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Chapter Three

This chapter discusses professional ethics for accountants. It outlines fundamental principles like objectivity, professional behavior, competence, integrity, confidentiality, and addresses threats like self-interest, self-review, advocacy, and intimidation. Safeguards against threats are created by the profession through standards and regulations, and in the work environment through measures like staff rotation. Audit firms obtain clients through direct requests, advertising, or competitive tendering, and outline the terms of the engagement in a letter.

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Vida Salehi
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7 views36 pages

Chapter Three

This chapter discusses professional ethics for accountants. It outlines fundamental principles like objectivity, professional behavior, competence, integrity, confidentiality, and addresses threats like self-interest, self-review, advocacy, and intimidation. Safeguards against threats are created by the profession through standards and regulations, and in the work environment through measures like staff rotation. Audit firms obtain clients through direct requests, advertising, or competitive tendering, and outline the terms of the engagement in a letter.

Uploaded by

Vida Salehi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter Three

The need for professional ethics

• Professional accountants have a responsibility


to act in the public interest.

• The purpose of assurance engagements is to


increase the confidence of the intended users,
therefore the users need to trust the
professional who is providing the assurance.
The IFAC and ACCA codes and the conceptual
framework
The fundamental principles
The fundamental principles

• Objectivity: Members should not allow bias,


conflicts of interest or undue influence of others
to override professional or business judgments.

• Professional behavior: Members should comply


with relevant laws and regulations and should
avoid any action that discredits the profession.
The fundamental principles

• Professional competence and due care: Members


should maintain professional knowledge and skill
at a level required to ensure that a client or
employer receives competent professional services
based on current developments in practice,
legislation and techniques.

• Integrity: Members should be straightforward and


honest in all professional and business
relationships.
The fundamental principles

• Confidentiality: Members 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 authority
• or unless there is a legal or professional right or duty to
disclose.
• Confidential information acquired as a result of
professional and business relationships should not be
used for the personal advantage of members or third
parties.
Threads and Safeguards
Definition and examples of threads

Self-interest threads
• Where the auditor has a financial or other interest in
the client.
• A financial or other interest that will In-
appropriately influence the judgment or behavior of t
he assurance provider.
Threads and its safeguards
Threads and its safeguards
Threads and its safeguards
Threads and its safeguards
Threads and its safeguards
Threads and its safeguards
Threads and its safeguards
Threads and its safeguards
Self-Review Threat

• Where non-audit work is provided to an audit client and


is then subject to audit, the auditor will be unlikely to
admit to errors in their own work, or may not identify the
errors in their own work
Self-Review Threads and its safeguards
Self-Review Threads and its safeguards
Self-Review Threads and its safeguards
Self-Review Threads and its safeguards
Self-Review Threads and its safeguards
Self-Review Threads and its safeguards
Advocacy threats
• Promoting the position of a client or representing them in some
ways would mean the audit firm is seen to be ‘taking sides’ with
the client

Examples include:
• Promoting a share issue for an audit client.
• Representing the client in court or in any dispute where the
matter is material to the financial statements
• Negotiating on the client's behalf for finance.

The audit firm must not act for the audit client in this way. Any reque
st for such services must be politely declined
Intimidation threats
• Actual or perceived pressures from the client or
attempts to exercise undue influence over the
assurance provider
• E.g. Actual or threatened litigation between the
auditor and audit client.
Intimidation threats

• Intimidation can arise from some of the same


situations mentioned above. The safeguards to
address these threads are the same as to address the
other threats
– Fee dependency
– Personal relationships
– Audit partner joining the client
– Litigation with between the audit firm and client.
Identifying the threats

• Firms must establish procedures to:


Identifying the threats

• A safeguard is an action or measure that


eliminate a threat, or reduces it to an
acceptable level
• If the threat can not be eliminated or reduced
to an acceptable level, the assurance provider
must decline or resign from the engagement
The ACCA Code of Ethics divides safe
guards into two broad categories:

Safeguards created by the profession, legislation or regulation,


• These include: requirements for entry into the profession,
continuing professional development, corporate governance,
professional standards, and monitoring and disciplinary
procedures, etc

Safeguards created by the work


environment, these include:
• Rotation/ removal of relevant staff from the engagement
team, independent quality control reviews, using separate
teams.
Accepting new audit engagements
Audit clients may be obtained through 3
main methods:

• Direct client request where the prospective


client approaches the audit firm, may be as a
result of a recommendation.

• Advertising where the audit firm has recently


advertised its services and the prospective
client responds to the advert.
Audit clients may be obtained through 3
main methods:

• Tendering where the prospective client asks


several audit firms to bid for their audit.
• The firms will put together a tender proposal
in which the firm tries to sell itself to the
prospective client to win the work.
• The proposed audit fee will be included in the
tender proposal along with any specific
aspects the firm believes will encourage the
prospective client to give the work to them.
Engagement letters

The engagement letter specifies the nature of the


contract between the audit firms. Its purpose is to
• minimize the risk of any misunderstanding
between the auditor and client
• confirm acceptance of the engagement
• Set out the terms and conditions of the
engagement.
• The letter will be sent before the audit
commences.
Chapter Summary

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