Topic 2 Flashcards
(21 cards)
All members of the professional accounting bodies are to comply with the fundamental ethical principles (APES 110, S. 100.4):
integrity objectivity professional competence and due care confidentiality professional behaviour.
integrity
To the obligation that all members of the professional bodies be straightforward and honest.
objectivity
Not allow personal feelings or prejudices to influence professional judgement.
Be unbiased.
professional competence and due care
Maintain knowledge and skill at a level required by professional bodies.
Keep up-to-date with changes in regulations and standards.
Continue education and work experience.
confidentiality
Refrain from disclosing information to people outside the workplace that is learned as a result of employment.
Exception if legal requirement to disclose.
professional behaviour.
Comply with rules and regulations and do not harm reputation of the profession.
Be honest in representations to current and prospective clients.
Independence
Independence is the ability to act with integrity, objectivity and with professional scepticism (questioning mind).
Lack of auditor independence impacts on credibility and reliability of the financial report.
The auditor must be, and be seen to be, independent.
Ethical threats
Threats to independence:
self-interest self-review advocacy familiarity intimidation.
self-interest
Can occur if the audit firm or its staff have financial interest in audit client.
self-review
Can occur when the assurance team need to form an opinion on their own work or work done by others in their firm.
advocacy
Can occur when an audit firm or assurance staff act, or is believed to act, on behalf of assurance client.
familiarity
Can occur when an audit firm or assurance staff act, or is believed to act, on behalf of assurance client.
intimidation.
Can occur when member of assurance team feels threatened by the client’s staff or directors.
Assurance team member unable to act objectively, fearing negative consequences.
Safeguards to independence:
Created by profession, legislation or regulation:
Created by clients:
Created by accounting firms:
Created by profession, legislation or regulation:
quality control standards
code of ethics
legislative requirement to be independent.
Created by clients:
corporate governance
policies and procedures
Created by accounting firms:
quality control procedures
client acceptance and continuance.
The first stage in any audit is client acceptance or continuance decision.
Step 1: assess client integrity.
Step 2: assess audit firm’s ability to meet ethical requirements, service client.
Step 3: prepare client engagement letter.
Client integrity - auditor should consider:
Reputation of client, management, directors, key stakeholders.
Client’s reason for switching auditor.
Client’s attitude to risk exposure and management.
Client’s attitude to using internal controls to mitigate risk.
Client acceptance
Ethical requirements:
Consider if any threats to fundamental principles arise from appointment (APES 110 s.210).
Auditor must ensure it has sufficient staff available with required knowledge to complete audit (professional competence and due care).
Consider potential safeguards and remedies.
Decline appointment if threat insurmountable.
Engagement letter (ASA 210; ISA 210):
Prepared by auditor, acknowledged by client.
Form of contract, can expand on obligations in Corporations Act.
Explains scope of audit, timing of various aspects of audit, overview of client responsibilities.
Confirms auditor’s right of access to information, independence considerations.
Sets fees.
