Professional Ethics Flashcards
What is the explanation of a Self-Interest threat?
Occurs when a firm / member of the audit team has financial (or other) interests in the client.
Is reluctant to take action which would adversely affect this interest.
“Undue dependence”
“Reluctant to challenge management”
What are the Default Safeguards for a Self-interest threat?
Fee limits
EQCR
What is the explanation and default safeguards of a Self-review threat?
Auditors review their own work which is subsequently audited.
They may not want to admit errors in their own work.
“Reluctant to highlight issues”
“Not possible to be impartial”
Safeguard: Separate teams
What is the explanation and default safeguards of a Management threat?
Auditors take on responsibility of management, no longer seen as a 3rd party scrutinizing the business.
“Too involved”
“Make decisions on behalf of client”
Safeguards: Informed management
What is the explanation and default safeguards of a Familiarity threat?
Auditors are deterred from acting Objectively by close personal relationships.
“Too trusting”
Safeguards: Rotate staff
What is the explanation and default safeguards of a Intimidation threat?
Auditors are deterred from acting Objectively by threats, actual or perceived.
“Client exerting pressure”
“Aggressive behavior”
Safeguards: Explain you wont be intimidated
What is the explanation and default safeguards of a Advocacy threat?
Auditors promote the viewpoint or position of a client.
“Would not be seen as Independent”
Safeguard: Say No
What is the explanation of a Conflict of Interest threat?
Same audit firm audits 2 clients in the same industry or supply chain.
“Not acting in best interest of both parties”
“Confidential information may be leaked”
What are the safeguards of a Conflict of Interest threat?
Separate teams with information barriers.
Signed confidentiality agreements.
Inform both clients.
What are some general safeguards to overcome Ethical Threats? (5)
Consult ethics partner.
EQCR (must for listed).
Communicate with those charged with governance / audit committee.
Document everything.
Call ICAEW helpline.
What are the fee limits for Non-listed companies for Audit services?
10% without safeguards.
15% with safeguards.
What are the fee limits for Listed companies for Audit services?
5% without safeguards.
10% with safeguards.
What is the fee limit for Listed companies for Non-audit services?
< 70% of the average audit fee for the client.
Where does an Auditor have a ‘Duty to disclose’ confidential information?
ROCC
Required by a regulator.
Ordered by a court.
Comply with technical / professional standards (ML or terrorism).
Comply with quality review of professional body.
Where does an Auditor have a ‘Right to disclose’ confidential information? (3)
Client permission granted.
Public interest.
To defend the firm / provide evidence in legal proceedings.
