FRC Ethics, chapter 5 cont. Flashcards
What is the requirement for other services provided that are similar to the audit?
When work very similar to the audit is carried out by the engagement team, the threats are insignificant, and no safeguards are required.
E.G. interim audits
This only applies to services specified in the Ethical standard, paragraph 5.36.
Can audit firms perform internal audit services for audit clients?
No, internal audit work cannot be completed for any audit client, whether listed or not.
What restrictions apply to information technology services provided by an audit firm?
Audit firms cannot provide IT services related to the design, provision, or implementation of systems that are a significant element of the accounting/management systems or that help produce financial statements.
What safeguards should be considered for IT services provided by audit firms?
Self-review threat: Use separate teams and independent partner review.
Management threat: If management lacks expertise, no safeguards can reduce the threat to an acceptable level.
What are the safeguards for valuation services provided by audit firms?
Self-review threat: Use separate teams and independent partner review.
Do not perform valuation work if it is material to the financial statements and involves significant subjective judgment.
Management threat: Ensure informed management is present.
What are the safeguards for tax services provided by audit firms?
Self-review threat: Use separate teams and review by an independent tax partner.
Do not promote tax structures with reasonable doubt about the accounting treatment.
Management threat: Ensure informed management.
Self-interest threat: Contingent fees are not allowed.
Advocacy threat: Do not act as an advocate in court if the issue is material to the financial statements.
What are the rules regarding litigation support and legal services provided by audit firms?
Self-review threat: Do not provide litigation support services where the firm estimates the likely outcome of a legal matter material to the financial statements.
Advocacy threat: Do not provide legal services where acting as general counsel or solicitor in a dispute material to the financial statements.
Can audit firms provide recruitment and remuneration services?
No, audit firms cannot provide advice on the recruitment of directors/employees or take responsibility for appointments, and they cannot provide advice or criteria for director/employee remuneration packages.
Management threat
What are the safeguards for corporate finance services provided by audit firms?
Management threat: Ensure informed management.
Self-review threat: Use separate teams and review advice by an independent corporate finance partner.
Advocacy threat: Do not provide services where the firm is responsible for dealing in, underwriting, or promoting shares.
What safeguards should be applied for transaction-related services like due diligence?
Self-review threat: Use separate teams, and have due diligence work reviewed by an independent transactions partner.
Management threat: Ensure informed management.
What are the threats and safeguards for restructuring services provided by audit firms?
Self-review threat: May be significant if it affects the firm’s assessment of the entity’s going concern status.
Management threat: Ensure informed management.
What are the safeguards for accounting services provided by audit firms to non-listed clients?
Self-review threat: Use separate teams and have the accounting work reviewed by an independent partner.
Management threat: Ensure informed management, and the work should be technical or mechanical, without requiring judgment or decision-making.
Can audit firms provide accounting services to listed clients?
No, providing accounting services to listed clients is banned, and auditors should never take on a management role.
