Module 10

Question 1

What are the 5 fundamental principles of the ICAS code of ethics?

Answer 1

Confidentiality
Objectivity 
Professional competence and due care 
Integrity 
Professional behaviour

Question 2

What is moral courage?

Answer 2

Need to act in accordance with the fundamental principles

Question 3

What is independence?

Answer 3

Freedom from conditions and relationships that would impair integrity or objectivity

Question 4

Natural scepticism of public would only be overcome if?

Answer 4

Properly monitored standards established evidence

Properly enforced

Question 5

What are the two facets of independence? Ethical standards issued by financial reporting council

Answer 5

Fact of independence

Appearance of independence

Question 6

What are the two sections of the Ethical Standard?

Answer 6

Part A: integrity and objectivity, independence. Overarching principles and provisions

Part B: specific ethical matters sections 1-6
General
Financial, bus, employ and personal relations
Long association
Fees, remuneration etc
Non audit
Provisions for small entities

Question 7

Who is a covered person?

Answer 7

Person in a position to influence the conduct or outcome for be engagement:
Includes 
- each member 
- quality control review person 
- involved in audit 
- supervisory/management

Question 8

What are the six categories of threat that may affect independence?

Answer 8

Management 
Advocacy 
Self interest
Self review
Intimidation 
Familiarity 

MASSIF

Question 9

Once threat identified, auditor should:

Answer 9

Eliminate
Or reduce to acceptable level

By applying procedures/safeguards

Question 10

Ethics partner is?

Answer 10

Nominated partner responsible for adequacy of policies and procedures and ensuring communicated on ES

Question 11

Communicate all facts and matters that impact integrity objectivity and independence, PIE ensure audit committee provided with:

Answer 11

Written disclosure of relationships 
Detail non audit services
Confirmation of independence 
Details of inconsistencies
Opportunity to discuss

Question 12

What is a public interest entity?

Answer 12

Listed on LSE
All credit institutions
All insurance undertakings

Question 13

Sections 2-5 scenarios contain

Answer 13

Scenarios where auditor independence might be threatened

Some can be safeguarded against, identified by ES

Question 14

PIE prohibited non-audit services for audit firms

Answer 14

Tax
Management 
Bookkeeping and accounts 
Payroll
Valuation 
Internal audit

Question 15

Affected areas of SOX independence?

Answer 15

Prohibition of non-audit services
Pre-approval of services
Audit partner rotation- every 5 years
Conflicts of interest- prohibits if CEO, CFO, CAO employed by the firm and participated in year preceding

Question 16

Sections 3-5 of ethical standards contain?

Answer 16

3. Long association with engagements
4. Fees remuneration and evaluation policies
5. Non-audit/additional services

Question 17

Threats of longstanding association with the audit engagement?

Answer 17

Familiarity
Self interest
Self review

Question 18

Specific safeguards for PIE and listed companies audits with long-standing association?

Answer 18

Engagement partner rotated after 5
Can extend to 7
Not return for 5
EQCR rotates after 6, not return for 5
Key partner rotate after 7, not return for 2

Question 19

Contingent fees threat?

Answer 19

Self interest

Contingent = certain outcome
Fees should reflect time skills and experience

Question 20

Overdue audit fees threat?

Answer 20

Self interest

Question 21

Dependence on non audit service threat?

Answer 21

Self interest

Intimidation

Question 22

Dependence on one client threat?

Answer 22

Self interest
Intimidation

If fees exceed 10% PIE/listed or 15% non listed of annual fee income of audit firm then firm should resign

Question 23

Remuneration for selling non-audit services threat?

Answer 23

Self interest

Question 24

Gifts and hospitality threats?

Answer 24

Familiarity

Self interest

Question 25

Threatened and actual litigation threats?

Answer 25

Self interest
Advocacy (protect themselves)
Intimidation

Question 26

Non audit services threats?

Answer 26

Self interest
Self review
Management
Advocacy

Question 27

PIE prohibited non audit services?

Answer 27

Tax
Bookingkeeping
Management 
Payroll 
Valuation 
Internal audit