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AS > Integrity, Objectivity And Independence > Flashcards

Integrity, Objectivity And Independence Flashcards

1
Q

How to achieve confidence in financial reporting

A
  1. Be objective
    In reaching the opinion on the FS
  2. Demonstrate independence
    From the audit client
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2
Q

3 concepts to confidence

A
  1. Integrity
  2. Objectivity
  3. Independence
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3
Q

Integrity

A

Not just honesty
But fair dealing
And truthfulness

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4
Q

Objectivity

A

Excluding bias
Regard to all considerations
Relevant to the task at hand

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5
Q

Independence

A

Freedom from situations
And relationships
That may lead a reasonable and informed 3P
To conclude that objectivity is impaired

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6
Q

Type of threat: financial internet

A

Self interest threat

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7
Q

Type of threat: business relationships

A

Self interest threat

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8
Q

Type of threat: employment with audit firm and client

A

Self interest threat

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9
Q

Type of threat: audit partner leaves to take up employment with a client

A

Self interest threat

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10
Q

Type of threat: employee of audit firm negotiating employment with a client

A

Self interest threat

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11
Q

Type of threat: close personal and family relationships

A

Self interest threat

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12
Q

Type of threat: gifts and hospitality

A

Self interest threat

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13
Q

Type of threat: loans

A

Self interest threat

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14
Q

Type of threat: overdue fees

A

Self interest threat

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15
Q

Type of threat: contingent fees

A

Self interest threat

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16
Q

Type of threat: fee dependence (non listed client)

A

Self interest threat

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17
Q

Type of threat: fee dependence (listed client)

A

Self interest threat

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18
Q

Type of threat: lowballing

A

Self interest threat

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19
Q

Type of threat: fee cap for listed clients

A

Self interest threat

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20
Q

Type of threat: client staff joins the audit firm

A

Self review threat

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21
Q

Type of threat: audit staff complete loan assignment to client

A

Self review threat

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22
Q

Type of threat: accounting services offered to an audit client

A

Self review threat

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23
Q

Type of threat: valuation services offered to an audit client

A

Self review threat

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24
Q

Type of threat: preparing tax calculations for accounting entities in an audit client

A

Self review threat

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25
Q

Type of threat: internal audit services offered to an audit client

A

Self review threat

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26
Q

Type of threat: IT services offered to an audit client

A

Self review threat

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27
Q

Type of threat: recruitment services provided to an audit client

A

Familiarity threat

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28
Q

Type of threat: close family or personal relationships

A

Familiarity threat

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29
Q

Type of threat: corporate finance services offered to audit client

A

Advocacy threat

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30
Q

Type of threat: legal services offered to an audit client

A

Advocacy threat

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31
Q

Type of threat: representing an audit client in a tax tribunal or court to resolve a tax dispute

A

Advocacy threat

32
Q

Type of threat: close family or personal relationships

A

Intimidation threat

33
Q

Type of threat: business relationships

A

Intimidation threat

34
Q

Type of threat: audit partner leaves to take up employment with a client

A

Intimidation threat

35
Q

Type for threat: actual or threatened litigation

A

Intimidation threat

36
Q

Type of threat: any additional non-audit service provided to an audit client where the auditor may take on a management role

A

Management threat

37
Q

Ethical guidance: financial interest

A

Not allowed
For firm, partner, audit team member, immediate family

38
Q

Ethical guidance: business relationships

A

Not allowed

39
Q

Ethical guidance: employment with audit firm and client

A

Dual employment prohibited

40
Q

Ethical guidance: audit partner leaves to take employment with a client

A

Firm should resign as auditor

Cannot retake for 2 years

41
Q

Ethical guidance: Employee of audit firm negotiating employment with a client

A

Employee to inform audit firm

Firm to remove the employee from the engagement
And perform a review of their recent work on the client

42
Q

Ethical guidance: close personal and family relationships

A

Shouldn’t work on the engagement

43
Q

Ethical guidance: gifts and hospitality

A

Only if value is trivial

44
Q

Ethical guidance: loans

A

Auditor->Client loans prohibited

Client->Auditor loans prohibited
Unless made by a bank in normal course of business

45
Q

Ethical guidance: Overdue fees

A

(Akin to a loan)

Consider resignation if fees Ramon unpaid

46
Q

Ethical guidance: contingent fees

A

Prohibited

47
Q

Ethical guidance: fee dependence (non listed client)

A

When regular fee income over 10% firm’s fee income:
1. Disclose to ethics partner
2. Disclose to governance at client
3. Implement independent quality control review of audit

When regular fee income exceeds 15% of the firm’s fee income: Cannot act as auditor

48
Q

Ethical guidance: fee dependence (listed client)

A

Regular fee income over 5% firm’s fee income:
1. Disclose to ethics partner
2. Disclose to governance at client
3. Implement independent quality control review of the audit
4. Seek to reduce fees

