Question Tag: Ethical Threats

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  • 30 Marks

AAA – Nov 2020 – L3 – Q1 – Regulatory Framework and Professional Standards

Discusses policies for anti-money laundering, indicators of money laundering, ethical issues, and audit procedures for going concern assumptions.

You are a manager in Obuns & Co, a firm of Chartered Accountants, responsible for the audit of Akudre Plc, a listed entity, for the year ended 31 May 2020. The company operates in the textile industry and manufactures a range of goods, including clothing, linen, and soft furnishings. Akudre Plc employs approximately 750 sales staff across the country who sell the company’s products to both households and small to medium-sized businesses. Around 75% of Akudre Plc’s sales transactions are cash-based, and each sales staff member prepares a monthly cash sales report.

According to Akudre Plc’s CEO, Adu Oke, each staff member (including senior management) is encouraged to make cash sales on a commission basis to friends and family. Mr. Oke recently sold products worth N4,000,000 to business associates, depositing these funds into an offshore bank account under his sole control.

Review of Audit Working Papers:
A review of the audit working papers and an initial meeting with Mr. Oke revealed these issues:

  • Obuns & Co performed tax computations for Akudre Plc and completed tax returns for the company and Mr. Oke, invoiced as part of the total fee for audit and professional services. Mr. Oke’s personal tax return reflects numerous property transactions across international locations, which are detailed in off-shore accounts.

Financing Issue:
The audit committee has requested the audit engagement partner attend a post-audit meeting with the company’s bank officials, including the CFO and a representative from the audit committee, to renegotiate Akudre Plc’s lending facility. The audit partner is expected to confirm the company’s financial stability and verify that going concern procedures, including cash flow forecasts, were audited.

Required:
a. Discuss the policies and procedures which Obuns & Co. should have in place in relation to an anti-money laundering programme. (5 Marks)
b. Evaluate whether there are any indicators of money laundering activities by Akudre Plc or its staff. (4 Marks)
c. Describe the requirements of ISA 250: Consideration of Laws and Regulations in an Audit of Financial Statements. (5 Marks)
d. Discuss the actions required when an auditor identifies or suspects material instances of non-compliance by a client under ISA 250. (5 Marks)
e. Identify and evaluate any ethical threats and professional issues arising from the audit committee’s request for the audit engagement partner to attend the financing meeting. (3 Marks)
f. If loan finance is essential for the company’s survival and uncertainty exists regarding agreement finalization, evaluate additional audit procedures to ascertain if a material uncertainty exists. (10 Marks)
g. Evaluate the impact on the audit report in these scenarios:

  • i. Going concern assumption is appropriate, but material uncertainty exists.
  • ii. Going concern assumption is appropriate, material uncertainty exists, and disclosures are adequate.
  • iii. Going concern assumption is appropriate, material uncertainty exists, but disclosures are inadequate.
  • iv. Going concern assumption is inappropriate. (8 Marks)

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  • 20 Marks

AAA – May 2018 – L3 – SB – Q4 – Ethical Issues in Auditing

Educate staff on IFAC’s Code of Ethics principles, types of independence, and general sources of ethical threats in accounting.

You are the HR partner in Ekemode & Company (Chartered Accountants). As part of the continuous training program of your firm, you are to organize an in-house seminar to educate the staff of your firm on Rules of Professional Conduct. You have decided to emphasize the IFAC’s Code of Ethics for Professional Accountants published by the International Ethics Standard Board for Accountants (IESBA), which was recently adopted by ICAN into their localized code called “The Professional Code of Conduct and Guide for Members.”

Required:

a. Explain briefly the FIVE fundamental principles of the IFAC’s Code of Ethics for Professional Accountants. (7½ Marks)

b. Explain independence of mind and independence of appearance to the staff. (5 Marks)

c. Explain briefly THREE general sources of threat to the fundamental principles of the IFAC’s Code of Ethics for Professional Accountants. (7½ Marks)

(Total 20 Marks)

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  • 15 Marks

CR – Nov 2022 – L3 – Q6 – Ethical Issues in Corporate Reporting

Evaluate ethical threats and recommend safeguards in corporate reporting practices.

