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Auditing > Professional And Ethical Responsibilities > Flashcards

Professional And Ethical Responsibilities Flashcards

1
Q

What is the objective of the Auditing Profession Act?

A
  1. To protect public by regulating audits performed by registered auditors
  2. To provide for the establishment of an independent regulatory board for auditors
  3. To approve the development and maintenance of internationally comparable ethical standards and auditing standards for auditors
  4. To set out measures to advance the implementation of appropriate standards of competence and good ethics in the profession
  5. To provide for procedures for disciplinary action in respect of improper conduct
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2
Q

For successful registration as a registered auditor, the applicant must be…

A
  1. Have complied with the prescribed education, training and competency requirements for registered auditor
  2. Have arranged for his or her continuing professional development if the applicant is not a member of a professional body
  3. Be a resident of the Republic
  4. Be a fit and proper person to practice the profession
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3
Q

How can a person be refused to be a registered auditor?

A
  1. He/she has been moved from an office of trust on account of misconduct
  2. He/she has been convicted of theft, forgery, fraud, corruption, etc., and sentenced for imprisonment or a fine exceeding such amounts as prescribed by the minister
  3. He/she is of unsound mind/incapable
  4. He/she is disqualified from registration under a sanction imposed under this Act
  5. He/she is an unrehabilitated insolvent
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4
Q

Only a registered auditor…

A

May engaged in public practice or hold out as a registered auditor in public practice or use the registered auditor description “public accountant” “certified public accountant”“registered accountant and auditor” or any description likely to create the impression of being a registered auditor in public practice.

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5
Q

The registered auditor may not, without such qualification as may be appropriate in the circumstances, express an opinion unless…

A
  1. The audit was carried out free of restriction
  2. Proper accounting records were kept in one of the official languages of the Republic
  3. All information, vouchers and documents necessary for the proper performance of the auditors duties were obtained
  4. Where an undertaking is regulated by a law, the registered auditor compiled with all the requirements of that law relating to the audit
  5. He/she had satisfied himself or herself of the existence of all assets and liabilities
  6. He/she had satisfied him/herself of the fairness/truth/correctness of the financial statements
  7. Any reportable irregularities that existed at the date of the report had been properly disclosed and reported
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6
Q

What is a reportable irregularity?

A

Any unlawful act or omission conducted by any person responsible for the management of the entity which:

  • has caused or is likely to cause material financial loss to the entity or to any partner, shareholder, creditor or investor, or
  • is fraudulent or amounts to theft, or
  • represents a material breach of any fiduciary duty owed by the person to anybody mentioned
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7
Q

What are the necessary actions once an auditor has discovered a reportable irregularity?

A
  1. Without delay, send a written report to IRBA
  2. Within 3 days of sending the report, notify the member of management of the entity (accompanied with copy of report)
  3. No later than 30 days:
    • discuss the report with management
    • send another report to IRBA
      • no RI took place
      • RI has been resolved
      • RI still taking place
  4. IRBA to take necessary action
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8
Q

An auditor will incur no liability to a client or a third party in respect of an opinion expressed or statement given in the ordinary course of his/her duties unless he or she acted in the following manner.

A
  1. Negligently
  2. Maliciously
  3. Failure to report irregularities
    An auditor may not through an agreement or in any way limit or reduce the liability that such auditor may incur in terms this section.
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9
Q

What is considered as improper conduct?

A
  1. Contravene or fail to comply with provision of the Act with which he or she has a duty to comply
  2. Contravenes or fails to comply with the provisions of the Act with which he or she has a duty to comply in providing professional services
  3. Has been found guilty of any offense involving dishonesty
  4. Is dishonest in the performance of any work
  5. Contravenes or fails to comply with any requirements in the Code of Professional Conduct
  6. Contravenes or fails to comply with any requirement in auditing pronouncement
  7. Fails to perform any professional services with the degree of skill, competence and due care
  8. Evades or assist any person to evade any tax, duty, levy, or rate
  9. Permits the registered auditors name to be used in connection with any estimated earnings contingent upon future transactions in a manner which may lead to the belief that the registered auditor vouches for accuracy of the estimate or fails take step to dispel such belief
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10
Q

The Code of Professional Conduct of SAICA part A lists some of the threats as a public accountant. What are these threats?

A
  1. Self-interest threat
  2. Self-review threat
  3. Advocacy threat
  4. Familiarity threat
  5. Intimidation threat
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11
Q

What is a self-interest threat?

A

Occurs in result of financial or other interests of a CA or of an immediate or close family member

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12
Q

What is a self-review threat?

