Professional Requirements Flashcards
What are the five fundamental principles of professional ethics in auditing?
Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behavior.
What is the principle of integrity in professional ethics?
Integrity means auditors must be straightforward, honest, and truthful in all professional and business relationships.
What is meant by objectivity in auditing?
Objectivity ensures auditors do not allow bias, conflicts of interest, or undue influence to affect their judgment.
How does professional competence and due care apply to auditors?
Auditors must maintain their knowledge and skills to ensure they provide high-quality services that comply with relevant laws and standards.
When is an auditor allowed to breach the confidentiality principle?
When required by law, regulatory authorities, or when disclosure is in the public interest (e.g., fraud or money laundering cases).
What does the professional behavior principle require from auditors?
Auditors must comply with laws, avoid any actions that discredit the profession, and act in the public interest.
What are the five major threats to auditor independence?
Self-interest, Self-review, Advocacy, Familiarity, and Intimidation threats.
How can auditors mitigate the self-interest threat?
By avoiding financial relationships with the client, ensuring fees are reasonable, and having external quality reviews.
What is a common safeguard against familiarity threats?
Rotating audit partners regularly to prevent over-familiarity with the client.
Why does providing non-audit services to audit clients create an independence risk?
Because it may result in a self-review threat, where auditors evaluate their own work, compromising objectivity.
What are the key safeguards to maintain auditor independence?
Firm-level controls, partner rotation, prohibition of certain non-audit services, and disclosing relationships or conflicts of interest.
What legal and regulatory frameworks govern auditors in Malawi?
The Public Accountants and Auditors Act and the Companies Act.
What are the qualification requirements for an auditor in Malawi?
Must be a member of a recognized accounting body and meet the Public Accountants and Auditors Act requirements.
What are the auditor’s responsibilities regarding illegal acts by a client?
Identify material misstatements due to fraud or non-compliance, report to management, and consider legal and ethical duties before further action.
When should an auditor report a client’s illegal activities to external authorities?
When required by law, if the client refuses to take corrective action, or if public interest is at risk.
What is the role of an engagement letter in professional auditing?
It outlines the scope, responsibilities, and terms of the audit, protecting both the auditor and the client.
What are the ethical guidelines for advertising audit services?
Advertising must be truthful, not misleading, and must not discredit competitors or the profession.
Is it ethical for an audit firm to offer services at extremely low fees to attract clients?
No, this is known as lowballing and may compromise audit quality due to cost-cutting on critical procedures.
Can an auditor pay commission or offer gifts to obtain professional work?
No, this violates professional ethics as it can compromise independence and lead to conflicts of interest.
How can an audit firm ethically attract new clients?
Through reputation, referrals, transparent marketing, and demonstrating expertise while complying with professional standards.
What is the purpose of ISQC 1?
To establish quality control standards for audit firms to ensure audits are performed with consistency, compliance, and professionalism.
What are the six key elements of ISQC 1?
Leadership responsibilities, Ethical requirements, Client acceptance and continuance, Human resources, Engagement performance, Monitoring of audit quality.
How does client acceptance and continuance affect audit quality?
Audit firms must assess potential clients for ethical concerns, financial stability, and conflicts of interest before accepting an engagement.
Why is engagement performance monitoring important?
It ensures audits are conducted according to regulatory standards and identifies areas for improvement.
What does NOCLAR stand for, and why is it important?
Non-Compliance with Laws and Regulations, referring to an auditor’s responsibility to address and report illegal acts by the client.
What steps should an auditor take when they suspect money laundering?
Gather sufficient audit evidence, report findings to senior management, and escalate to regulatory authorities if necessary.
What actions should an auditor take if a client refuses to correct a material misstatement?
Discuss with senior management and the board, consider withdrawing from the engagement, and report to external regulators if required.
What is independence?
Independence is an atitude of mind that is comprised of integrity and objectivity in the approach to professional work.
an auditor must be and be seen to be independent
Why is independence necessary?
It helps auditors give an unbiased opinion of financial statements.
Identify and explain the two forms of independence?
- Independence of mind - this is a state of mind that allows the auditor to provide an opinion without being affected by influences that compromise professional judgement.
- Independence of appearance - this is the avoidance of facts and circumstances in which an external observer such as a shareholder would conclude that the auditors integrity, objectivity and professional skepticism is compromised.
R.I.P
Describe the three types of independence?
- Programming Independence - this is a type of independence that protects the auditors ability to choose the most appropriate strategy when conducting an audit.
- Investigative Independence - this type of independence protects the auditors ability to implement audit strategies in whatever manner they consider necessary.
- Reporting Independence - this type of independence protects the auditors ability to choose to reveal any information they deem is ncessary for disclosure.
Explain the importance of each of the three types of independence?
- Programming independence
- It is important because audit strategies have to adapt to the growth of the clients business and when the client starts conducting new activities.
- Audit techniques are constantly being updated - Investigative independence
- It is important because the collection of audit evidence is a crucial process in the audit and should not be hindered in any way by the client
- The company must answer questions relating to their accounting treatment or business when asked - Reporting Independence.
- It is important because an auditors independence is likely to be compromised when directors have been misleading shareholders by falsifying accounting infromation and therefore they will attempt to prevent the auditor from disclosing this.
