S2 professional ethics Flashcards
what is independence FRC code of ethics
accountability and credibility
Of mind - not affected by influences that comprise judgement
In appearance
Integrity or objectivity comprised to such an extent that it would be inappropriate for the firm to accept or continue the audit unless threats were eliminated
what are embedded conflicts
reliance of fees form clients
Reliance on repeat business
Too big to fail
Oversight and discipline of members
Resources to regulate profession
Management advisory services - positive value of audit to the client but negative impact on perceived independence
Inter firm competition - reducing fees to retain a client reduces independence
Length of tenure - auditors identify more with client mindset
Smaller firms have personal relationship with clients
Fear of losing clients or reputation
what is practitioner independence
state of mind
programming independence
Investigative independence - relevant information
Repeating independence - scope and findings
what is profession independence
close relationship with business
Organisation of the profession
what is guardian v commercial function
guardian = skill and competence and judgement to issue an audit opinion. Acting for shareholders and in the public interest
Commerce = reliance of fees from the client, repeat business, sustain professional working relationship
what is public interest benefit of corporate audit
protect from corporate collapse
Capital markets perceived as credible
Limited and plc companies - FS can be trusted and relied upon for economic decision making
Focuses on economic public interest
Maintain highest standards of professional competence and conduct
Develop policy in public interest to benefit economy and protect integrity of accounting profession
what are PIEs
Public interest entities
an issuer whose transferable securities are admitted to trading on a UK regulated market
Credit institution
A person who would be an insurance undertaking
If it fails, the public interest is not properly served and society pays the cost
To carry out audits of PIEs, they will have to be on the FRCs PIE auditor register to improve scrutiny and restore public trust
what is critique from lord sikka
can the contemporary audit model deliver an independent audit
How can audit quality be truly assessed if focus on compliance without considering organisational context
Are new and emerging forms of complex transactions auditable
Auditing is fundamentally flawed ad they are financially dependent on companies
what are suggestions from lord sikka
strengthen independence by involving the state
Greater transparency and disclosure of audit practice
Acknowledge some types of transaction cannot be audited
Extend responsibilities
what is IFAC code of ethics
requires compliance with five fundamental ethical principles
Independence
Sets out a conceptual framework
Identifies threats to principles and suggests how to identify them
Expected to be adopted
what is conceptual framework of ethics
Professional competence and due care
Integrity
Objectivity
Confidentiality
Professional behaviour
Three step approach indentify
Evaluate
Address threats
have an inquiring mind
Exercise professional judgement
Use reasonable and informed third party test
what is a string organisational culture
promoting ethical values
Tone at the top
Identify all covered persons
Quality management systems for audit
Regularly oversight of audit firms
Ultimate responsibility for ethical compliance - engagement partner
what are threats and the approach to them
Threats - identify, evaluate, address
self interest
Self review
Advocacy for an entity
Familiarity - close relationship
Intimidation
Management - making decisions that is the managements responsibility
what are circumstances creating threat
financial, business, employment and personal relationships
Login association with the audit engagement
Fees, remuneration and evaluation policies, litigation, gifts and hospitality
Non audit services
Prohibitions
