FRC ethics, Financial, business, employment and personal relationships Flashcards
Can the audit firm or its partners hold shares in an audit client?
No, neither the audit firm, partners, nor persons closely associated with them can hold shares in the audit client. This prevents self-interest threats.
Can the audit firm or covered persons give loans to an audit client?
No, loans should not be made to an audit client by the audit firm, covered persons, or persons closely associated with them. This prevents self-interest and intimidation threats.
Can the audit firm or covered persons accept loans from an audit client?
Loans cannot be accepted from an audit client, except when the client is a bank and the loan is made in the normal course of business. This addresses self-interest and intimidation threats.
Can the audit firm enter into business relationships with audit clients?
No, the audit firm and covered persons should not enter into business relationships with audit clients, preventing self-interest, advocacy, and intimidation threats.
Is dual employment allowed between the audit firm and the audit client?
No, dual employment (where a person works for both the audit firm and audit client) is not allowed, preventing management and self-review threats.
Are loan staff assignments allowed?
Loan staff assignments are only allowed in exceptional cases, where the role is non-management, the assignment lasts no longer than 3 months, and it does not violate the Ethical Standard.
What should partners and engagement team members do if they are considering employment with the audit client?
They must notify the firm, be removed from the audit team, and their work on the current audit must be reviewed to prevent self-interest, familiarity, and intimidation threats.
What happens if a partner becomes a director at the audit client?
If a partner (engagement or quality review) becomes a director/key management at the audit client, the firm must resign as auditor and cannot be reappointed for 2 years.
What should the audit firm do if another member of the engagement team joins the audit client as a director?
The audit firm must reconsider the composition of the audit team to ensure independence and objectivity.
What should happen if a close family member of an audit team member is employed by the audit client?
The audit team member may need to be removed from the team, and all such relationships should be reported to the engagement partner to prevent familiarity, self-interest, and intimidation threats.
Can an audit partner or employee of the audit firm serve as a director at the audit client?
No, an audit partner or employee should not serve as a director, as this creates management and self-review threats.
What is the cooling-off period for a former director or employee of the audit client who joins the audit firm?
They should not be involved in the audit of that client for 2 years, and in some cases, this period may need to be extended to avoid self-interest, self-review, and familiarity threats.
What is included in “persons closely associated” and “other close family relationships”?
“Persons closely associated” includes immediate family (spouse and dependents), while “other close family” includes parents, non-dependent children, and siblings. These relationships are presumed to influence behaviour.
What must the engagement partner consider when involving external consultants in the audit?
The engagement partner must assess the integrity and objectivity of any external consultants and document the rationale for their involvement.
