...110 contributes to the ability of the auditor to discharge the duty to act in the public interest. The fundamental ethical principles that apply to all members of the professional bodies are to act with integrity, objectivity, professional competence and due care, confidentiality and professional behaviour (APES 110, 100.4). The requirement to act in the public interest means that auditors should consider how their actions impact the client and their employer. They must also consider the impact of their actions on others such as the client’s employees, investors, credit providers, and those without direct financial interests in the client such as the broader business and financial community and members of the public. All these people could be reliant on the quality of the auditor’s work, even though they are not party to the contract between the client and the audit firm. The reliability of the financial reports and the audit report is potentially damaged if the auditor does not act with integrity (honesty), objectivity (being independent), with professional competence and due care (executing the work with the required level of skill and attention), confidentiality (discussing the client’s affairs with others inappropriately), and professional behaviour (protecting their reputation and the profession’s reputation). A dishonest auditor could knowingly help publish a materially false, misleading, or reckless financial report. Auditors...
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...Department of Law, Economics, Accountancy and Risk AUDITOR INDEPENDENCE Introduction The concept of independence is strongly associated with professionally standard auditing (Olagunju, 2011, pp.85). In other to maintain the utmost standard for the accounting profession, independence is seen as being free from control or pressure and not allowing situations which would tend to weaken objectivity or create personal preconceived notions (Porter and Simon et al., 1996). Audit improves the trustworthiness of the financial statements giving it sensible assertion from an independent source that the financial statements is true and fair in agreement with accounting standards (Olagunju, 2011, pp.85-86). The next section of this essay provides detailed information on how value is added to the financial statement when the auditors’ audit with independence whilst appraising how the accounting profession has or is reacting to auditor independence. While the last section will evaluate the risks or threats to independence and explain ways of mitigating identified risks. Value of Independent Auditing on Financial Statements The significance of audit services will be impaired when independence is absent (Sweeney, 1992); therefore, an uncompromised independence gives a better quality audit to the financial statements (Baber et al., 1995). In addition, if an auditor is independent, the motivation to do a better audit is not undermined as the auditor will report misstatements (Pike, 2003). Stewart...
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...Abstract Advanced Audit & Assurance often creates the question on practice of ethics in professional activities. The purpose of this report is to review Threats to Compliance with the Code of Conduct by Professional Accountants. With the expanding business in the modern world, issues arise on professionalism of Independent and Internal Auditors. Is it whether the Professional Accountants follows the ethical code provided by the International Ethics Standards Board for Accountants in order to provide true and effective financial reports to the internal and external users? Professionals are expected to conduct themselves at a higher level than most others members in the organization. The International Accounting Bodies has emphasized the conceptual...
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...Can Auditors be Truly Independent With the globalization of investment market and enhanced regulation, independent audits of the financial statements of public companies are one of the most valued contributor to the confidence of the investors. It is crucial that auditors could provide reasonable assurance of the fair presentation of a company’s financial statements. In the past decades, especially with the enactment of Sarbanes-Oxley Act of 2002, auditors are required to comply with more strict regulations to restore investor’s confidence that was compromised by the scandals such as Enron. To discuss whether auditors can be truly independent, it is of necessity to explain what requires to be independent as auditors. The definition of independence does not require the auditor to be completely unbiased when it comes to make audit decisions. In stead, independence requires auditors to be not only independent of mind also independent in appearance. With this being said, independence means that auditors have to make an objective assessment of his or her objectivity and to support user reliance on the financial reporting process and to enhance capital market efficiency. However, it is not that simple to be ethical in public accounting profession. According to AICPA Code of Professional Conduct, there are mainly five potential threats to auditor independence: intimidation threat, self-interest threat, self-review threat, advocacy...
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...Guidance for audit committees Reviewing auditor independence November 2003 The Combined Code on Corporate Governance – July 2003 C.3 Audit Committee and Auditors Main Principle: The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors. Code provisions C.3.1 The board should establish an audit committee of at least three, or in the case of smaller companies two, members, who should all be independent non-executive directors. The board should satisfy itself that at least one member of the audit committee has recent and relevant financial experience. C.3.2 The main role and responsibilities of the audit committee should be set out in written terms of reference and should include: • to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; • to review the company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the board itself, to review the company’s internal control and risk management systems; • to monitor and review the effectiveness of the company’s internal audit function; • to make recommendations to the board, for it to put to the shareholders...
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...be given to the new auditor, whether the new auditor should accept the offer to audit for Transval Ltd or not. Upon that, the essay also talks about the threats to the objectivity as an auditor and the ways to mitigate these threats. Last part of the essay is talking about the risks that could cause misstatements to the financial statements and how quality control can mitigate them. A) Firstly, according to the information given from the case, there is a part of inventory not located at Transval Ltd. This part of inventory is located at customers’ premises which means Transval Ltd has to count inventory quarterly from each customer. Consider about this, there might be a misstatement happened here. Auditors have to get the right and overall information from the company to do the audited accounts. There is a possibility that the information like financial accounts from the customers’ companies are not overall or if there is any mistake in it, the auditor will not know. The audited account will not be accurate if that happened. Secondly, the firm’s most of existing customers are from the retail and service sectors. So as an auditor from this kind of firm might not have enough experience on the company like Transval Ltd. Transval Ltd is a company which make plastice balls for use in the injection moulding business. The structure of the Transval Ltd could be much more complex than the retail and service sectors. The lack of experience for an auditor also can cause misstatement...
