Ethics Flashcards
(12 cards)
What ethical principles should auditors follow
Integrity objectivity and independence
How is integrity defined
Being trustworthy, straight forward, honest, fair and candid, complying with the spirit aswell as the letter of applicable ethical principles, laws and regulations.
Objectivity definition
Acting and making decisions and judgments impartially, fairly and on merit, without discrimination, bias or compromise because of commercial or personal self interest and conflicts of interest.
Independence
A) independence of mind, the state of mind that permits the expression of a conclusion without being affected by influence that compromise professional judgment.
B) independence in appearance, the avoidance of facts and circumstances that are so significant a reasonable third party would be likely to conclude
Problem with audit and non audit services
Auditing:
Auditors being too familiar with staff and directors at their clients
Auditors having longstanding relationships with clients
The independence and objectivity being influenced by the auditors receiving high fees for non audit services
Non auditing services:
Audit firms often offer other services such as tax services, these can be much more profitable than audit services
Threats to independence include, management, self review and self interest threats
And potentially conflict of interest
Ethical threats
Self interest
Self review
Management
Advocacy
Familiarity
Intimidation
Self interest
This arises when the auditor has financial or other interests which might cause them to be reluctant to take actions that would be adverse to the interests of the audit firm
Self review
This arises when the results of a non audit services performed by the auditor or by others within the audit firm are reflected in the amounts included or disclosed in the financial statements. In the course of the audit the auditor may need to reevaluate the work performed in the non audit service
Management
Paragraph 30 prohibits partners and employees of the auditor firm from taking decisions on behalf of the management of the audited entity. Also can arise when the audit firm chooses to provide a non audit service
Advocacy
This arises when the audit firm undertakes work that involves acting as an advocate for an audit entity and supporting a position taken by management for example legal
Familiarity
A threat arises when the audit is predisposed to accept or is insufficiently questioning the audited entity’s point of view
Intimidation
Threat arises when the auditors conduct is influenced by fear or threats
