Chapter 9: Professional Ethics Flashcards
What extra threat is identified in the FRC ethical standard?
Management
Who are covered persons to whom the provisions apply?
Covered persons include the partners and staff involved in the engagement, but could also be:
- any other person placed at the disposal of the audit team e.g. an expert
- anyone in the audit firm with supervisory, management or other oversight responsibility for the partners involved in the engagement
- any other person in the firm who is in a position to influence the conduct or outcome of the audit
Who does the FRC ethical standard introduction apply to?
- applies to audit engagements and other public interest assurance engagements
- includes the ‘Third party test’
When considering whether the requirements of the Ethical standard have been met, what should you do?
Evaluation should be made with reference to the perspective of an objective, reasonable and informed third party.
This has formalised the requirement to be, and be seen to be, independent. An informed investor or public interest stakeholder’s perspective with diversity of thought is required for the third party test
How do safeguards work for non-PIEs? (public interest entitities)
Ethical threats must be evaluated. If threats exist, safeguards must be applied or (where not possible) withdraw from the engagement.
How do safeguards work for PIEs?
The Standard provides a permitted services list instead. If a specific service does not feature on the list, then it cannot be provided to the client. The full permitted services list can be found in paragraph 5.40
What about safeguards for audit related services?
The threats are insignificant when work very similar to the audit is carried out by the engagement team so no safeguards are required.
This section only applies to the services specified in paragraph 5.36 e.g. review of interim financial information
What about safeguards for internal audit services?
Internal audit work cannot be completed for any audit client, whether they are listed or not. This was introduced into the FRC ethical standard in 2019 and is different to that found in the IESBA code
How do you combat threats arising from the provision of information technology services?
Self-review threat: separate teams. Independent partner review with relevant expertise (check IT work has been properly assessed)
Management threat: if management lack expertise to take responsibility for the systems it is unlikely any safeguards could reduce the threat to an acceptable level as you cannot provide services that involve taking on a management role
How do you combat threats arising from the provision of valuation services?
Self-review threat: separate teams. Independent partner review (check valuation work has been properly assessed). Do not perform valuation work if the valuation is material to the financial statements and involves a significant degree of subjective judgement
Management: Informed management
Listed clients: do no provide valuation services where the valuation would have a material effect on the financial statements