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...There are numerous threats to auditor independence. Derived from Porter, Et Al (2014) - Firstly, Self-interest threat which are dangers that emerge from auditors acting to their own interest. Auditors may support, intentionally or intuitively, those self-intrigues over their enthusiasm for performing a quality review. The auditors’ relationship with bluebird limited creates a financial self-interest because they pay the auditors’ fees. Auditors also have a financial self-interest if they own stock in an auditee; as I have just inherited a 3% shareholding in bluebird, the quality of the audit may be lacking as a financial self interest may be obtained by me, for example excluding some pieces of vital information from the audit to serve my own financial interests. Another kind of threat, known as Self-review may be brought about. These are threats that emerge from inspectors inspecting their own particular work or the work done by others in their firm. It might be harder to assess without predisposition one's own particular work, or that of one's firm, than the work of another person or of some other firm. As the auditor has a 3% shareholding in bluebird, a self-review threat may arise if I was to review judgements and decisions I, or others within the firm, have made. Familiarity (or trust) threats are threats that emerge from auditors being impacted by a close association with an auditee. Such a risk is available when auditors are not adequately suspicious of an auditee's...
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...Course Schedule Course Modules Review and Practice Exam Preparation Resources Module 1: Conceptual issues in assurance Overview This module builds on the fundamental concepts of auditing and other assurance services introduced in your prerequisite auditing course. It begins with an overview of the key drivers in the demand for audits, and then surveys current challenges and issues such as the audit and regulatory environment and the expectation gap. You will also study issues related to the economics of auditing and their impact on auditor motivation and standard-setting; in the process, you will consider different perspectives on protecting the public interest and the public accountant’s role in helping to advance the profession. The various topics integrate information sources related to research in the field and readings from the Ethics Readings Handbook (ERH) , drawing on concepts from your prerequisite accounting theory course. In AU2 , you will study a wide variety of technical, practical, and theoretical material. This module lays the foundation for exploring some of the more difficult areas of professional judgment you will encounter as you progress through the course. When faced with issues that challenge your professional judgment, you are encouraged to think back to the concepts studied in this module to help frame your decision making. Please be sure that you have purchased the CPA Canada Handbook, CGA Student Edition mentioned in the course introduction...
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...Section 5 documents how the Office of the City Auditor complies with standards related to reasonable assurance, significance, audit risk, and planning. This section provides guidance on the how to apply those standards in conducting audits based on the Citywide Risk Assessment model or requested audits. Specifically, this section will cover the initial planning phase of the audit (preliminary survey) that begins with start the audit, preliminary survey and risk assessment, and development of the audit program. The purpose of audit planning process is to generate information and ideas to better understand the audit subject, determine the audit objective, and to develop the audit field work program. Planning also involves estimating the time and resources necessary to complete the audit. The evidence gathered in background research and later fieldwork is documented in the working papers. Key outputs of audit planning include an audit background memorandum; audit scope statement; risk and vulnerability assessment document; and field work audit program. AUDIT PLANNING PROCESS The audit planning process can be divided into the following three phases: 1) starting the project, 2) preliminary survey (planning the audit and conducting risk assessment), and 3) developing the audit program. These steps are followed by fieldwork and reporting. Details of each of the steps are noted below. Audit Start City Auditor assigns staff to audit. City Auditor and audit team hold a project initiation and...
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...Threats to independence 1. Self-interest threat- financial or other interests of members or their close family. 2. Self-review threat- when the auditor has to re-evaluate work completed by himself. 3. Advocacy threat- when the auditor is asked to promote the client’s position or represent them in some way. 4. Familiarity threat- when the auditor is too sympathetic or trusting of the client because of a close relationship with them. 5. Intimidation threat- intimidates the auditor to give an unqualified opinion otherwise not re-appoint him. Areas of risks Financial interests Family relationships Business relationships Loans Fees Undue independence Gifts and hospitality Second opinion Provision of other services Auditors specific threats to their independence and objectivity 1. Dependence on income from a particular client or group of clients may impair objectivity and independence. Implications- auditor may not qualify the audit report when qualification is required because this will upset client who may move to another audit firm and thus cause loss of significant income. Safeguards Do not accept certain assignments. Resign from certain assignments. Do not stand for reappointment as auditor. Reduce non audit work with a view to control gross practice income from that particular client. As a general rule, recurring fees paid by one or group of connected clients should not exceed the threshold of...
