ethical and professional issues

Question 1

loan has been given to a member of the audit team by a client who is a financial instituation

client said it is “best offer” loan

Answer 1

according to IESBA code, a loan to a team member may be a threat to the auditor’s indpendence

if loan is not under normal conditions, a self interest threat is created due to financial interest in client (to protect their personal benefit)

this threat would be so significant, no safeguards acceptable. loan must be given up.

if loan is under normal conditions from a bank or financial institution, it is acceptable. eg. mortgage, car loan, credit card.

intimidation threat to objectivity may also arise from fear client may recall or change conditions of loan.

it might be possible that bank loan “best condition” may be normal condition, so it may be ethically acceptable.

obtain bank’s standard T&Cs and the person’s loan documents. compare.
partner shud be involved in this discussion as they r resp for ethical requirements.
inform team member and client of the decision and the rationale.

Question 2

client has asked audit team senior to second a staff from the firm for 6 months for their payroll department.

Answer 2

code says lending a staff to client may create a self review threat to indpendence.
this arises because auditor will be checking the work they themselves have previously performed. eg. if auditor is resp for preparing payroll figure, they may not be sufficiently objective and fail to identify shortcomings of their own work.

also risk of staff member assuming management responsibilties if they are making judgements and decisions which r under remit of management

safeguards:
only perform for short time (6 months is too long)
dont assume management responsibilites
the staff must not be included on the audit team

international law: code prohibits audit firm from providing bookkeeping services (including payroll) to listed clients which form basis of FS in which firm will present opinion

in UK- payroll should not be provided to a PIE. so decline the service and explain client the reason why.