Ethics and Acceptance

Question 1

Why is there a need for professional ethics?

Answer 1

So that the practitioner behaves and is seen to behave.

Question 2

Independence

Answer 2

the freedom from situations and relationships where objectivity is perceived to be impaired by a reasonable and informed third party.

Question 3

Reasonable and informed third party kaun hain?

Answer 3

Someone who does not need to be an accountant but has relevant knowledge and experience to understand uska kaam.

Question 4

Integrity

Answer 4

The professional accountant should be straightforward and honest.

Question 5

Example of an auditor with integrity

Answer 5

If the auditor is aware of material misstatement in FS, would not issue an unmodified opinion.

Question 6

Example of an accountant with integrity

Answer 6

Not signing off accounts that has misleading info (asked by CFO)

Question 7

Objectivity

Answer 7

Accountant should be unbiased, not let conflict of interest or undue influence override judgements.

Question 8

Professional Competence and Due Care

Answer 8

Accountant must maintain professional knowledge and skill at the required level to ensure the clients/employers receive competent services based on current developments.

Question 9

Prof competence and due care as an auditor example dedo pls

Answer 9

Providing assurance ranging from reasonable to limited, based on SAE.

Question 10

Confidentiality

Answer 10

Accountant must not disclose any company information without authority, to third parties or if any special authority, unless there is a legal requirement. Also not for any personal advantage to you or 3rd parties.

Question 11

Confidentiality could be result of what?

Answer 11

Business or personal relationships

Question 12

Professional Behaviour

Answer 12

Comply with relevant laws and regulations of the standards as per IESBA. Also, avoid any conduct that could cause discredit to the profession..

Question 13

At what level should the identified threats be for the non requirement of safeguards?

Answer 13

An acceptable level

Question 14

Self Interest Threat

Answer 14

May occur due to the financial or other interests of the accountant.

Question 15

Examples of Self Interest Threat

Answer 15

1. Additional fees from client
2. Gifts and Hospitality
3. Preferential rates over loans and OD facilities
4. Overdue fees
5. Business & Personal relationship
6. Overdue fees
7. Employment with clients
8. Contingency fees
9. Litigation with a client
10. Own shares

Question 16

Self-Review Threat

Answer 16

Here the auditor reviews a judgement she has taken herself.
Or an audit firm prepared the financial statements and then acted as auditor.

Question 17

Examples of Self Review Threat

Answer 17

1.Accounts prep
2. tax computation
3. Internal audit
4. Client staff joins the audit firm
5. Valuation/Non audit services

Question 18

Advocacy

Answer 18

The accountant is expected to defend or justify the position of the client firm. Act as an ‘advocate’

Question 19

Examples of Advocacy

Answer 19

Representing, promoting or negotiating for the client.

Question 20

Familiarity Threat

Answer 20

The auditor and the client have a too close business or personal relationship
(Long association coz you worked for them for many years)

Question 21

What is the significant risk in a familiarity threat?

Answer 21

Professional scepticism may not be sufficiently applied.

Question 22

Eg of Familiarity threat

Answer 22

1. Long association
2. Personal relationships
3. Gifts and Hospitality
4. Movement of staff between firm and client.

Question 23

Intimidation Threat

Answer 23

The auditor cannot act independently as she is scared by intimidatory threats

Question 24

Examples of Intimidation Threats

Answer 24

1. We’ll find a new auditor if you issue an unfavorable audit opinion
2. Fee dependency
3. Accepting gifts

Question 25

Safeguards

Answer 25

Actions taken individually or in combination to eliminate threats to compliance with fundamental principles of ethics

Question 26

If fees from the client is settled below 15%, what is to be taken care of?

Answer 26

Check if pre-assurance review is a safeguard.

Question 27

Two situations where the auditor should make a voluntary disclosure?

Answer 27

1. When disclosure is made to non-govt bodies 2. When it is in the public interest to disclose.

Question 28

The action is only considered to be a safeguard if it is ___?

Answer 28

effective.

Question 29

Independence of mind

Answer 29

1. Act with integrity 2. Exercise prof scepticism & objectivity 3. permits the expression of conclusion without any undue influence NOT: If it assures the ability and competence of person to carry the work.

Question 30

Audit fees should be calculated on the basis of what to ensure quality service is provided?

Answer 30

Time.

Question 31

Is it prohibited for audit firms to advertise as per code of ethics?

Answer 31

Absolutely not.

Question 32

Audit fees composition

Answer 32

15% of income and 10% for public interest entities

Question 33

If IFRS disagrees with framework, what should be followed?

Answer 33

IFRS

Question 34

Ethical problem with unpaid audit fees?

Answer 34

It is in effect with loan

Question 35

External audit may not use internal audit work for the basis of some conclusions?

Answer 35

Yes, true.

Question 36

If the advertising of audit firm states that they are better than other audit firms, then they are lacking what?

Answer 36

Integrity

Question 37

If an audit firm states that it is the most professional firm in the country, is that misleading?

Answer 37

Absolutely.

Question 38

On what basis should the audit fees be calculated?

Answer 38

The time needed to devote to an assignment to ensure a quality service was provided.

Question 39

Can a provision of non audit service such as tax planning be a threat to objectivity?

Answer 39

Yes

Question 40

Actual Litigation

Answer 40

When both the parties get into a big argument which needs to be settled by a third party (court)

Question 41

Threatened Litigation

Answer 41

One party threatens another regarding an issue or argument.

Question 42

Are contingent fees allowed?

Answer 42

Generally no, unless for non audit service clients.

Question 43

Can the audit firm provide non-audit services to listed and non listed clients?

Answer 43

For listed clients, no for non-listed clients, yes, until and unless there are no root causes for threats.

Question 44

Safeguards for self review threat especially for non listed clients?

Answer 44

Bring in a professional in that field.

Question 45

If a listed company asks the audit firm for non audit services, what would we do?

Answer 45

Reject the offer. Resigning would be the last resort.

Question 46

Assisting in management decisions like recruitment is what kind of a threat?

Answer 46

Self interest threat and familiarity threat

Question 47

In the case of money laundering, how would it affect confidentiality?

Answer 47

If it's a legal requirement to report money laundering, this overrides the principle of confidentiality.

Question 48

Can audit senior carry out the audit in the absence of the audit manager?

Answer 48

No. Request for an audit manager with expertise. Talk to management to extend deadline.

Question 49

Can the audit be checked one day prior to the audit clearance meeting?

Answer 49

No, it should be done done on a timely basis properly.

Question 50

Can there be changes to the plan?

Answer 50

Generally no, only when there is a requirement like risk is low and ask for an extended deadline and more time.

Question 51

Recruitment of NED by audit member?

Answer 51

No threats and no safeguards are required

Question 52

Cut off testing is not required for?

Answer 52

Potential valuation issues.