audit curs 3
DESCRIPTION
Audit Curs 3TRANSCRIPT
Ethics for Professional Accountants
Auditing and Financial Control
- Course 3-- Course 3-
03.09.2015
WHAT ARE ETHICS?
E A sense of agreement in a society as to what
is right and wrong.
E Ethics represent a set of moral principles,
rules of conduct or values. rules of conduct or values.
– Ethics apply when an individual has to make a
decision from various alternatives regarding moral
principles.
Illustration 3.1
Objectives of Accountantancy
Profession
☺To work to the highest standards of
professionalismprofessionalism
☺To attain the highest levels of performance
☺Generally, to meet the public’s interest
IESBA - the Ethics Board
• The International Ethics Standards Board for
Accountants is an independent standard-
setting body that serves the public interest by
setting robust, internationally appropriatesetting robust, internationally appropriate
ethics standards, including auditor
independence requirements, for professional
accountants worldwide.
• These are compiled in the Code of Ethics for
Professional Accountants
The Code is divided into three
parts:
A, B, and C
• Part A establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework for applying those principles.
• Parts B and C illustrate how the conceptual framework is to be applied in specific situations.
• Part B applies to professional accountants in public practice.
• Part C applies to professional accountants in business.
The IFAC
Code of Ethics for Professional Accountants fundamental
principles for ALL Accountants:
1) Integrity
2) Objectivity
3) Professional Competence and Due Care
4) Confidentiality
5) Professional Behavior
Principles
1) Integrity A professional accountant should
be straightforward and honest in performing
professional services.
2) Objectivity: A professional accountant
should not allow bias, conflict of interest or
undue influence of others to override
professional or business judgments.
Principles
3) Professional Competence and Due Care: A
professional accountant has a continuing duty to
maintain professional knowledge and skills at the
level required to ensure that a client or employer
receives competent professional service based on receives competent professional service based on
current developments in practice, legislation and
techniques.
Principles
4) Confidentiality: A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific third parties without proper and specific authority.
5) Professional Behavior: A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
Conceptual Framework Approach
• A conceptual framework requires a
professional accountant to identify, evaluate
and address threats to compliance with the
fundamental principles, rather than merelyfundamental principles, rather than merely
comply with a set of specific rules which may
be arbitrary.
• If threats to ethics are not clearly insignificant,
a professional accountant should apply
safeguards to eliminate the threats or reduce
them to an acceptable level.
Threats and Safeguards (no longer related just to Independence, but to ethics)
Compliance with thefundamental principles maypotentially be threatened by abroad range of circumstances.Many threats fall into thefollowing categories:following categories:
• Self-interest threats
• Self-review threats
• Advocacy threats
• Familiarity threats
• Intimidation threats
Figure 3.5
Self-Interest Threat
A Self-interest threat occurs as a result of the
financial or other interests of a professional
accountant or of an immediate or close family
member;member;
Self Interest Threats Circumstances (In Part B)
• A financial interest in a client or jointly holding a financial interest with a client.
• Undue dependence on total fees from a client.
• Having a close business relationship with a client.
• Concern about the possibility of losing a client.• Concern about the possibility of losing a client.
• Potential employment with a client.
• Contingent fees relating to an assurance engagement.
• A loan to or from an assurance client or any of its directors or officers.
Self-Review Threat
Self-Review Threat occurs occur when a
previous judgment needs to be re-
evaluated by the professional accountant
responsible for that judgment.responsible for that judgment.
Self-Review Threats Circumstances (In Part B)
• The discovery of a significant error during a re-evaluation of the work of the public auditor.
• Reporting on the operation of financial systems after being involved in their design or implementation.
• Having prepared the original data used to generate records that are the subject matter of the engagement.
• A member of the assurance team being, or having recently been, a • A member of the assurance team being, or having recently been, a director or officer of that client.
• A member of the assurance team being, or having recently been, employed by the client in a position to exert direct and significant influence over the subject matter of the engagement.
• Performing a service for a client that directly affects the subject matter of the assurance engagement.
Advocacy Threat
An Advocacy Threat occurs when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised.Examples of circumstances that create advocacy Examples of circumstances that create advocacy threats :
Selling, underwriting or otherwise dealing in financial securities or shares of an assurance client;
Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.
