Ethics & Confidentiality Flashcards
5 fundamental principles (IMPORTANT)
- Integrity
-> straightforward and honest in all professional behaviour and business relationships - Objectivity
-> not to compromise professional or business judgements because of bias, conflict of interest or undue influence of others - Professional competence and due care
-> keep professional skills up to date
-> act diligently - Confidentiality
- Professional behaviour
-> comply with relevant laws and regulations
-> keep up professional knowledge and skills to give compete at service
Ethical threats (IMPORTANT)
-> situations that may damage the auditors independence
- Self interest
-may have a financial or other interest in the emitter and may not act with objectivity and independence - Self review
-auditor reviews a judgement they have made themselves, threat to objectivity and independence - Advocacy
-auditor is expected to defend or justify the position of the client and threatens objectivity and independence - Intimidation
-auditor cants act independently due to being scared due to intimidatory threats - Familiarity
-auditor and client may have a close relationship with
-> also management threats = informed management
Where there are threats the auditor must
- Eliminate the circumstance that creates the threat
- Apply safeguards to reduce the threats to an acceptable level
- Decline or end the specific professional activity
Safeguards
-> seek to reduce or eliminate threats
- Profession
-education and training
-setting of corporate governance regulations and professional standards
-monitoring of professional work (disciplinary procedures) - Work environment
-internal control system
-review procedures
-organisational codes of ethics and disciplinary procedures
-rotating senior personnel
-separate review and reporting for key engagement - Individual
-comply with professional standards
-maintaining records of contentious issues
-mentoring
-contacting professional bodies with queries
Self interest safeguards
- Lowballing = pre determined level of work. fees should not make a loss. Maintain records of time costs.
- Close business relationship = joint venture with a client is self interest so should be avoided. Buying things in the normal way is fine.
- Close family relationship = individual basis. If director or employee of audit has significant influence over the subject matter they should be removed
- Parter on the client board = partner or employee of audit firm should not serve on the board of an audit client.
- Gifts and hospitality = if trivial and inconsequential do not accept
- Overdue fees = payment of overdue fees should be paid before the next audit report is signed. If don’t pay consider resigning
- High % of fees to the firm (10% or 15%) = discuss with audit committee. Take steps to reduce dependency of client. Obtain internal and external quality reviews.
Self review safeguards
- Preparing accounting records and financial statements = use different staff from audit team, appropriate reviewer. Don’t make management decisions. Source data entries made by client. If listed client do not do it.
- Valuation services = can’t carry out valuation services that have material impact on the financial statements or have subjective judgement
- Taxation services = tax returns are okay. Tax planning okay if not cause material effect on financial statement. Different term for tax and audit
- Internal audit services = providing internal audit services to an audit client is prohibited
- Secondments = do not second staff to audit client
- IT services = do not design, provide or implement it
Advocacy safeguards
- Forbids legal services to audited entity if materially affected financial statements
- Different engagement teams with separate reporting lines for the provision of non assurance services to audit client
- Disclosure to the audit committee
- Withdraw if affects independence
- No bank negotiations
Intimidation safeguards
-> may only arise if assurance firm has something to loose
- Litigation (client sues) = disclose to audit committee the nature and extent. Removed affected individuals from audit team. If real, resign from engagement
- Assurance staff members move to employment with client = director of client in last two years then should resign.
- Client acting contrary to laws or regulations or against professional or technical standards = obtain advice from professional advisor
- Pressure from client to provide misleading info = consult with superiors at the client. Consult those charged with governance. Consult with relevancy professional body.
Familiarity safeguards
- Use different patterns/engagement teams with separate reporting lines for the provision of non assurance services to an audit client
- Rotate senior staff
-> audit partner consider rotating after 10 years and if remain then engagement quality reviews required
-> public interest entities (PIE) audit partner rotate after 5 years (5 years gap) - Withdraw if needed
- Should not provide recruitment services and no advising
How to resolve ethical conflict
- Should consider
-relevant facts
-relevant parties
-ethical issues involved
-fundamental principles related to the matter in question
-established internal procedures
-alternative course of action - Accountant should then consider which is the course of action that most alienates with the fundamental principles
- Accountant cannot determine best course of action they should refer to relevant departments for advice
- Better to come to conclusions in house but if need be can find help from professional body
Confidentiality
-fundamental ethical principle
-greatest risk is accidental disclosure of info
General data protection regulation (GDPR)
-> aims to give individuals control over their personal information
Data protection act & GDPR
-must ensure that data is protected. Business processes should be built with privacy default and should store data anonymously
-individuals have the right to access both their personal data and information about how it is being processed
-personal data can only be held if there is a specific lawful reason to do so, or if individual has explicitly opted in to allow storage of data
-must notify the information commission office (ICO) to state they process date. Must be informed of any breaches and lasts 1 year
-1 person in charge of this called data controller
-not notifying after breaches is a criminal offence
Safeguards to confidentiality
- Greater risk of accidental disclosed
- within business
- outside of business - Should
-not discuss client matters with any party outside accountancy firm
-do not discuss in public space
-do not leave files unattended
-do not leave files in car or unsecured private residency - Confer with senior staff if have concern
Disclosure of confidential info
Information acquired in the course of professional work should only be disclosed where
-consent has been obtained from client, employer or other proper source
-public duty to disclose
-legal or professional right or duty to disclose
Codes of ethics states only disclose when
1. Permitted by law and authorised by the client
2. Required by law
3. Professional duty
