Ethics and Acceptance Flashcards
Why is there a need for professional ethics?
So that the practitioner behaves and is seen to behave.
Independence
the freedom from situations and relationships where objectivity is perceived to be impaired by a reasonable and informed third party.
Reasonable and informed third party kaun hain?
Someone who does not need to be an accountant but has relevant knowledge and experience to understand uska kaam.
Integrity
The professional accountant should be straightforward and honest.
Example of an auditor with integrity
If the auditor is aware of material misstatement in FS, would not issue an unmodified opinion.
Example of an accountant with integrity
Not signing off accounts that has misleading info (asked by CFO)
Objectivity
Accountant should be unbiased, not let conflict of interest or undue influence override judgements.
Professional Competence and Due Care
Accountant must maintain professional knowledge and skill at the required level to ensure the clients/employers receive competent services based on current developments.
Prof competence and due care as an auditor example dedo pls
Providing assurance ranging from reasonable to limited, based on SAE.
Confidentiality
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.
Confidentiality could be result of what?
Business or personal relationships
Professional Behaviour
Comply with relevant laws and regulations of the standards as per IESBA. Also, avoid any conduct that could cause discredit to the profession..
At what level should the identified threats be for the non requirement of safeguards?
An acceptable level
Self Interest Threat
May occur due to the financial or other interests of the accountant.
Examples of Self Interest Threat
- Additional fees from client
- Gifts and Hospitality
- Preferential rates over loans and OD facilities
- Overdue fees
- Business & Personal relationship
- Overdue fees
- Employment with clients
- Contingency fees
- Litigation with a client
- Own shares
Self-Review Threat
Here the auditor reviews a judgement she has taken herself.
Or an audit firm prepared the financial statements and then acted as auditor.
Examples of Self Review Threat
1.Accounts prep
2. tax computation
3. Internal audit
4. Client staff joins the audit firm
5. Valuation/Non audit services
Advocacy
The accountant is expected to defend or justify the position of the client firm. Act as an ‘advocate’
Examples of Advocacy
Representing, promoting or negotiating for the client.
Familiarity Threat
The auditor and the client have a too close business or personal relationship
(Long association coz you worked for them for many years)
What is the significant risk in a familiarity threat?
Professional scepticism may not be sufficiently applied.
Eg of Familiarity threat
- Long association
- Personal relationships
- Gifts and Hospitality
- Movement of staff between firm and client.
Intimidation Threat
The auditor cannot act independently as she is scared by intimidatory threats
Examples of Intimidation Threats
- We’ll find a new auditor if you issue an unfavorable audit opinion
- Fee dependency
- Accepting gifts
Safeguards
Actions taken individually or in combination to eliminate threats to compliance with fundamental principles of ethics
If fees from the client is settled below 15%, what is to be taken care of?
Check if pre-assurance review is a safeguard.
Two situations where the auditor should make a voluntary disclosure?
- When disclosure is made to non-govt bodies
- When it is in the public interest to disclose.
The action is only considered to be a safeguard if it is ___?
effective.
Independence of mind
- Act with integrity
- Exercise prof scepticism & objectivity
- permits the expression of conclusion without any undue influence
NOT:
If it assures the ability and competence of person to carry the work.
Audit fees should be calculated on the basis of what to ensure quality service is provided?
Time.
Is it prohibited for audit firms to advertise as per code of ethics?
Absolutely not.
Audit fees composition
15% of income and 10% for public interest entities
If IFRS disagrees with framework, what should be followed?
IFRS
Ethical problem with unpaid audit fees?
It is in effect with loan
External audit may not use internal audit work for the basis of some conclusions?
Yes, true.
If the advertising of audit firm states that they are better than other audit firms, then they are lacking what?
Integrity
If an audit firm states that it is the most professional firm in the country, is that misleading?
Absolutely.
On what basis should the audit fees be calculated?
The time needed to devote to an assignment to ensure a quality service was provided.
Can a provision of non audit service such as tax planning be a threat to objectivity?
Yes
Actual Litigation
When both the parties get into a big argument which needs to be settled by a third party (court)
Threatened Litigation
One party threatens another regarding an issue or argument.
Are contingent fees allowed?
Generally no, unless for non audit service clients.
Can the audit firm provide non-audit services to listed and non listed clients?
For listed clients, no
for non-listed clients, yes, until and unless there are no root causes for threats.
Safeguards for self review threat especially for non listed clients?
Bring in a professional in that field.
If a listed company asks the audit firm for non audit services, what would we do?
Reject the offer. Resigning would be the last resort.
Assisting in management decisions like recruitment is what kind of a threat?
Self interest threat and familiarity threat
In the case of money laundering, how would it affect confidentiality?
If it’s a legal requirement to report money laundering, this overrides the principle of confidentiality.
Can audit senior carry out the audit in the absence of the audit manager?
No.
Request for an audit manager with expertise.
Talk to management to extend deadline.
Can the audit be checked one day prior to the audit clearance meeting?
No, it should be done done on a timely basis properly.
Can there be changes to the plan?
Generally no, only when there is a requirement like risk is low and ask for an extended deadline and more time.
Recruitment of NED by audit member?
No threats and no safeguards are required
Cut off testing is not required for?
Potential valuation issues.
