Week 3 - Responsibilities & Ethics Flashcards
how do auditors handle bribery?
report to the NCA
NCA?
national crime agency
sarbanes-oxley act 2002?
- act passed in the US following Enron scandal
- US law but relevant to UK subsidiaries
client’s responsibilities under sarbanes oxley act 2002?
- CFO & CEO attest to the veracity of the FSs
- greater disclosure of the FS amendments during the audit
auditor’s responsibilities under sarbanes oxley act 2002?
- be subject to stricter independence rules
- PCAOB can inspect audit files
related party?
a company/person that can have undue influence over the client
why are related party transactions risky?
transactions may not be done at arms length
e.g., done for no consideration
must related party transactions be disclosed?
what happens if not disclosed?
yes, must be disclosed
undisclosed related party transactions are material by nature to the FS
management/auditor responsibilities for related party transactions?
management = duty to disclose related party transactions
auditor = responsible for responding to the risk of material misstatement caused by non-disclosure
audit procedures for identifying non-disclosure of related party transactions?
- get list of all related parties
- inspect investment transactions
- review board minutes
- detailed tests of transactions
- get confirmations that disclosure has been made
money laundering?
aims to disguise the origins of funds from criminal activities
money laundering includes…
tax evasion and saving costs to comply with laws & regs
how does the auditor respond to suspicions of money laundering?
- report to MLRO
- MLRO reports to NCA
auditor offences associated with money laundering include…
- failure to report
- failure to provide staff training
- tipping off the money launderer
sanctions for money laundering?
can result in imprisonment for up to 14 years
how must auditors operate when discussing suspicions of money laundering?
be very cautious
what code of ethics does the role around money laundering breach?
confidentiality
confidentiality must be breached and discuss with relevant authorities
if auditors identify problems during an audit, who should they report to?
the engagement partner first and foremost
does money laundering constitute bribery?
yes
should be treated the same
GDPR?
general data protection regulation
personal data and info must be securely protected
individuals can access their personal data & details around how it’s processed
must auditors ensure compliance with sustainability regulations?
yes
this is because non-compliance can lead to material fines, contingent liabilities or penalties
sources of ethical guidance?
- IFAC/IESBA
- FRC ethical standard
- ICAEW code
IESBA code of ethics?
- confidentiality
- integrity
- objectivity
- pro competence & due care
- pro behaviour
threats to objectivity?
- self interest
- self review
- familiarity
- management
- advocacy
- intimidation
greenwashing?
creating the illusion of being sustainable and climate friendly
ethically wrong and shows a lack of management integrity
can auditors accept gifts from their clients?
non trivial gifts, yes
trivial gifts, no - as it can build a familiarity/self interest threat
covered persons?
- includes staff & partners
- someone placed at the auditors’ disposal (e.g., an expert)
- anyone supervising the engagement (e.g., ethics partner)
- anyone able to influence the audit’s outcome
public interest entity (PIE)?
includes PLCs, large private companies, credit institutions
are audits and other assurance engagements subject to the ethical standard?
yes
auditor’s general responsibilities for compliance with the ethical standard?
- must have policies & procedures to ensure covered persons act in an ethical way
- leadership must establish a control environment to ensure compliance with policies & procedures
- audit firm must appoint an ethics partner
- breaches of ethics must be reviewed by EP and EP
- firm mustn’t be involved in management of client
- threats to objectivity must be considered at each stage
when a threat to ethics is identified…
- consider the effectiveness of the safeguards in place
- decline/discontinue the engagement if safeguards are ineffective
TWCG?
board members, trustees, executive management
must threats to safeguards be documented?
yes, must be documented in the engagement working paper
how must threats to ethics/problems be considered?
in consideration of past, present and future engagements
can an auditor own shares in the client?
no
self interest threat
can the audit firm make/accept loans to/from the client?
- can’t make loans to the client
- can’t accept loans
can an auditor be in business relationships with a client?
no
is dual employment between client and auditor allowed?
no
loan staff only allowable if less than 3 months and no management involvement
what happens if there’s potential employment between an auditor and the client?
remove from engagement and review their work
when a partner leaves the firm and works with the client, what happens?
must discontinue the engagement and can’t re-engage for at least 2 years
when an auditor leaves the firm to work for the client, what happens?
reconsider the composition of the audit team
if a member of the audit team has close relations with the client…
remove from the engagement
safeguards to long association?
- EQR
- partner rotation
- independent partner review
non-listed and listed client partner rotation rules
non-listed = after 10 years, consider rotation
listed = after 5 years, rotate partner (audit committee can extend to 7 years)
client becomes listed, and audit partner has served for 4+ years…
partner can serve for 2 more years max before mandatory rotation
how often must EQR reviewer be rotated?
every 7 years, can’t return for another 5 years
how often must other senior staff at an audit firm be rotated?
after 7 years, review safeguards
audit fees?
contigent fees?
overdue non-trivial fees?
non-audit fees?
audit fees = can’t be influenced by non-audit fees
contingent fees = not allowed
overdue non-trivial fees = cannot act as auditor
non-audit fees = 70% of last 3 years average audit fees max
listed client audit fees threshold?
5%, review safeguards
10%, cannot act
non-listed client audit fees threshold?
10%, review safeguards (consider safeguards & disclose)
15%, cannot audit
can auditors be judged on their ability to sell non-audit services?
no
what must auditors do if being sued by the client?
resign, intimidation threat
what must be done before accepting non-audit work from an audit client?
get a 3rd party to assess if it’ll impair objectivity
can an auditor ever provide management services?
no
safeguards when offering non-audit services?
- separate offices
- separate teams
- EQR
- confidentiality agreements
- information barriers
examples of prohibited services to PIEs?
- payroll
- bookkeeping
- valuation
- legal
- management decision making
- design/implementing controls
- underwriting
-financing - internal audit services
for non-PIE’s, services can be provided, but safeguards must be in place
examples of services prohibited to any client?
- internal audit services
- design/implementation of IT
- management decision making
- valuation service (if material to FS)
- corporate finance services
- recruitment/remuneration
- restructuring
how are small entities treated regarding?
- no EQR requirement
- when audit partner joins them, firm can continue as auditor as long as it’s disclosed
confidentiality remains unless…
- ordered by court
- required by regulator
- comply with quality review of pro body
- permission’s granted by client
- to defend against legal proceedings
- if it’s a matter of public interest
how can conflict of interest be prevented?
- separate engagement teams
- info barriers (NDA)
- independent partner safeguard
- separate offices