A

Occur when a previous judgement needs to be re-evaluated by the CA that was originally responsible for the judgement.

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13
Q

What is an advocacy threat?

A

Occur when a CA promotes an opinion or position to be the point that subsequent objectivity may be compromised

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14
Q

What is the familiarity threat?

A

Occurs when because of close relationship, a CA becomes too sympathetic to the interests of others

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15
Q

What is the intimidation threats?

A

Occurs when a CA may be deterred from acting objectively by threats, actual or perceived.

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16
Q

What are the safeguards in place for the threats?

A
  1. Safeguards created by the profession, legislation, or regulation
  2. Safeguards in the work environment
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17
Q

What are some of the safeguards created by the profession, legislation and regulations?

A
  1. Educational, training and experience requirements for entry into profession
  2. Continuing professional development requirements
  3. Corporate governance regulations
  4. Professional standards
  5. Professional or regulatory monitoring and disciplinary procedures
  6. External review by a legally empowered third party of the reports, returns, communications, or information produced by the professional accountant
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18
Q

A CA is required to comply with the fundamental principles set out in the SAICA code of professional conduct, what are they?

A
  1. Integrity
  2. Objectivity
  3. Professional competence and due care
  4. Confidentiality
  5. Professional behavior
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19
Q

What does integrity implies?

A

Straightforwardness, honesty, fair dealing, and truthfulness in professional and business relationship.

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20
Q

A CA may not be associated with reports, returns, communication or other information where they believe the information is…

A
  1. Contains a materially false or misleading statements
  2. Contains statements or information furnished recklessly
  3. Omits or obscures information required to be included where such omission or obscuring would be misleading
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21
Q

What is implied with objectivity?

A

CA should not compromise their professional or business judgement because of bias, conflict if interest or the undue influence of others.

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22
Q

What is implied with professional competence and due care?

A

CA should maintain professional knowledge and skill at the level required and act diligently in accordance with the applicable technical and professional standards. He or she should also ensure that those working under his or her authority have appropriate training and supervision.

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23
Q

What is implied with confidentiality?

A

CA should refrained from:

  • disclosing outside the firm or employing organizational confidential information acquired as a result of professional or business relationship to their or to the advantage of a third party
  • using confidential information acquired as a result of professional or business relationship to their or to the advantage of a third party
24
Q

What is implied with professional behaviors?

A
  1. Publicity, advertising and solicitation
    • may not make exaggerated claims for the services that are able to offer
  2. Multiple firms
    • a individual is permitted to be a member of more than one registered auditing or other professional firm
  3. Signing of reports
    • a CA responsible for an engagement shall not delegate to any person who is not a partner, or fellow director the power to sign the audit, review or other assurance reports or certificates
  4. Recruiting
    • employment may not be offered to an employee of another CA without first informing the latter
  5. Responsibilities to colleagues
    • promote co-operation and good relations between members
25
Q

How do you deal with a ethical issue?

A
  1. Identify the ethical issue
  2. Identify the threats
  3. Identify the fundamental principle
  4. Consider significance
  5. Implement safeguards
  6. If safeguards do not reduce threat to acceptable level, take action
26
Q

What doe part B of code of professional conduct of SAICA deals with?

A

Applicable to chartered accountants in public practice

27
Q

What are some of examples of circumstance that may create self-interest threat?

A
  1. A member of assurance team having a direct financial interest in the assurance client
  2. A firm having undue dependence on total fees from a client
  3. A member of the assurance team having a significant close business relationship with an assurance client
  4. A firm being concerned about the possibility of losing a significant client
  5. A member of the audit team entering into employment negotiations with the audit client
  6. A firm entering into a contingency fee arrangement relating to an assurance engagement
  7. A CA discovering a significant error when evaluating the results of a previous professional service performed by a member of the CA’s firm
28
Q

What are some of examples of circumstances that may create self-review threat?

A
  1. The discovery of a significant error during the re-evaluation of the work of the CA in public practice
  2. A firm issuing an assurance report on the operation of financial systems after being involved in their design or implementation
  3. A firm having prepared the original data used to generate records that are the subject matter of the assurance engagement
  4. A member of the assurance team being, or having recently been, a director or officer of the client, of being employed by the client in a position to exert direct and significant influence over the subject matter of the engagement
  5. The firm performing a service for an assurance client that directly affects the subject matter information of assurance engagement
29
Q

What are some example of advocacy threats?

A

1, the firm promoting shares in an audit client

2. A CA acting as an advocate on behalf of an audit client in litigation or dispute with third parties

30
Q

What are some examples of familiarity threats?

