7 Flashcards
(17 cards)
What’re ethics ?
A social, religious or civil code of conduct considered correct especially that of a particular group, profession or individual.
Name 3 of the 5 IESBA Code of Ethics
- Integrity
- Objectivity
- Professional Competence and Due Care
- Confidentiality
- Professional Behaviour
Name the 5 threats to Objectivity
- Self-review
- Self-interest
- Familiarity
- Advocacy
- Intimidation
What 2 times do accountancy and audit firms review ethical threats?
- Before initial engagement
- Before every audit
What 2 categories do safeguards fall into?
- Safeguards by profession, legislation and regulation
- Work environment safeguard
What’s self-review?
The audit has provided other services which may be the subject of audit scrutiny.
Eg, PWC does the consulting, auditing and so on.
What’s one method to safeguard self-review?
- A different team member and engagement partner for each service type offered
- If the clients staff transfer over to the audit firm they shouldn’t form part of the audit team for that specific client
What’s self-interest?
When the auditor has a personal interest in a client for a reason which affects objectivity. - reviewing their own work
For example, they own shares or receive high value gifts from clients.
Name a method to safeguard self-interest
- An employee who owns shares shouldn’t be in the audit team for the client
- Excessive gifts should be declined
- Employees who are transferring over to the client should inform part of the audit team for that client + if they do the work it should e reviewed.
What’s familiarity?
The client and the auditor know each other well and there is a formed relationship between them.
For example, known the client for years, personal relationship + firms staff move over to client.
Name one safeguard method for familiarity
- Change of engagement partner if they’ve been working with the client for a while (non-listed clients)
- Nobody can be an engagement partner for 5+ years and senior teams reviewed after 7 years (listed clients)
What’s the intimidation threat?
The auditor is being threatened in a way and may do what the client says.
Examples:
- Large proportion of firm’s income
- Unpaid fees from prior years
- Threatened litigation (going court)
- Threatened loss of client
What’re the rules for listed and non-listed clients on recurring fees?
Rules for non-listed clients
- Recurring fees can’t exceed 15% of my firm’s revenue: 10%-15% should be monitored
Rules for listed clients
- Client’s recurring fees can’t exceed 10% of audit firm’s revenue: 5% to 10% must be measured
What’s the safeguard to intimidation?
- Reduce fees to prevent exceeding FB limits + decline aspects of work or find new clients to increase revenue
- All fees paid before other work starts
- Consider resigning as the audit firm
What’s advocacy?
The auditor acts on behalf of the client (or represents them) it can cause the auditor’s judgment to be in line of the client.
Only with a third party.
Examples:
- Promoting a share issue
- Negotiating a bank loan
- Representing the client legally
What’re the safeguards to advocacy?
There are none. The auditor must decline the work.
Name a link between the 5 threats with an example
Unpaid fees - intimidation and self-interest
Personal relationship with client - familiarity and self-interest.
