Audit committee approval)

  • no return for 5 years
29
Q

What is the ethical guidance for (Familiarity threat) Long association scenarios: Listed quality management review partner

A
  • rotate off after 7 years
  • no return for 5 years
30
Q

What is the ethical guidance for (Familiarity threat) Long association scenarios: Non-listed client becomes listed engagement partner

A
  • take previous questions into account
  • if already served more than 4 years can only serve for 2 more years
  • no return for 5 years
31
Q

What is the ethical guidance for (Familiarity threat) Long association scenarios: Listed other senior staff

A

review independence after 7 years

32
Q

What is the ethical guidance for (Advocacy threat): Corporate finance services offered to audit client

A
  • The firm is not allowed to promote, deal in or underwrite a clients shares.
  • If offered risks must be appraised and safeguards implements
33
Q

What is the ethical guidance for (Advocacy threat): Legal services offered to an audit client

A
  • Firm cannot act as solicitor representing client in legal case
  • If offered risks must be appraised and safeguards implements
34
Q

What is the ethical guidance for (Advocacy threat): Representing an audit client in a tax tribunal or court to resolve a tax dispute

A

Prohibited if the issue is material to the finance statements
- otherwise carried out with safeguards

35
Q

What is the ethical guidance for (Intimidation threat): Close family or personal relationship

A

Audit firms employees who have close relationships with client staff should not work on the audit

36
Q

What is the ethical guidance for (Intimidation threat): Business relationships

A

The audit firm must not participate in a business relationship with a client

37
Q

What is the ethical guidance for (Intimidation threat): Audit partner leaves to take up employment with a client

A

Audit firm should resign as auditor
- cannot take on the audit again for 2 years

38
Q

What is the ethical guidance for (Intimidation threat): Close family or personal relationship

A
  • Disclose to those charged with governance at the client
  • Consider resignation
39
Q

What are the points accountants should consider when faced with an ethical conflict according to ICAEW Code of Ethics?

A
  • relevant facts
  • relevant parties
  • ethical issues involved
  • fundamental principles related to the matter
  • established internal procedures
  • alternative courses of action

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