Chapter 4

Question 1

What are the fundamental principles - IESBA Code of Ethics?

Answer 1

Integrity 
Objectivity 
Professional competence/due care
Confidentiality 
Professional Behaviour

Question 2

What are the FRCs list of threats? And how does this differ from the IESBA or ICAEW documents?

Answer 2

Self interest Threat
Self review Threat
Management Threat
Advocacy Threat
Familiarity or Trust Threat
Intimidation Threat

Differs as they don’t include management threat where as FRC do

Question 3

Name some safeguards against a professional accountants environment threats?

Answer 3

Training

ICAEW support systems for members and students

Question 4

What do the quality control system in place at engagement, firm and profession levels include?

Answer 4

Planning supervision and review procedures
Hot and cold file reviews
Regulatory inspections

Question 5

Name some procedures to prevent threats? - this is very general remember to be specific to your question in exam

Answer 5

Overall control environment at firm ensures a professional approach towards ethical issues
segregation of duties between those engaged on audits and providing non audit services
Rotation of engagement partners and staff
Consulting ethics partner
Procedures for evaluating integrity of potential new clients
Formal process of reviewing appropriateness of firms continuing in office before its name allowed to go forward for reappointment
Staff recruitment procedures
Regular completion of fit and proper and independence declerations by partners and staff
Staff training, development and performance appraisal
Monitoring and evidencing the firms own systems

Question 6

What is the third party test?

Answer 6

The new standard introduces this as to evaluate whether ethical outcomes required not been met from perspective of an objective, reasonable and informed third party 5 sections;

1. General Requirements and Guidance
2. Financial business employment and personal relationships
3. Long association with engagements and with entities relevant to engagements 3
4. Fees, remuneration and valuation policies, gifts and hospitality, litigation
5. Non audit/additional services

Question 7

When would you be able to disclose confidential information?

Answer 7

Permitted by law and authorised by client or employer
Disclosure required by law
Where there’s a professional duty or right to disclose when law doesn’t prohibit

Question 8

What should auditor do if becomes aware of suspected fraud or actual frauds or instances of non compliance?

Answer 8

Report to relevant authority;
Management
Those charged with governance
Report to regulatory and enforcement authorities where appropriate
—> if management suspected should go straight to those charged with governance if appropriate higher authority e.g. audit committee