Topic 3 - Ethics and Acceptance

Question 1

Code of Ethics

Answer 1

To behave, and be seen to behave in an ethical and professional manner - act in the public interest - increase confidence of the user - be independent of the client.

Question 2

Fundamental Ethical Principles

Answer 2

OPPIC

• Objectivity – Free from bias, conflict of interest or undue influence.
  -Professional Competence – professions knowledge and competent.
  -Professional Behaviour – members should comply with relevant laws.
  -Integrity – straightforward and honest.
  -Confidentiality – members should not disclose information to third parties (unless compelled by law or in the public interest).

Question 3

Conflict of Interest

Answer 3

• Audit competing firms; Inform both clients, separate engagement teams, confidentiality agreements, procedure to secure data filings and review safeguards.

Question 4

General Threats to Objectivity

Answer 4

-Familiarity – Long association with client, accepting gifts, former partner, family and personal relationships (potential self-interest and Intimidation threat). - Partner rotation after 7 years, extend for 1 year on approval.
-Intimidation – occur when you are deterred from acting objectively by threats.
-Self-interest – financial interest, fee dependency, close personal relationships, owing shares, outstanding fees.
-Self-review – occur when you are required to evaluate your own previous work or judgement.
-Advocacy – occur when you are being seen to represent someone or something.

Question 5

Fee Dependency

Answer 5

Listed company - do not exceed 15% for 2 consecutive years

Non-listed company - 30% for 5 consecutive years.

Question 6

Acceptance of Engagements

Answer 6

• Professional Clearance; permission to contact existing auditor, consider outgoing auditor’s response.
• Independence and Objectivity; only accept if objectivity is realistic
• Management Integrity; Intimidation, weak controls, criminal activities
• Money Laundering; client due diligence
• Adequate resources: to perform duties
• Risks; assess controls
• Fees; Acceptability/creditworthiness
• Professional Competence; can carry out duties
• Reputation of client; damage by association

Question 7

Matters Included in the Engagement Letter

Answer 7

-Objective and scope of audit
-Responsibilities of auditor
-Responsibilities of management - Preparation, controls, provide access to info.
-Identify preparation and framework of FS
-Form of reports
-Some transactions may not be detected
-Planning and performing the audit
-Management to provide written representation for FS
-Basis of fees and billing
-Acknowledgement of engagement letter by management