What does professional accountants have a responsibility for?
To act in the public interest
What is independance?
Independence is freedom from situations and relationships would be perceived to be impaired by a reasonable and informed third party.
What are the two approaches to ethical guidance?
Principle based and rules based
What approach does the conceptual framework relies on?
What does the principle based approach encourage accounts to do?
What does the ethics based approach encourage?
May encourage accounts to interpret requirements narrowly in order to get round the spirit of the requirements.
What are the 5 fundamental ethical principles?
- Professional behaviour
- Professional competence and due care
What is the definition of integrity?
Members should be straightforward and honest in all professional and business relationships
What is the definition of objectivity?
Members should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
What is the definition of professional behaviour?
Members should comply with relevant laws and avoid any action that would discredit the profession.
What is the definition of confidentality?
Information on clients must not be disclosed without appropriate authority or used for personal advantage or members or third parties.
What is the definition of professional competence and due care?
Members should maintain professional knowledge and skill at an appropriate level and should act diligently ub accordance and professional standards.
What are the threats to independence?
Self Interest Familiarity Self review Advocacy Intimidation
What is a self interest threat?
Where the auditor has a financial or other interest that will inappropriately influence their judgement or behaviour
What is a familiarity threat?
The auditor becomes too sympathetic to or trusting of a client and loses professional scepticism
What is a self review threat?
The auditor will be unlikely to admit to errors in their own work, or may not identify the error in their own work
What is a advocacy threat?
Promoting the position of the client or representing them in some way
What is a intimidation threat?
Actual or perceived threat pressures from the client, or attempts to exercise undue influence over the assurance provider.
What are some examples of self interest threats?
Owning shares, fee dependancy, gifts and hospitality, employment with the client, overdue fees
What are some examples of familiarity threats?
Movement of staff between staff/client
What are some examples of self review threats?
Self reviewing, accounts prep, internal audit, tax calculations
What are some examples of advocacy threats?
Representing the client, promoting the client or negotiating on the clients behalf
What are some examples of intimidation threats?
Fee dependancy, audit partner leaves to join the client, personal relationships and litigation with the client
When can confidential information about a client be released?
- Permitted by law and is authorised
- Required by law
- Professional duty or right to disclose when not prohibited by law
What can a conflict of interest arise?
When a audit firm is appointed for two companies that interact with each other
What must an audit firm do when conflict on interest arises?
Work must be arranged to avoid the interests of one being adversely affected. The firm must contact all affected parties and obtain consent.
What safeguards should be put in place when a conflict of interest arises?
Separate engagement teams, procedures to prevent access to information, signed confidentiality agreements by the team members, regular review of the applications of safeguards by an independent partner.
What does ISA 210 Agreeing the terms of audit engagements require?
- Determine whether the financial reporting framework to be applied in the preparation
- Agreement of management that is acknowledge and understands its responsibilities (preparing statements, internal control necessary for the preparation to be free from material misstatement, providing the auditor with access to information)