Familiarity Threat
Familiarity Threat occurs when, by virtue
of a close relationship with an assurance
client, its directors, officers or employees,
an auditor becomes too sympathetic to the
client’s interests.client’s interests.
Familiarity Threats Circumstances (In Part B)
�Immediate family member or close family member who is a director, officer, or influential employee of the assurance client;
�A member of the assurance team having a close family member who, as an employee of the assurance client, is in a position to exert direct and significant influence over the subject matter of the engagement;
�A former partner of the firm being a director, officer of �A former partner of the firm being a director, officer of the assurance client or an employee in a position of significant influence;
�Long association of a senior member of the assurance team with the assurance client
�Acceptance of gifts or hospitality, unless the value is clearly insignificant, from the assurance client, its directors, officers or employees.
Intimidation Threat
Intimidation Threat occur when a professional
accountant may be deterred from acting
objectively by threats, actual or perceived
Examples of circumstances:Examples of circumstances:
Being threatened with dismissal or replacement in
relation to a client engagement.
Being threatened with litigation.
Being pressured to reduce inappropriately the extent
of work performed in order to reduce fees.
Safeguards
Safeguards that may eliminate or reduce such
threats to an acceptable level fall into two
broad categories:
(1) Safeguards created by the profession, (1) Safeguards created by the profession, legislation or regulation;
(2) Safeguards in the work environment.
Safeguards created by the profession, legislation or regulation
include:
Educational, training and experience requirements for entry into the profession.
Continuing professional development requirements.
Corporate governance regulations.
Professional standards.Professional standards.
Professional or regulatory monitoring and disciplinary procedures
External review by a third party of the reports, returns, communications or information produced by a professional accountant.
Firm-wide safeguards in the work environment may
include:
�Leadership that stresses the importance of
compliance with the fundamental principles
and the duty to act in the public interest.
�Quality control policies�Quality control policies
�Documented independence policies
�Policies against reliance on revenue received
from a single client.
Resolution of Ethical Conflicts
1. If the matter remains unresolved, the professional accountant should consult with other appropriate persons within the firm
2. Where a matter involves a conflict with, or within, an organization, consult with those charged with governance of the organization, such as the board of directors or the audit committee.
3. If a significant conflict cannot be 3. If a significant conflict cannot be resolved, obtain professional advice from the relevant professional body or legal advisors.
4. If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional accountant should, where possible, refuse to remain associated with the matter creating the conflict.
.
PART B Contents
Professional Appointment
• Client Acceptance - consider whether
acceptance would create any threats to
compliance with the fundamental principles
• Engagement Acceptance - agree to provide • Engagement Acceptance - agree to provide
only those services that the accountant is
competent to perform.
Changes in a Professional Appointment
Before accepting an appointment involving
services that were carried out by another the
proposed accountant should:
�Request permission from the �Request permission from the client to contact former auditor directly
�Contact existing auditor before beginning audit.
Information from Existing Auditor
Once client permission is obtained, the existing accountant should provide information honestly and unambiguously.
If the proposed accountant is unable to communicate with the existing accountant, the proposed accountant should try to obtain information about any possible threats by other means such as through accountant should try to obtain information about any possible threats by other means such as through inquiries of third parties or background investigations on senior management.
The existing account is no longer required to provide information in writing or regarding reasons not to take an audit.
Conflicts of Interest
An accountant
should take
reasonable steps to
identifyidentify
circumstances that
could pose a conflict
of interest.
Second Opinions
Providing a second opinion on the application of accounting, auditing, reporting or other standards or principles by or on behalf of a company that is not an existing client may cause threats to compliance with the cause threats to compliance with the fundamental principles
Safeguards such as seeking client permission to contact the existing accountant, describing the limitations surrounding any opinion and providing the existing accountant with a copy of the opinion may be required.
Fees and Other Types of Remuneration
An auditor may quote whatever fee deemed
to be appropriate. However, a self-interest
threat to professional competence and due
care is created if the fee quoted is so low that care is created if the fee quoted is so low that
it may be difficult to perform the engagement.
Commissions, Referral Fees, and Contingent Fees
$ A accountant in public practice should not pay or receive a referral fee or commission, unless she has established safeguards to eliminate the threats or reduce them to an acceptable level.acceptable level.
