Professional Documents
Culture Documents
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2.
Codes of Ethics
Accountants have set of multiple ethical responsibilities. They are required to act ethically towards and in the best interests of the following three groups: Their clients or employers The accounting profession The public at a large
Therefore the accounting bodies such as the International Federation of Accountants (IFAC) and the Association of Certified Chartered Accountants (ACCA) publish and issue sets of ethical standards that they expect their members to live by. Both of these standards identify and outline five main principles that all members must comply with at all times.
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F8 Audit & Assurance b) Ensure that clients or employers are provided with professional services based on the latest developments in the profession, both legislative and technical. c) Be professionally competent and make sound judgment while applying their professional knowledge and skills. 4. Confidentiality: The principle requires that the accountants never disclose any confidential information of their clients or organizations to any other third party (apart from their staff who are also bound by the same confidentiality). It is important to note that an accountant is still bound by the same confidentiality principle even after they have left the employment of the organization. 5. Professional behavior: Members should comply with relevant laws and regulations and should avoid any action that discredits the profession. Organizations also require that their members act ethically when marketing and promoting their services. Members should not engage in false advertising.
3.
i. ii. iii. iv. v.
Threats to Independence
Self-interest threat Self-review threat Advocacy threat Familiarity threat Intimidation threat
I.
i. ii. iii. iv. v. vi. vii. viii.
Self-Interest Threat
Cross Selling Hospitality Overdue Fees Contingent Fees Shares Financial Interest Undue Dependence upon One Client Low Balling
II.
i. ii. iii. iv. v. vi. vii.
Self-Review Threat
Corporate Consultancy Internal Audit Service Accountancy Service Clients Staff joining Auditor Information System Services Taxation Service Valuation Service
III.
i. ii. iii.
Advocacy Threat
Consultancy Dealing in Clients Shares Legal Services
IV.
i. ii. iii.
Familiarity
Association for Long Time Personal Relationships Assurance/Audit Staff joining Client
V.
i. ii. iii.
Intimidation
Close Relations Litigations Assurance Partner joining Client
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Usually this will be done through checklists. Whilst ethics should always be of paramount consideration it must be considered at these vital junctures: On acceptance of a new client At the planning stage of any audit At the completion stage of any audit Whenever additional, non-audit services are provided to any audit client If any event or change in circumstances occurs to either the auditor or the client
Safeguards I.
General Safeguards
Created by Professional Body
These include education, training and experience requirements for entry into the profession, continuing professional development requirements, disciplinary actions etc.
Created by Individuals
These include complying with professional development requirements, keeping record of contentious issues, using a mentor and keeping in contact with professional bodies.
II.
Specific Safeguards
It is important to note that the safeguards listed below are generally well regarded principles that can be applied across the world but national regulatory bodies may have their own ethical standards which are enforceable nationally. In certain circumstances limits and thresholds may be different. Common safeguards that should be employed by auditors include: Monitoring fees received from significant clients in comparison with total fees to reduce perception of dependence on clients. Rotating senior audit staff on an engagement after a fixed period to reduce familiarity threat Using separate teams and partners where additional services are offered to audit clients to reduce selfreview threat Using independent partners to review work where any ethical threat is identified Not accepting any gifts or hospitality, unless it is considered by a partner to be modest Not engaging in any business or financial relationship with client Not allowing individuals with personal or family ties to a client to be involved in the audit of that company Not providing accountancy or internal audit services for listed audit clients Maintaining an up to date engagement letter In cases where no safeguards are considered sufficient the auditor should resign
Rule of Confidentiality
External auditors are in a unique position of having a legal right of access to all information about their clients. It goes without saying that the client must be able to trust the auditor not to disclose anything about their business to anyone as it could be detrimental to their operations.
5|Page F8 Audit & Assurance As a basic rule, members of the audit team should not disclose any information to those outside the audit team or use the information for their own benefit. Exceptional circumstances where information can be disclosed to third parties are following: 1) 2) 3) 4) 5) 6) 7) Client is damaging public property Money laundering Drug trafficking Terrorism Act of treason By the order of court External Quality Control Review (QCR)
Conflicts of Interest
Any advice given should be in the best interests of the client. However, where clients interests conflict, the firms work should be arranged to avoid the interests of one being adversely affected by those of another. The steps to be taken by auditor are: Once a conflict is noted, you should advise both clients of the situation Reassure the client that adequate safeguards will be implemented, e.g. separate engagement leaders for each, separate teams, Chinese walls to prevent the transfer of client information between teams and a second partner review Suggest they seek additional independent advice If adequate safeguards cant be implemented, the auditor should resign.
Exceptional Circumstances
It is not necessary to send a new engagement letter in recurring audit but can be done in following circumstances: Change in the nature of business Change in the volume of business Misunderstanding regarding audit Requirement of country Change in management In Case of Parent and Component Company Send new letter if board of directors and shareholders are different in Parent and Component Company If this is a statutory requirement
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If the internal audit department is to be effective in providing assurance it needs to be: Sufficiently resourced, both financially and in terms of qualified, experienced staff Well organized, so that it has well developed work practices Independent and objective
For an effective internal audit system there are a number of best practice guidelines that can be uniformly applied to the structure and operations of any internal audit system, these include: Independent structure Qualified personnel Sufficient personnel Quality documentation Regular reporting Periodic review
Internal audit function can also assist the board in the following ways: Working in close co-ordination with the auditors Providing advice on the implementation of new standards and accounting practices Auditing the reports reviewed by the board
Internal Audit
To add value and to improve efficiency of operations. Limited Independence Board/Audit Committee
External Audit
To express opinion about the true and fair view of financial statements. High level of independence Shareholders
7|Page 4. Reportable to 5. Scope decided by 6. Approach 7. Requirement Board/Audit Committee Board/Audit Committee Risk based (whole business) Best practices
F8 Audit & Assurance Shareholders Standards Risk based (only financial statements) Statutory
3. Independence
The independence of the internal auditor is difficult to maintain. There is always the possibility that an internal auditor will be unduly influenced by comparatively senior level management.