Ethics & Acceptance Flashcards
Is decisions taken for your own self interest treated as ethical
No, its unethical. Public interest decisions is considered to be ethical
what is the responsibility of a professional accountant
to act in public interest & be independent
what is defined as ethics
what is wrong/right which is beyond legality
what is legality
legality includes laws & regulations developed by government & other bodies
what are the main approaches to ethical guidance(2)
Principle based & Rule based
Briefly explain on principle based approach
More flexible & able to change in volatile environment.
May be applied internationally but should be fitted within the teritory.
Voluntary
Encourage accountants to use judgements.
UK & other developing countries uses
Briefly explain on Rule based approach
Requirements are clearly defined. Not flexible. Cannot apply internationally. Compliance is mandatory US uses
What are the fundamental ethical principles , Define.
Integrity- Straightforward & honest
Objectivity- should NOT allow bias & conflict of interest
Professional competence & Due care- Maintain professional knowledge & skill at an appropriate level(formal & informal learning)
Confidentiality- Information should NOT disclose without appropriate authority
Professional behaviour- Comply with relevant laws & regulations
who develops the code of ethics
IESB
what are the threats to independance .Define
Self-Interest: Financial or other interest that may influence their professional judgement
Familiarity:too sympathetic & trusting a client( losing the professional scepticism ex:close relationship)
Self-Review: auditor unlikely to admit their errors on their own work
Advocacy: Promoting/ Representing the position of a client
Intimidation: actual or perceived pressure from the client
give few examples safeguards for self interest threat
Gift & hospitality(non financial):
if significant should not accept , if immaterial wont create threats to behavior
Financial benefits(bribe/commision): politely decline
Holding shares with client:
sell shares immediately at given price, should not generate any gain
FEE DEPENDANCY (if gross recurring fee exceed 15% for two consegative years):
1) for listed company should inform to charge with governance( ED’s & NED’s)
2) if they dont allow should reduce upto 15%
3) if allows should perform EQCR( Engagement quality control review:performed by indepenadant review partner)
Loans & Guarantees:
No threat if terms & conditions are equal to general market but if they provide preferential terms then it will create self interest threat then the auditor should remove
Potential employment with client:
1) auditor should notify audit team partner
2) auditor should appoint someone to review the work performed by the previous auditor
3) auditor who got the oppurtunity should remove from the engagement immediately.
Low Balling-Accepting client for a lower rate:
Allowed but quality should not be compromised
CONTINGENCY FEE-(Audit fee based on a financial element):
Not Allowed
OVERDUE FEE:
1) Auditor should discuss why payment hasn”t made
2) Auditor should agree revised payment plan with client
3) Auditor should not commence detailed audit work until it get settled/ revised payment plan accepted
Temporary assignments(client requesting auditor to perform temporary positions ex:credit controller): Not allowed but operational positions allowed and should remove from engagement
Customer Relationship
No threat if its commercial(At arms length)
Give examples for FAMILIARITY Threat and its safeguards
Long Association(works for more than 7 years without a cooling off period:2yrs ): According to IESB should remove from engagement after 7 yrs
Personal / family relationship(ex:husband-auditor, wife-Finance Director)
remove the person from engagement
Staff movement from audit firm to client.(audit manager joins with client as Finance Director)
Auditor should perform EQCR & if possible change audit team