A
  1. A member of engagement team having a close or immediate family relationship with a director or an officer of the company or an employee who is in a position to exert direct and significant influence over the subject matter of the engagement
  2. A former engagement partner being a director or officer of the client or an employee who is in a position to exert direct and significant influence over the subject matter of the engagement
  3. A CA receiving gifts or preferential treatment from a client, unless the value is trivial or inconsequential
  4. Long association of senior personnel with the assurance client
31
Q

What are some examples of intimidation threats?

A
  1. A firm threatened with dismissal, replacement or litigation in relation to a client engagement
  2. An audit client indicating that it will not award a planned non-assurance engagement contract to the firm if the firm continues to disagree with the Clint’s accounting treatment for a specific transaction
  3. A firm being pressured regarding the scope of the audit in order to inappropriately reduce audit fees
  4. A CA feeling pressured to agree with the judgement of an employee of a client because the employee has more expertise on the matter in question
  5. A partner of the firm informing a CA that he or she will not be promoted unless she or he agrees with an audit client’s inappropriate accounting treatment
32
Q

List some examples of firm-wide safeguard.

A
  1. Firm leadership that stresses the importance of compliance with the fundamental principles and establishes the expectation that members of an assurance team will act in the public interest
  2. Policies and procedures to implement and monitor quality control of engagement, including policies and the monitoring thereof with regard to independence and compliance with the fundamental principles.
  3. Using different partners and engagement teams with separate reporting lines for provision of non-assurance services to an assurance client
  4. Policies and procedures prohibiting individuals who are not members of an assurance team from inappropriately influencing the outcome of the engagement
  5. Timely communication, of a firm’s policies and procedures to all partners and professional staff and appropriate training and education on such policies and procedures
  6. Advising professional staff and partners of assurance clients and relate entities from which independence is required
  7. A senior member of staff to take responsibility for the firm’s quality control system
  8. A disciplinary mechanism to promote compliance with the policies and procedures
  9. Policies and procedure to encourage and empower staff to communicate to senior levels within the firm any issue relating to compliance with the fundamental principles that concern them.
33
Q

List some example of engagement specific safeguard.

A
  1. Involving an additional chartered accountant to review the work done or otherwise advise as necessary
  2. Consulting independent third parties, such as a committee of independent directors, a professional regulatory body or another chartered accountant
  3. Discussing ethical issues with those charged with governance of the client
  4. Disclosing the nature of services provided and the extent of fees charged to those charged with governance of the client
  5. Engaging another firm to perform or re-perform part of the engagement
  6. Rotation of senior assurance team personnel
34
Q

Examples of safeguards implemented by client.

A
  1. Persons other than management ratify or approve the appointment of firm
  2. Competent employees make managerial decisions
  3. Internal procedures to ensure objective choices in commissioning non-assurance engagement.
  4. A corporate governance structure that provide appropriate overnighting and communication regarding a firm’s services
35
Q

What do a public accountant consider before accepting a client or a specific engagement?

A

Whether there any circumstances which may create threat to compliance with the fundamental principles.

36
Q

What threats to behavior and integrity include questionable issue relating to a client?

A

Owners, managers and activities such as illegal activities, dishonesty and questionable financial reporting practice.

37
Q

What safeguards can be used to reduce the threat relating to client acceptance?

A

Obtaining knowledge and understanding of client, its owners, managers and those responsible for its governance and business activities or securing the client’s commitment to improve corporate governance practice or internal controls.

38
Q

What self interest threat to professional competence and due care is created during engagement acceptance?

A

If the engagement team does not possess or cannot acquire the competences necessary to perform the engagement.

39
Q

What safeguards can be used to prevent the self interest threat to professional competence and due care in terms of engagement acceptance?

A
  1. Acquiring an understanding of the nature of the client’s business, the complexity of its operations and the requirements, purpose, nature and scope of engagement
  2. Acquiring knowledge of relevant industries or subject matter, or relevant regulatory or reporting requirements
  3. Assigning sufficient staff with the necessary competences
  4. Using experts where necessary
  5. Agreeing on a realistic time frame for the performance of the engagement
  6. Complying with quality control policies and procedures
40
Q

Several circumstances may pose a conflict of interest and result in a threat to compliance with the fundamental principles. Examples include…

A
  1. Threat to objectivity - CA in public practice competes directly with a client or has a material business relationship with a direct competitor of a client
  2. Threat to objectivity - performs services for clients whose interests are in conflict or the clients are in dispute with each other
    The safeguards includes:
    - notifying the client of the firm’s business interest or activities that my result in a conflict of interest and obtaining the client’s consent in writing to act in such circumstances
    - notifying all relevant parties that the CA is acting for two or more parties where their respective interests a in conflict and obtaining their consent to act under the circumstances
    - notifying the client that the CA does not act exclusively for any one client in the provision of proposed service and obtaining their consent to do so
41
Q

A situation where a CA is asked to express a second opinion could create a threat to the fundamental principles and as such it should be identified and significance evaluated. What safeguards should be in place?