Compliance with the fundamental ethical principles may potentially be threatened by a broad range of circumstances. It is expected for professional members to evaluate identified threats and put up enough safeguards as appropriate responses to such threats. Unless any threat is clearly insignificant, members must implement safeguards to eliminate the threats or reduce them to an acceptable level so that compliance with the fundamental principles is not compromised. Many threats fall into the following categories:

i. Self-interest;
ii. Self-review;
iii. Advocacy;
iv. Familiarity; and
v. Intimidation.

Required:
a. Evaluate two circumstances which may give rise to each of the categories of threats enumerated above. (10 Marks)
b. Recommend two safeguards to eliminate or reduce the threats to an acceptable level. (5 Marks)
(Total 15 Marks)

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  • 15 Marks

MGE – Nov 2014 – L2 – Q6 – Corporate Governance

Evaluating stakeholder impact and ethical principles in response to financial reporting manipulation.

Gloria Okeke is the Chairman and Chief Executive Officer of Magi and Magi Pharmaceuticals, which produces drugs for the Lagoona region of the country. Gloria is convinced that the company is doing quite well and the management is following due process in terms of structure and governance. She believes that this is the reason for the company’s steady growth in terms of revenue, profit, and earnings.

In 2013, Magi and Magi Pharmaceuticals made a profit of 70% over and above the 2012 results. Mr. Joeb, the Chief Accountant, is quite impressed and is of the opinion that the company should make full disclosure of its profits in the Financial Statements, thinking this would engender greater confidence and attract additional investment in the company.

However, Gloria, claiming to be the boss, instructed Joeb to increase her compensation and inflate the cost of production of pharmaceutical drugs to reduce the disclosed profit of the company.

Joeb outrightly disagreed with Gloria’s instruction, giving her a long talk about his duty to comply with his Institute’s professional rules of conduct. However, Gloria cut short the meeting, saying that she did not wish to entertain any further discussion about her decision. She advised Joeb, in his own interest, to implement her instructions.

Required:

a. As a chartered accountant, specify any THREE categories of stakeholders that Joeb should consider in taking any professional decision or action with regard to the instruction stated above and give reasons for your choice.
(7½ Marks)

b. Discuss the basic principles of ethics that Joeb, as a chartered accountant, should comply with in the course of carrying out his professional responsibilities.
(7½ Marks)

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  • 15 Marks

FR – Nov 2022 – L2 – Q5 – Professional Behaviour and IAS 38 Conditions

Discuss professional behaviour and threats for accountants, and conditions for recognizing development costs.

(a) Explain briefly what is meant by professional behaviour and outline THREE threats that could affect the work of professional accountants. (5 Marks)

(b) IAS 38 prescribes the requirements for reporting intangible assets in the financial statements of an entity.

Required:
i. Explain FIVE conditions under which development costs can be recognised as intangibles in financial statements. (5 Marks)

ii. Highlight FIVE conditions, which should be considered to determine the useful life in the amortisation of intangible assets in the financial statements. (5 Marks)

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  • 20 Marks

AA – Nov 2020 – L2 – Q3 – Assurance Services

Explain the concept of auditor independence and its importance.

Adetutu Company Limited obtained a loan from a bank in the previous year. The bank has requested an independent review of the company’s compliance with the loan covenants, hence, the Finance Controller has contacted your partner and asked that your firm carry out this assurance engagement.

Required:
a. Discuss the elements of an assurance engagement. (10 Marks)
b. Explain the different levels of assurance. (4 Marks)
c. Explain the categories of threats to the professional ethics of an auditor. (6 Marks)

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  • 1 Marks

BMF – May 2018 – L1 – SA – Q13 – The Role of Professional Accountants in Business and Society

Identifies main ethical threats in accountancy.

The main threats to ethical behaviour in the accountancy profession fall into the following categories EXCEPT
A. Professional competence threat
B. Intimidation threat
C. Self-interest threat
D. Familiarity threat
E. Advocacy threat

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  • 9 Marks

BMF – May 2023 – L1 – SB – Q4c – The Role of Professional Accountants in Business and Society

Identify safeguards against ethical threats in the accounting profession.

State SIX safeguards created by the profession, legislation or regulation against ethical threats and dilemmas.

