Why Trust an Auditor? Chapter 2 Flashcards
What are the 5 fundamental Principles?
Integrity, Objectivity, Professional Competence and Due Care. Confidentiality, Professional Behavior
What is Integrity?
Should be straight forward and honest in professional and business relationships
What is Objectivity?
Should not show bias, conflict of interest, not use influences to override professional judgement
What is Professional Competence and Due Care?
Should be qualified and up to date on professional knowledge and legislation. Diligent and have a standard of work that is clearly understood
What is confidentiality?
Should not disclose client information to 3rd parties without clients permission unless illegal, not use confidential information to benefit themselves
What is professional Behavior?
Should avoid breaking law and regulations and avoid behavior that discredits profession.
What are the stages in the conceptual framework?
- Identify Threat
- Decide how likely it is a fundamental principal will be broken.
- If likely, find a way to limit the risk of principal being broken.
What are the Conceptual Framework Safeguards?
Profession, Individual, Work
Examples of Profession Safeguards
Education and Training, Professional Development, Legislation, Corporate Governance
Examples of Individual Safeguards
Comply with Auditing Regulations, Keep in touch with Audit professionals and Professional Bodies, Use Independent Mentor
Examples of Work Safeguards
Firm Wide Professional Code of Ethics, Ethical Standards Relating to Audit Engagements
What Are the 5 Specific Threats?
Self Interest Threat, Self Review Threat, Advocacy Threat, Familiarity Threat, Intimidation Threat
Examples of Self Interest Threat
Holding Shares in Client, Obtaining Significant Income From one Client, Working with a client in other ventures. providing client with loans
Examples of Self Review Threat
Reporting on client controls the auditor designed, The auditor was formally a director at client,
Examples of Advocacy Threat
Promoting sale of clients shares, Supporting a client in court
Examples of Familiarity Threat
Auditor has close family member working at client, Accepting significant gifts from client, carrying out the audit over a long time
Examples of Intimidation Threat
Client threatens to fire auditor if accounts are qualified,
Client threatens to sue auditor for poor work unless concessions made.
Client demands auditor reduce fee and reduce audit work
What are Intimidation Threats?
Situations an auditor can act in an unbiased manner because of client threats
What Are Familiarity Threats?
Auditor gets too close to a client so may be biased. Independent Judgement is lost
What Are Advocacy Threats?
Auditor is seen to be promoting or supporting client . Objectivity compromised as auditor believes he must always support client.
What Are Self Interest Threats?
Conflict between the personal interests of the auditor and the client.Auditor is tempted to obtain personal benefit rather than provide appropriate service.
What Are Self Review Threats?
Auditor reviewing their own work