$ Contingent fees are widely used for certain types of non-assurance engagements. They may, however, give rise to self-interest threats to compliance with the fundamental principles.
Advertising and Marketing
When a professional accountant in public
practice solicits new work through advertising
or other forms of marketing, there may be
potential threats to compliance with the potential threats to compliance with the
fundamental principles.
What Advertising Cannot Do
An accountant should not bring the profession
into disrepute when marketing professional
services. She should be honest and truthful
and should not:and should not:
• Make exaggerated claims for services offered,
qualifications possessed or experience gained;
or
• Make disparaging references to
unsubstantiated comparisons to the work of
another.
Example of Bad Advertising
“At our firm we believe the financial success of any business requires regular monitoring and attention to the smallest detail. Without the objective oversight of a practiced eye, huge opportunities can slip by unnoticed, and minor problems can quickly evolve into significant issues. That’s why the experts at our firm maintain a issues. That’s why the experts at our firm maintain a close relationship with our clients all year round, rather
than merely reviewing financial records annually.”
Gifts and Hospitality
�Self-interest threats to objectivity may be
created if a gift from a client is accepted;
intimidation threats to objectivity may result
from the possibility of such offers being made from the possibility of such offers being made
public.
�Gifts or hospitality which are acceptable are
those which a reasonable and informed third
party, having knowledge of all relevant
information, would consider clearly
insignificant.
Custody of Client Assets
� To safeguard against a self interest threat to objectivity , a professional accountant in public practice entrusted with money (or other assets) belonging to others should:
�Keep such assets separately from personal or firm assets; andassets; and
�Use such assets only for the purpose for which they are intended
�At all times, be ready to account for those assets, and any income, dividends or gains generated
�Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets
Objectivity – All Services
�When providing any professional service the auditor should consider whether there are threats to compliance with the fundamental principle of objectivity resulting from having interests in, or relationships with, a client or directors, officers or relationships with, a client or directors, officers or employees.
�In an assurance service the auditor is required to be independent of the assurance client. Independence of mind and in appearance is necessary to express a conclusion, and be seen to express a conclusion, without bias, conflict of interest or undue influence of others.
Independence—Assurance Engagements
In the case of an assurance engagement it is in
the public interest and, therefore, required by
the Code of Ethics, that members of assurance
teams, firms and, when applicable, network teams, firms and, when applicable, network
firms be independent of assurance clients
Independence• Independence involves independence in appearance
and independence in mind.
• Independence in Appearance : The avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firm’s, or a member of the assurance team’s, integrity, objectivity or professional skepticism had been firm’s, or a member of the assurance team’s, integrity, objectivity or professional skepticism had been compromised.
• Independence of Mind The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism.
Independence in the Sarbanes-Oxley Act of 2002
TITLE II – AUDITOR INDEPENDENCE
Sec. 201. Services outside the scope of practice of auditors.
Sec. 202. Pre-approval requirements.
Sec. 203. Audit partner rotation.
Sec. 204. Auditor reports to audit committees.
Sec. 205. Conforming amendments.
Sec. 206. Conflicts of interest.
Sec. 207. Study of mandatory rotation of registered public accounting firms.
Sec. 208. Commission authority.
Sec. 209. Considerations by appropriate State regulatory authorities.
Independence in the Sarbanes-Oxley Act of 2002
Prohibited non-audit service contemporaneously with the audit include:
(1) bookkeeping or other services related to the accounting records or financial statements of the audit client;
(2) financial information systems design and implementation;
(3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
(4) actuarial services;(4) actuarial services;
(5) internal audit outsourcing services;
(6) management functions or human resources;
(7) broker or dealer, investment adviser, or investment banking services;
(8) legal services and expert services unrelated to the audit; and
(9) any other service that the Board determines, by regulation, is impermissible.
Part B of the Code illustrates how the conceptual framework contained in Part A is to be applied by professional accountants in to be applied by professional accountants in
public practice.
Examples Part B
Part C of the Code illustrates how the
conceptual framework contained in Part A is to be
applied by professional accountants in business.
Examples in Part C
Thank You for Your Attention
Any Questions?