Chapter 2 - Code of Ethics

Question 0

Advantages of framework approach?

Answer 0

More appropriate to changing circumstances in dynamic profession

May be applied across national boundaries

Onus on auditor to demonstrate all matters considered within framework

Question 1

Advantages and disadvantages of rule book approach?

Answer 1

Certainty and clarity

Impossible to deal with every situation and rules may be interpreted narrowly to circumvent true meaning

Question 2

What are the fundamental principles?

Answer 2

Professional competence and due care

Professional behaviour

Objectivity

Integrity

Confidentiality

Question 3

What are the threats to objectivity?

Answer 3

Self interest

Self review

Intimidation

Advocacy

Familiarity

Question 4

What is wrong with assuming management responsibilities for an assurance client?

Answer 4

This may also create threats to independence. Firms must not assume management responsibilities as part of an assurance engagement.

Question 5

Some safeguards created by profession?

Answer 5

Requirements for entry to profession

Continuing professional development

Corporate governance

Professional standards

Monitoring and disciplinary procedures

Question 6

Some safeguards created by work environment?

Answer 6

Rotation and removal of staff from engagement team

Independent quality control reviews

Using separate engagement teams

Question 7

When is it ok to disclose confidential information to third parties?

Answer 7

When client permission has been given

If client is suspected of money laundering, treason, terrorism or drug trafficking

When required by law

If it is in the public interest

Question 8

What should the auditor do if there is a conflict of interest regarding acting for two competing clients?

Answer 8

Firm should notify clients affected and obtain their consent to continue to act

Following safeguards should be implemented: advise clients to seek independent advice, use separate engagement teams with different partners and team members, implement procedures to prevent access to information from other team i.e. confidential data filing

Question 9

What are some areas of risk to integrity, objectivity and independence?

Answer 9

Personal relationships between auditor and client

Financial and business relationships between auditor and client

Undue economic dependence on audit client

Acceptance of goods and hospitality from client

Provision of non audit services to audit client

Overdue fees

Litigation between auditor and client

Question 10

Further measures to improve independence - emerging ethical issue

Answer 10

Compulsory rotation of audit firms

Ban on provision of non audit services

State audit board to audit public companies

Government to appoint all auditors of public companies