A
  1. Request permissions from the client to contact the existing accountant
  2. Communicate any limitations surrounding the opinion to the client
  3. Provide the existing accountant with a copy of the opinion
    Consider appropriateness if without opportunity to communicate to the existing accountant
42
Q

What are some threats in terms of lowballing?

A

A CA may quote whatever fees deemed appropriate and its not unethical to quote a lower fee but should still consider the self interest threat to professional competence and due care.
The safeguards includes:
- making client aware of the terms of engagement and in particular the basis on which fees are charged and service to which fees relate
- assignment of appropriate time and qualified staff to the task

43
Q

What is contingent fee?

A

Widely use for certain types of non-assurance engagements. A contingency fee can be defined as a fee calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work performed.

44
Q

What threat is related to contingency fee?

A

Self interest threat to compliance with the fundamental principles of objectivity

45
Q

What safeguards can be applied to prevent self interest threats to objectivity with regards to contingency fee?

A
  1. Basis of remuneration agreed in the engagement letter
  2. Disclosure to intended users of the service performed and the basis of remuneration
  3. Quality control policies and procedures
  4. Review of work performed by an objective third party
46
Q

The acceptance of referral or commission may give rise to self interest threats to objectivity and professional competence and due care, what are some safeguards that can be implemented for this?

A
  1. Disclosing to the client any arrangement to pay or receive a referral fee to or from another CA. This should be done in advance and in writing
  2. Obtaining the agreement, in advance, in writing from the client to commission arrangements in connection with the sale by a third party of goods or service to the client
47
Q

What threat to professional behavior could be created if service or achievements or products are marketed in a way that is inconsistent with the principles?

A

A self interest threat

48
Q

What threat could be created if a CA assumes custody of client monies or other assets otherwise permitted to do so by law?

A

A self interest threat to professional behavior and self interest threat to objectivity

49
Q

What are some safeguards for custody of client assets?

A
  1. Keep client assets separate from personal or firm assets
  2. Use such assets only for the purpose for which they were intended
  3. At all times, be prepared to account to any person who is entitled to such assets and any income, dividends or gains generated
  4. Comply with all relevant laws and regulations relevant to the accounting of those assets
50
Q

What safeguards could be in place for threats to objectivity for all services?

A

This refers to interest in or relationship with client or directors or officers or employees.

  1. Withdrawing from engagement team
  2. Supervisory procedures
  3. Terminating the financial or business relationship giving rise to the threat
  4. Discussing the issue with those charged with the governance of client or with higher management within the firm
51
Q

What are the requirements of independence of assurance engagement?

A
  1. independence of mind

2. Independence of appearance

52
Q

What self interest threat may be created for CA in business?

A
  1. Financial interests, loans or guarantees
  2. Incentive compensation arrangement
  3. Inappropriate personal use of corporate assets
  4. Concern over employment security
  5. Commercial pressure from outside the employing organization
53
Q

What self review threats could be created for CA in business?

A

Business decisions or data being reviewed and justified by the same CA who was responsible for making those decisions or preparing that data

54
Q

What familiarity threats could be created for CA in business?

A
  1. In a position to influence reporting or business decisions which may benefit an immediate family member
  2. Long association with business contracts influencing business decisions
  3. Acceptance of a gift or preferential treatment unless the value is clearly insignificant
55
Q

What intimidation threats could be created for CA in business?

A
  1. Threat of dismissal or replacement of the CA in business or a close or immediate family member over a disagreement about the application of an accounting principle or the way in which financial information is to be reported
  2. A dominant personality attempting to influence the decision making process
56
Q

What safeguards could be in place in a work environment?

A
  1. The employing organization’s systems of corporate oversight or other oversight structures
  2. The employer’s ethics and conduct programs
  3. Recruitment procedures emphasizing importance of hiring high calibre, competence staff
  4. Strong internal control
  5. Appropriate disciplinary procedures
  6. Leadership that stress the importance of ethical behaviors and the expectation that employees will act in an ethical manner
  7. Policies and procedures to implement and monitor the quality of the employee performance

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