Lecture 3 - Auditor Independence Flashcards
What are the two types of auditor independence
- Practitioner independence
- Profession independence
What is included in practitioner independence?
-Reporting
-Investigative
-Programming
RIP
What measures are in place to ensure auditor independence?
- Companies Act 1989 s.27 = auditor can’t be employee or officer
- Companies Act 1985 s.390 A and B = Companies must disclose cost of audit and NAS
How might close relationships effect auditor independence?
- Financial dependence
- Existence of confidential relationship
- Emphasis of service to management
How might the organisation of the profession effect auditor independence?
- Small number of large firms ie Big 4
- Lack of professional solidarity
- Salesmanship
What are the associations that provide ethical guidance?
- IFRC’s IESBA Code of Ethics
- FRC’s Ethical Standard
What are the threats to independence as advised by the ethical standards associations?
- Self interest
- Self review
- Advocacy
- Familiarity
- Intimidation
- Management (this is the only one, only in the FRC ethical standard)
How long should a client wait before it can be audited by a firm a current employee used to work for?
Two years
If the client is a public entity, how long must lapse before an auditor can become an employee there?
12 months
How often should partner rotation occur for an unlisted client company?
10 years
How often should partner rotation occur for an listed client company?
5 years, provision for 7 years
5 years should elapse before partner is reinstated
What is the maximum percentage of total income a firm can receive from a listed client?
10%
What is the maximum percentage of total income a firm can receive from an unlisted client?
15%
