SYLLABUS AREA A - Chap 4 Flashcards
What is the need for professional ethics?
Professional accountants have a responsibility to act in the public interest.
The purpose of assurance engagements is to increase the confidence of the intended users, therefore the users need to trust the professional who is providing the assurance.
How can assurance providers help build trust?
Assurance provider needs to be independent of their client.
Independence can be defined as having ‘freedom from situations and relationships where objectivity would be perceived to be impaired by a reasonable and informed third party.’
Practitioners need to behave and be seen to behave in an ethical, professional manner. This means taking active steps to comply with the Code of Ethics in every professional situation.
What is the difference between a rules based an principles based approach?
Rules based:
• May be easier to follow because it is clearly defined.
• Needs frequent updating to ensure the guidance applies to new situations.
• May encourage accountants to interpret requirements narrowly in order to get round the spirit of the requirements.
• Virtually impossible to be able to deal with every situation that may arise, particularly across various national boundaries and in a dynamic industry.
Principles based approach:
• Flexible, so can be applied to new, unusual or rapidly changing situations.
• Principles may be applied across national boundaries where laws may not.
• Requires the accountant to use professional judgment.
• Requires compliance with the spirit of the guidance.
• Can still incorporate specific rules for ethical situations likely to affect many firms.
ACCA and IFAC codes are principles based.
What are the consequences if ppl don’t follow code of ethics?
Practitioners should apply the spirit of the code to everyday practice. Professional bodies such as the ACCA have the right to discipline members who fail to comply with the code of ethics through a process of disciplinary hearings which can result in:
• Fines
• Suspension of membership
• Withdrawal of membership.
What are the fundamental principles of professional ethics?
- Integrity
- Professional competence & due care
- Professional behaviour
- Objectivity
- Confidentiality
Define integrity and how is it applicable to the auditor?
-means being straightforward / or being honest
-auditor needs to report the factual position / or the true and fair view of the company’s position to the shareholders (principal)
-auditor is under the agency relationship- and by virtue of being an agent need to be honest.
What is meant by professional competence and due care? How is it applicable to auditor?
Members should maintain professional knowledge and skill at a level required to ensure that a client or employer receives competent professional services.
Member should stay up to date about changes in IAS/IFRS/ ISA and other applicable laws and regulations.
Due care - the auditor should act diligently, exercise due care when performing audit, means the auditor should be careful in the conduct of audit, for e.g. the auditor should plan the audit before starting it.
Due care also consist of professional skepticism of the auditor. Professional skepticism
means auditor should have a questioning mind or auditor should be alert of any material misstatements in financial statement.
How can acca member exercise professional behaviour?
Members should comply with relevant laws and regulations and should avoid any action that discredits the profession.
Define objectivity
Members should not allow bias, conflicts of interest or undue influence of others to override professional or business judgments.
Define confidentiality
Members should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority or unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of members or third parties.
Define safeguards and explain the two types.
A safeguard is an action or measure that eliminates a threat, or reduces it to an acceptable level.
1-=Safeguards created by the profession, legislation or regulation, these include: requirements for entry into the profession, continuing professional development, corporate governance, professional standards, monitoring and disciplinary procedures, etc.
2- Safeguards created by the work environment, these include: rotation/removal of relevant staff from the engagement team, independent quality control reviews, using separate teams, etc.
What are the five threats to objectivity?
- Self interest
- Self-review
- Familiarity
- Advocacy
- Intimidation
How is confidentiality relevant to auditor
External auditors are in a unique position of having a legal right of access to all information about their clients.
The auditor can misuse confidential info for personal gains / trade secrets / future plans etc.
Auditor is bound to disclose if company is involved in something illegal like money laundering, corruption tax evasion etc
Auditor has to report to regulator if its an illegal matter
If it involves public, like surgeon in hospital are unqualified. Then first auditor will report to regulator, and then to public. (How? For that auditor has to seek legal advice)
As an auditor, reporting to a regulator is mandatory , disclosure to public is voluntary
conflict of interest threat and safeguards?
A conflict of interest arises when the same audit firm is appointed for two companies that interact with each other, for example:
• Companies which compete in the same market
• Companies which trade with each other
A conflict of interest may create a threat to the fundamental principles of objectivity and confidentiality.
It’s ok to have 2 clients who interact w each other as long as safeguards are applied
1) notify affected parties and seek permission
If one of the clients say no, you have to choose. U will most likely choose client who gives better fees.
If both give permission, further safeguards:
-Use different teams , partners and team members
-Sign a confidentiality agreement among both teams so if there is breach , legal action can be taken.
- set Procedures to prevent access to information, e.g. physical separation of the team members and confidential/secure data filing.
• Regular review of the application of safeguards by an independent person
of appropriate seniority.
• Advise the clients to seek independent advice.
If adequate safeguards cannot be implemented (i.e. where the acceptance/ continuance of an engagement would, despite safeguards, materially prejudice the interests of any clients) the firm must decline or resign from one or more conflicting engagements.
Threats?
Learn from BOOK.
