Lesson 4: Members in Practice (independence) Flashcards
Name three activities that a member must not undertake unless authorised by a regulatory body.
External auditing of U.K. limited companies
Investment business
Insolvency
Define independence
The member must not allow their professional judgement to be influenced by opinions.
What are the five threats to independence?
Self-interest
Self-review
Advocacy
Familiarity
Intimidation
Define self-interest
These are threats that occur when the member has a financial relationship with a client.
For example, if the member owns shares in a client company, they may overstate profit to ensure a higher dividend is paid to shareholders.
Define self-review
These are threats that occur when a member reviews their own previous work or were employed by a client company.
For example, a member was employed by an accountancy software company to design and implement accounting systems and they are now working for a firm of accountants that are auditing a company which uses said software. The member will be reviewing their own previous work.
Define advocacy
These threats occur when a member exceeds the client/member relationship and promotes or publicly supports a client.
For example, a client is running in the local council elections and requests the member to place a poster in their office window.
Define familiarly
These threats occur when the member is too close to the client.
For example, the member’s husband works in the client’s company
OR
The member and client have known each other for a period of time and regularly go on holiday.
Definite intimidation
These threats occur when the client is in a position to exert undue pressure on the member.
For example, the client threatens to replace the member unless the member reduces their tax liability.
List three ways to safeguard independence
Rotate staff assignments to avoid familiarity
Have a clear policy of reviewing all clients for changes in circumstances that could cause potential threats
Cease to act for a client where potential threats to independence cannot be avoided
What is client money?
Client money is any currency that a member holds or receives on behalf of the client that does not belong to the member.
What is the Financial Services Act 1986?
The member cannot hold client’s money for investment purposes unless authorised to do so.
What is the Criminal Justice Act 1993?
The member must make suitable checks that money held on behalf of clients is not the proceeds of money laundering.
If the client owes the member money, can the member take the unpaid fee from their client’s money?
Yes, but only if written permission is obtained or more than 30 days have passed since the fee note was raised.