When over 10%: Cannot act as auditor

49
Q

Ethical guidance: lowballing

A

Firm can charge any fee

But engagement partner should document that:
Adequate resources have been allocated in order to comply with auditing and ethical standards

50
Q

Ethical guidance: fee cap for listed clients

A

Total fees from non-audit services must be no more than 70% of the average audit fee of the last 3 years

51
Q

Ethical guidance: client staff joins the audit firm

A

No involvement in the audit for 2 years

52
Q

Ethical guidance: audit staff complete loan assignment to client

A

Prohibited for audit staff to be temporarily ‘loaned’ to client

53
Q

Ethical guidance: accounting services offered to an audit client

A

Non-listed clients: allowed with safeguards e.g.
Separate teams
Mechanical/technical work only
Quality control review of audit

Listed client: Not allowed

54
Q

Ethical guidance: valuation services offered to an audit client

A

Non-listed clients: Not allowed if material and subjective
If material, allowed with safeguards:
1. Separate teams
2. Second partner review
3. Management acknowledge responsibility for valuation

Listed clients: not allowed

55
Q

Ethical guidance: preparing tax calculations for accounting entries in an audit client

A

Non-listed clients: allowed with safeguards
1. Separate teams
2. Review of tax work by independent tax partner
3. Quality control review of audit

Listed clients: Do not prepare tax calculations for the purpose of making material accounting entries

56
Q

Ethical guidance: internal audit services offered to an audit client

A

Prohibited

57
Q

Ethical guidance: it services offered to an audit client

A

Prohibited when relating to accounting or financial management system
Of where they involve taking the role of management

58
Q

Ethical guidance: recruitment services provided to an audit client

A

Prohibited

Including advising on appointment of director or employee, or remuneration package

59
Q

Ethical guidance: close family or personal relationships

A

Shouldn’t work on the audit

60
Q

Ethical guidance: non listed: engagement partner

A

Review independence after 10y
Rotate or continue with safeguards:
1. Document reasons
2. Disclose to client
3. Consider other safeguards

61
Q

Ethical guidance: listed: engagement partner

A

Rotate off after 5y
(Can extend to 7 with audit committee approval)

No return for 5y

62
Q

Ethical guidance: listed: quality control review partner

A

Rotate off after 7y

No return for 5y

63
Q

Ethical guidance: non listed client becomes listed: engagement partner

A

Take previous service into account

Of already served more than 4y can only continue for 2y

No return for 5y

64
Q

Ethical guidance: listed: other senior staff

A

Review independence after 7y

65
Q

Ethical guidance: corporate finance services offered to audit client

A

Not allowed to:
Promote
Deal in
Or underwrite
Client’s shares

Other CF services:
Risks must be appraised
And safeguards implemented where possible
E.g. separate teams, 2nd partner review, disclosures to audit committee

66
Q

Ethical guidance: legal services offered to an audit client

A

Can’t be solicitor representing client in legal case

Other legal services:
Risks must be appraised
Safeguards implemented where possible

67
Q

Ethical guidance: representing an audit client in a tax tribunal or court to resolve a tax dispute

A

Prohibited if:
Issue is material to FS

Otherwise:
With safeguards:
Separate teams
Advice from external tax professional

68
Q

Ethical guidance: close family or personal relationships

A

Don’t work on audit

69
Q

Ethical guidance: business relationships

A

Audit firm can’t have business relationships with client

70
Q

Ethical guidance: audit partner leaves to take up employment with a client

A

Firm resigns as auditor

Cannot retake for 2y

71
Q

Ethical guidance: actual or threatened litigation

A

Disclose to TCWG at client

Consider resignation

72
Q

Ethical guidance: any additional non-audit service provided to an audit client where the auditor may take on a management role

A

Don’t take on management roles

Use the engagement letter to clarify:
Mngmnt responsibility for decision making
Limiting audit firm involvement in mechanical/technical work

Establish informed management

73
Q

When to establish Informed management

A

When auditors believe the member of management designated by client to receive results of a non-audit service provided by the auditors have the capacity to make independent management judgements and decisions on the basis of the info provided

74
Q

Things professional accountants should consider when faced with an ethical conflict

A

Relevant facts and parties
Ethical issues involved
Fundamental principles related
Established internal procedures
Alternative courses of action

75
Q

If appropriate course of action in ethical conflict still not clear what should the accountant do?

A

Refer the matter:

  1. In house
    E.g. to the ethics partner
  2. Externally
    E.g. ICAEW ethics helpline
76
Q

ICAEW code of ethics advice to accountants in conflicting situations in industry

A
  1. Try to resolve the matter INTERNALLY
  2. Obtain advice from the ICAEW
  3. Seek LEGAL ADVICE
  4. Consider RESIGNATION
    As last resort

AS (15 decks)

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