Lecture 2 - Independence & Ethics Flashcards
Ethics is a system of moral principles.
- Effect how people make decisions and lead their lives
- The language of right and wrong
- Moral decisions - what is good and bad
Ethics have been derived from religions, philosophies and cultures.
Accountants need the following:
- Public confidence
- Client & stakeholder confidence
- Change &/ or control behaviour
What is the objective of the IESBA?
To serve the public interest by setting high-quality ethics standards for professional accountants.
They are constantly revising standards.
Core Body.
What is the code of professional ethics?
It is a teleological-based code unique to the accountancy professional community.
What does the teleological-based code essentially comprise of?
- A set of rules and precepts designed to induce an attitude & kind of behaviour on accountants, which will encourage public confidence.
What are the two foundations of the code
- Fundamental Ethical Principles
- Threats & Safeguards Approach
Fundamental Ethical Principles
What are the overarching principles?
a) Integrity
b) Objectivity
c) Independence
Fundamental Ethical Principles
Integrity
To be straightforward & honest in all professional & business relationships
Fundamental Ethical Principles
Objectivity
To not allow bias, conflicts of interest or undue influence by others professional judgements
Fundamental Ethical Principles
Independence
You may have a very independent mind but you may not appear independent. You may have a family relationship in the company you are auditing.
To be free from conditions & relationships which could compromise your professional judgements.
This allows you to act with integrity, exercise objectivity and professional scepticism.
Threats to Fundamental Principles
What are the 6 threats?
a) Self-interest threat
b) Self-review threat
c) Management Threat
d) Advocacy Threat
e) Familiarity Threat
f) Intimidation Threat
Threats to Fundamental Principles
a) Self-Interest Threat
The threat that a financial or other interests will inappropriately influence the accountants judgement or behaviour
Threats to Fundamental Principles
b) Self-Review Threat
The threats that accountants will not evaluate the results of previous judgements made or services performed by the accountants, or by another individual.
Threats to Fundamental Principles
c) Management Threat
Accountants may not be objective or independent because they have made judgements or taken decisions that are the responsibility of management.
Threats to Fundamental Principles
d) Advocacy Threat
Accountants will promote client’s or employer’s position to the point that the accountants objectivity is comprised.
Threats to Fundamental Principles
e) Familiarity Threat
Threat due to long or close relationships with a client or employer.
Too much sympathy and too accepting of their clients work can happen