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  • 5 Marks

BMF – May 2024 – L1 – SB – Q3a – The Role of Professional Accountants in Business and Society

Discuss the ethical threats faced by professional accountants and their impact on compliance with laws and regulations.

a. Explain briefly FIVE ethical threats that could compromise a professional accountant’s ability to comply with relevant laws and regulations. (5 Marks)

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  • 12 Marks

AA – May 2016 – L2 – Q2a – Professional and Ethical Considerations

This question examines ethical threats and their mitigation in the context of audit engagements.

(a) You are a manager in the audit firm of ABC & Co; and this is your first time you have worked on one of the firm’s established clients, Tark Co. The main activity of Tark Co is providing investment advice to individuals regarding saving for retirement, purchase of shares and securities, and investing in tax-efficient savings schemes. Tark is regulated by the relevant financial services authority.

You have been asked to start the audit planning for Tark Co, by Mr. Soon, a partner in ABC & Co. Mr. Soon has been the engagement partner for Tark Co for the past nine years and has excellent knowledge of the client. Mr. Soon has informed you that he would like his daughter, Afi, to be part of the audit team this year; Afi is currently studying for her first set of knowledge-level papers for her ICAG qualification. Mr. Soon also informs you that Mr. Fac, the audit senior, received investment advice from Tark Co during the year and intends to do the same next year.

In an initial meeting with the finance director of Tark Co, you learned that the audit team will not be entertained on Tark Co.’s yacht this year as this could appear to be an attempt to influence the opinion of the audit. Instead, he has arranged a balloon flight costing less than one-tenth of the expenses of using the yacht and hopes this will be acceptable. The director also states that the fee for taxation services this year should be based on a percentage of tax saved, and he trusts that your firm will accept a fixed fee for representing Tark Co in a dispute regarding the amount of sales tax payable to the taxation authorities.

Required:

(i) Explain the ethical threats which may affect the auditor of Tark Co. (6 marks)

(ii) For each ethical threat, discuss how the effect of the threat can be mitigated. (6 marks)

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  • 4 Marks

AA – Nov 2021 – L2 – Q3c – Professional and Ethical Considerations

Discusses threats to audit independence due to personal relationships and financial incentives during audit engagements and suggests safeguards.

Kom & Associates, an audit firm, has regularly been auditing Ake Ltd. At the beginning of the current financial year, the wife of Koffie, the engagement partner of Kom & Associates, was appointed the personal assistant to the Chief Executive of Ake Ltd. In the course of the fieldwork, the audit team was given lunch and money for transport by Ake Ltd.

Required:
Discuss the threats and safeguards for the audit.

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  • 10 Marks

AA – April 2022 – L2 – Q5a – Professional and Ethical Considerations

Identifies, evaluates, and addresses ethical threats faced by an audit firm in its engagement with a new client.

External Auditors. This happens to be the first client of Agassi. The books of account for Sampras were incomplete, and Agassi agreed to prepare the financial statements for the year-end 31 December 2021.

The Accountant of Sampras doubles as the Sales Manager, and Agassi agreed to second one of its staff to assist the Accountant in Sampras. The business relationship between Agassi and Sampras has started on a good note, and they intend to continue into the foreseeable future. The Managing Director of Sampras worked as a Partner of one of the Big 4 audit firms.

Required:
Identify, evaluate, and address threats faced by Agassi. (10 marks)

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  • 10 Marks

AAA – May 2016 – L3 – Q1b – Professional responsibility and liability | Rules of professional conduct

Identify and evaluate ethical threats in an audit engagement and recommend safeguards to mitigate these threats.

