Why Trust an Auditor? Chapter 2

Question 1

What are the 5 fundamental Principles?

Answer 1

Integrity, Objectivity, Professional Competence and Due Care. Confidentiality, Professional Behavior

Question 2

What is Integrity?

Answer 2

Should be straight forward and honest in professional and business relationships

Question 3

What is Objectivity?

Answer 3

Should not show bias, conflict of interest, not use influences to override professional judgement

Question 4

What is Professional Competence and Due Care?

Answer 4

Should be qualified and up to date on professional knowledge and legislation. Diligent and have a standard of work that is clearly understood

Question 5

What is confidentiality?

Answer 5

Should not disclose client information to 3rd parties without clients permission unless illegal, not use confidential information to benefit themselves

Question 6

What is professional Behavior?

Answer 6

Should avoid breaking law and regulations and avoid behavior that discredits profession.

Question 7

What are the stages in the conceptual framework?

Answer 7

1. Identify Threat
2. Decide how likely it is a fundamental principal will be broken.
3. If likely, find a way to limit the risk of principal being broken.

Question 8

What are the Conceptual Framework Safeguards?

Answer 8

Profession, Individual, Work

Question 9

Examples of Profession Safeguards

Answer 9

Education and Training, Professional Development, Legislation, Corporate Governance

Question 10

Examples of Individual Safeguards

Answer 10

Comply with Auditing Regulations, Keep in touch with Audit professionals and Professional Bodies, Use Independent Mentor

Question 11

Examples of Work Safeguards

Answer 11

Firm Wide Professional Code of Ethics, Ethical Standards Relating to Audit Engagements

Question 12

What Are the 5 Specific Threats?

Answer 12

Self Interest Threat, Self Review Threat, Advocacy Threat, Familiarity Threat, Intimidation Threat

Question 13

Examples of Self Interest Threat

Answer 13

Holding Shares in Client, Obtaining Significant Income From one Client, Working with a client in other ventures. providing client with loans

Question 14

Examples of Self Review Threat

Answer 14

Reporting on client controls the auditor designed, The auditor was formally a director at client,

Question 15

Examples of Advocacy Threat

Answer 15

Promoting sale of clients shares, Supporting a client in court

Question 16

Examples of Familiarity Threat

Answer 16

Auditor has close family member working at client, Accepting significant gifts from client, carrying out the audit over a long time

Question 17

Examples of Intimidation Threat

Answer 17

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

Question 18

What are Intimidation Threats?

Answer 18

Situations an auditor can act in an unbiased manner because of client threats

Question 19

What Are Familiarity Threats?

Answer 19

Auditor gets too close to a client so may be biased. Independent Judgement is lost

Question 20

What Are Advocacy Threats?

Answer 20

Auditor is seen to be promoting or supporting client . Objectivity compromised as auditor believes he must always support client.

Question 21

What Are Self Interest Threats?

Answer 21

Conflict between the personal interests of the auditor and the client.Auditor is tempted to obtain personal benefit rather than provide appropriate service.

Question 22

What Are Self Review Threats?

Answer 22

Auditor reviewing their own work