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...Discuss whether the current international regulatory environment for the auditing profession is robust enough to ensure that the external auditors of listed companies provide reports to owners and investors which are sufficiently independent to serve the public interest. Introduction As we will discover, the topic posed above is a complex one, which has many arguments both in favour and against the stability of the present regulatory environment in ensuring that the audits which auditors produce are indeed impartial enough to satisfy the public interest. We will first proceed in identifying the term “public interest” in light of the accounting and auditing profession. From this will be an explanation of what is the current regulatory environment, which will then lead us to arguments for and against auditors retaining their independence. Relevant sources will be used, including some concerning current thinking on the matter. From this a suitable conclusion can be made. What is meant by “the public interest” in relation to the (accounting and) audit profession? The International Federation of Accountants (IFAC 2010) soundly defines the public interest as any individual or entity which is affected by the work of the accountancy profession: in other words, society as a whole. What is expected of the accountancy profession in relation to the public is the safeguarding of particular interests. These interests may consist of providing accurate financial information, ensuring...
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...Course Schedule Course Modules Review and Practice Exam Preparation Module 1: Conceptual issues in assurance Overview This module builds on the fundamental concepts of auditing and other assurance services introduced in your prerequisite auditing course. It begins with an overview of the key drivers in the demand for audits, and then surveys current challenges and issues such as the audit and regulatory environment and the expectation gap. You will also study issues related to the economics of auditing and their impact on auditor motivation and standard-setting; in the process, you will consider different perspectives on protecting the public interest and the public accountant’s role in helping to advance the profession. The various topics integrate information sources related to research in the field and readings from the Ethics Readings Handbook (ERH) , drawing on concepts from your prerequisite accounting theory course. In AU2 , you will study a wide variety of technical, practical, and theoretical material. This module lays the foundation for exploring some of the more difficult areas of professional judgment you will encounter as you progress through the course. When faced with issues that challenge your professional judgment, you are encouraged to think back to the concepts studied in this module to help frame your decision making. Please be sure that you have purchased the CPA Canada Handbook, CGA Student Edition mentioned in the course introduction, as it is required...
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...Question 1 Which of the following statements is incorrect with respect to The Corporations Act 2001? the auditor is appointed by the shareholders at the AGM the annual report must state all audit and non-audit fees the auditor should take reasonable steps to discontinue all relationships with the client that may impede the auditor's independence all of the above are correct 1 points Question 2 Which of the following is not a theory that underpins the demand for assurance services? agency theory resource-dependency theory information hypothesis insurance hypothesis 1 points Question 3 The regulatory body responsible for hearing applications in Australia as to whether auditors and liquidators have breached The Corporations Act is: Companies Auditors & Liquidators Disciplinary Board Australian Securities & Investments Commission Auditing & Assurance Standards Board Australian Securities Exchange 1 points Question 4 The Royal Commission appointed to inquire into the HIH collapse in 2001 released some key findings. Which one of the following was not a reason for the collapse of HIH? HIH did not have a corporate governance model the internal audit committee should have focused on risk identification and assessment, as well as the accounts the audit...
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...Canadian Requirements for Auditor Independence Background In December of 2003, the Canadian Institute of Chartered Accountants adopted new auditor independence requirements that hold auditors to higher professional and ethical standards, thereby further protecting the public interest. The new standard is the result of a rigorous review, consultation and approval process lasting more than a year, and reflects the features of the updated global standard issued by the International Federation of Accountants, combined with the rigour of the Sarbanes-Oxley legislation and SEC requirements for public companies in the United States. The core principle of the new standard is that every effort must be made to eliminate all real or perceived threats to auditors’ independence. Development of the new independence standard began in June 2001, after an Independence Forum of auditors, regulators, academics, analysts and financial statement preparers held by the Public Interest and Integrity Committee (PIIC) concluded that the PIIC should develop a uniquely Canadian independence standard that would be based on the international standard, and incorporate the SEC requirements for audits of public companies. The new standard was first released for public comment in September, 2002, and became effective for engagements starting after December 31, 2003. The standard marks a shift to a more rigorous ‘principles-based’ approach, meaning its applicability goes beyond any specific situation and...
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...further restrictions on the non-audit services that auditing firms can provide to their audit clients. (1) Discuss the benefits and disadvantages of auditors providing non-audit services to clients The objective of this assignment is to examine the benefits and disadvantages of auditors providing non-audit services to their clients. Further discussing in what ways the European Union proposals may prove beneficial and in what ways they may be disadvantageous. Auditing is considered an exceedingly complex process, maintaining a relevant and valuable insight to a company’s financial statements and its reports based on the conduct of their audits. (Gray, I. and Manson, S. 2011). An auditor’s priority is to provide assurance services through evaluating; providing the best financial or non-financial information to clients. (Europa.eu, 2015). Therefore this allows the clients to make the best informed decisions regarding their business. In the recent times, the appearance of professional service firms has resulted from a growing demand for specialist advice to help them achieve business advantage in the competitive market. In May 2014 the European commission published a directive, amending the Statutory Audit directive and a new Audit regulation. (Campa, D. and Donnelly, 2015). Non-audit services that are provided by auditors consist of management consultancy, tax advice and human resources consultancy. These services are aimed to increase the efficiency and effectiveness...
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