Dibidibi & Co., an audit and assurance firm, has been engaged as auditors for BCG Bank Ltd, a public limited liability company, for some time now. BCG Bank has sixty branches throughout the country and branches in Togo, Burkina Faso, and Cote d’Ivoire. The Bank is one of the banks in the country which can boast of large landed properties. Dibidibi & Co. receives about 20% of its income from this particular client. Before last year’s audit, the bank engaged the audit firm to value its Land and Buildings in all its branches and headquarters. This work was executed by the audit firm and a report has been issued to management. The report has been incorporated in this year’s financial statements to be audited soon. Dibidibi & Co. sees BCG Bank Ltd. as a very important client whose works are always executed with dispatch.

i) Identify and evaluate the significance of any threats to the Code of Ethics for Professional Accountants raised in the case. (4 marks)

ii) Recommend safeguards to eliminate the threats (mentioned in (i) above) or reduce them to an acceptable level. (6 marks)

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  • 10 Marks

AAA – Mar 2024 – L3 – Q1a – Rules of professional conduct, Professional responsibility and liability, The audit approach

Evaluation of ethical threats impacting audit independence and advice on mitigating actions.

You are an audit manager of Afari & Partners and have been assigned to the audit of Jericho Plant Company Ltd (Jericho Plant), which has been an audit client for 6 years and specialises in manufacturing fertilizers in Ghana.

The company was introduced to the firm by Mr. Lartey 6 years ago when he was a Commissioner at the Ghana Revenue Authority (GRA). Mr. Lartey is not a member of the Institute of Chartered Accountants, Ghana. However, since his retirement from GRA, last year, he joined the firm as a tax partner to provide tax consultancy services. He has good relations with the client as his daughter is married to the son of the CEO for Jericho Plant.

Mr. Andani, who has been the audit engagement partner for Jericho Plant for the past 6 years, has recently been rotated off the audit engagement. The current audit partner, Mr. Nti, has suggested that in order to maintain a close relationship with Jericho Plant, Mr. Lartey should undertake the role of an engagement quality reviewer this year. In addition, Jericho Plant has requested that Mr. Andani assist them by attending their audit committee meetings, as a non-executive director has recently left the company.

Jericho Plant has also asked Mr. Lartey and the other partners at Afari & Partners to help them in recruiting a new non-executive director.

Fees paid by Jericho Plant form 35% of the firm’s total fee income (both audit and non-audit fees) and the partners have anticipated that the fees for this year would be greater than last year. Since joining as a tax partner, Mr. Lartey has been aggressive in generating revenue for the tax department and does not keep records of his work. He argues that the most important issue is for the firm to generate revenue, which he does. Some of the clients have complained about the cash collected by Mr. Lartey as part of his consultancy services.

The audit manager for Jericho Plant last year has just announced that he is leaving Afari & Partners to join Jericho Plant as the financial controller.

Required:

Using the information above

i) Evaluate FOUR (4) ethical threats which may affect the independence of Afari & Partners. (6 marks)

ii) For each threat, advise on how it might be mitigated to an acceptable level. (4 marks)

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  • 10 Marks

AAA – May 2019 – L3 – Q2a Professional Responsibility and Liability

Evaluate ethical threats affecting audit independence and recommend safeguards to eliminate or mitigate them.

Your audit firm, Adjaye-Gyamfi & Co. has just taken on a new client, Ablordey Ltd (Ablordey), a very successful health club that provides gym and fitness services. The company operates a chain of fitness centers with a wide range of workout equipment, solarium rooms, fitness sessions, nutritional planning, changing rooms, and locker facilities.

You have just been informed that your firm has received an invitation to tender for the audit of the company that owns Gyms Ltd., a major competitor of Ablordey. The Managing Director of Ablordey, Kusiwaa, is an old college friend of your audit manager, and it was through his connection that your firm was able to tender for its audit. You have been assigned as senior auditor for Ablordey.

On a recent visit to your office, Kusiwaa stated that she would like to extend an offer that all staff of Adjaye-Gyamfi & Co. would be eligible for a special membership rate, which is 50% of standard membership rates and entitles the member to 75% off special classes.

She proposed that you sit on the board of directors at Ablordey as a non-executive director. Additionally, she proposed that your firm confirm, as part of the audit, the figures on an insurance claim to be submitted in respect of damage caused by a burst water pipe. The pipe burst during a spell of cold weather in the main gym area prior to the year-end.

Required:

In the context of the above scenario: i) Evaluate FOUR (4) ethical threats (real or perceived) which may affect the independence of your firm’s audit of Ablordey; and (4 marks) ii) For each threat, recommend how it might be eliminated or mitigated to a satisfactory level. (6 marks)

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