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ICAEW Assurance > Chapter 15 - Integrity, objectivity and independence > Flashcards

Chapter 15 - Integrity, objectivity and independence Flashcards

1
Q

What are six general sources of threats?

A

Self-interest

Self-review

Advocacy

Familiarity

Intimidation

Management

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2
Q

Define self-interest threats

A

A threat to the auditor’s objectivity stemming from a financial or other

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3
Q

What are the types of self-interest threats?

A
  • Financial interests
  • Close business relationship
  • Gifts and hospitality
  • Loans and guarantees
  • Overdue fees
  • High percentage of fees
  • Lowballing
  • Percentage or contingent fees
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4
Q

Explain what is meant by financial interests with regards to self-interest threats and outline safeguards that can be used against it

A
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5
Q

Explain what is meant by close business relationship with regards to self-interest threats and outline safeguards that can be used against it

A
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6
Q

Explain what is meant by gifts and hospitality with regards to self-interest threats and outline safeguards that can be used against it

A
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7
Q

Explain what is meant by loans and guarantees with regards to self-interest threats and outline safeguards that can be used against it

A
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8
Q

Explain what is meant by overdue fees with regards to self-interest threats and outline safeguards that can be used against it

A
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9
Q

Explain what is meant by high percentage of fees with regards to self-interest threats and outline safeguards that can be used against it

A
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10
Q

Explain what is meant by lowballing with regards to self-interest threats and outline safeguards that can be used against it

A
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11
Q

Explain what is meant by percentage or contingent fees with regards to self-interest threats and outline safeguards that can be used against it

A
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12
Q

Define self-review threats

A

Self-review threats occur when the audit firm also performs non-audit services, such as preparing the management or year-end accounts and then also acts in the capacity of auditor.

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13
Q

What are the types of self-review threats?

A
  • Service with an assurance client
  • Internal audit services
  • Preparing accounting records and financial statements
  • Valuation services
  • Tax services
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14
Q

Explain what is meant by service with an assurance client with regards to self-review threats and outline safeguards that can be used against it

A
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15
Q

Explain what is meant by internal audit services with regards to self-review threats and outline safeguards that can be used against it

A
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16
Q

Explain what is meant by preparing accounting records and financial statements with regards to self-review threats and outline safeguards that can be used against it

A
17
Q

Explain what is meant by valuation services with regards to self-review threats and outline safeguards that can be used against it

A
18
Q

Explain what is meant by tax services with regards to self-review threats and outline safeguards that can be used against it

A
19
Q

Define advocacy threats

A

An advocacy threat arises in certain situations where the assurance firm is in a position of taking the client’s part in a dispute or somehow acting as their advocate.

20
Q

Define familiarity threats

A

Familiarity threats arise when the auditor develops close relationships with the audit client

21
Q

What are the types of familiarity threats?

A
  • Long association with assurance clients
  • Where there are family and personal relationships between client/firm
22
Q

Explain what is meant by long association with assurance clients with regards to familiarity threats and outline safeguards that can be used against it

A
23
Q

Explain what is meant by where there are family and personal relationships between client/firm with assurance clients with regards to familiarity threats and outline safeguards that can be used against it

A
24
Q

Define intimidation threats

A

This can arise when the client is aggressive/threatening or the auditor feels intimidated by the client.

25
Q

What safeguards can be put in place for intimidation threats?

A
  • Disclosing to the audit committee the nature and extent of the litigation
  • Removing specific affected individuals from the engagement team
  • Involving an additional professional accountant on the team to review work
  • If the litigation is at all serious, it may be necessary to resign from the engagement
26
Q

Define management threats

A

A management threat arises when the audit firm undertakes work involving making judgements and taking decisions that are the responsibility of management.

27
Q

When taking on new clients, what things must a firm look out for so that the firm’s integrity or professional behaviour is not called into question?

A
  • Illegal activities of the client
  • Apparent dishonesty of the client
  • Questionable accounting practices of the client
28
Q

Outline the framework set out by the ICAEW that accountants must follow to resolve ethical problems

A

It states that the professional accountant should consider:

  • The relevant facts
  • The relevant parties
  • The ethical issues involved
  • The fundamental principles related to the matter in question
  • Established internal procedures
  • Alternative courses of action

The accountant should then consider which is the course of action that most aligns with the fundamental principles.

29
Q

What additional pressures would an accoutant in business experience in addition to the fundamental pressures faced by accountants in practice?

A
  • Act contrary to law or regulation
  • Act contrary to technical or professional standards
  • Facilitate unethical or illegal earnings management strategies
  • Lie to or mislead auditors or regulators
  • Issue or be associated with published reports (for example, financial statements, tax statements) that materially misrepresent the facts
30
Q

What steps should an accountant in business take in order to resolve these ethical conflicts?

A
  1. First, resolve internally (if possible) using a formal dispute resolution process or audit committee (if the employing organisation has one) - if small business this is liekly not to be possible
  2. Second, obtain advice from the ICAEW
  3. Third seek legal advice
  4. As a last resort, resign

ICAEW Assurance (17 decks)

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