Professional Ethics

Question 1

Professional accountants are required to:

Answer 1

• Demonstrate competence.
• Uphold high professional standards (integrity).
• Comply with a strict code of ethics .
• Submit to enforcement mechanisms.

Question 2

What do technical experts have to do to be a professional?

Answer 2

Belong to a profession.

Question 3

What does ethical behaviour require?

Answer 3

• an understanding of ethical issues,
• a framework within which a responsible decision can be made
• an awareness of the consequences of such decisions.

Question 4

Ethics enable accountants to:

Answer 4

Critically examine a situation in which there is a conflict of loyalties and interests, involving issues that relate to roles and responsibilities.

Question 5

What is integrity?

Answer 5

Being straightforward and honest in all professional and business relationships, and not knowingly being associated with materially false or misleading statements.

Question 6

Identify the five types of ethical threats to professional independence

Answer 6

Self interest, self review, advocacy, familiarity and intimidation.

Question 7

What are the requirements that professional accountants must comply with:

Answer 7

• Technical standards, such as International Standards on Auditing
• The code of ethics
• Ethical and other standards set by professional bodies such as the XRB: NZAuASB
• The requirements of accounting standards, company law and securities regulations/regulators.
• Co-regulation of audit independence

Question 8

What is the Professional and Ethical Standard (PES) 1?

Answer 8

New Zealand’s professional ethical standards for accountants in NZ.

Question 9

What are the fundamental ethical principles in PES1?

Answer 9

Integrity, objectivity, professional competence and due care, confidentiality and professional behaviour

Question 10

What is objectivity?

Answer 10

Avoiding bias, conflicts of interest, or external pressures overpowering professional or business decisions is crucial.

Question 11

What does independence demand?

Answer 11

Independence of mind and independence in appearance which are vital for assurance tasks like audits.

Question 12

What is professional competence and due care?

Answer 12

Maintaining expertise, professional knowledge and skill to deliver services to clients or employers diligently, complying with technical and professional standards.

Question 13

What does confidentiality require?

Answer 13

That the professional doesn’t reveal information from professional or business relationships unless authorized by the client or legally obligated.

Question 14

What is the threat of self-interest?

Answer 14

The threat of inappropriate influence from financial or other personal interests.

Question 15

What is an example of self-interest threat?

Answer 15

• Financial interests,
• Incentive schemes or bonuses tied to the success of the client.
• Concerns about job security
• Inappropriate use of the client’s assets by the audit firm.
• Commercial pressure from the client or its affiliates.

Question 16

What is the threat of self-review?

Answer 16

Pertains to the effective evaluation of one’s own work or that of colleagues within the same firm or employer.

Question 17

What is an example of a self-review threat?

Answer 17

When assurance team need to form an opinion on their own work or work done by others in their firm.

Question 18

What is the advocacy threat?

Answer 18

The danger of compromising objectivity by excessively advocating for a client’s or employer’s position. This Can lead to questioning of auditor’s objectivity.

Question 19

What are examples of advocacy threat?

Answer 19

• Advocating for the client in legal or financial disputes.
• Promoting the client’s shares or bonds to potential investors.

Question 20

What is the threat of familiarity?

Answer 20

The threat of developing excessive sympathy or a predisposition due to a long or close relationship with a client or employer.

Question 21

What is an example of the familiarity threat?

Answer 21

Long standing relationship with the client which makes the auditor sympathetic to the firm and more likely to overlook mistakes.

Question 22

What is the threat of intimidation?

Answer 22

Actual or perceived pressures that may deter one from acting objectively.

Question 23

What are examples of intimidation?

Answer 23

Actual intimidation - Facing threats of dismissal from client if audit findings are not favourable.;
Perceived intimidation - respect for the client.

Question 24

What is a safeguard implemented by the profession?

Answer 24

Requirements for entering the profession, including educational, training, and experience criteria.

Question 25

What is a firm-wide or engagement-specific safeguard?

Answer 25

Quality control and review measures are in place for all client engagements.

Question 26

What is a safeguards created by the client?

Answer 26

Appointment of an independent firm to ratify the engagement.