Ethical Threats – Knowsia

AA – L2 – Q15 – Professional Ethics and Code of Conduct for Auditors

Identify threats to auditor independence from non-audit services and board appointment at HealthTrend Co, and suggest resolutions. Describe matters and procedures to consider before accepting appointment as statutory auditor of HealthTrend Co.

Question

You work for a firm of accountants and auditors which has eight partners. The audit firm has been invited by the Managing Director (MD) and majority shareholder of HealthTrend Co, to accept appointment as statutory auditor of the company, replacing the current firm of auditors who will not be re-appointed.
The principal activity of HealthTrend Co is the manufacture and distribution of healthcare products. Your firm has several companies operating in the healthcare sector in its client portfolio.
The MD of HealthTrend has requested that your firm assists with the preparation of the company’s tax computation, and provides consultancy services on an ongoing basis in connection with his plans to grow the business.
The MD has also suggested that a partner in your firm joins the board of HealthTrend Co as a non-executive director.

Required:
(a) Identify and explain the threats to independence and objectivity which may arise from the provision of the services requested by the HealthTrend MD, and state how these threats should be resolved.

(b) Describe the matters, other than independence and objectivity, to be considered and the procedures to be performed in order to determine whether it is appropriate for your firm to accept appointment as statutory auditor of HealthTrend Co.

(c) Set out the benefits to audit firms and their clients of having audit and non-audit services provided by the same firm of accountants.

Answer

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Tags: Auditor Independence, Board Appointment, Consultancy Services, Ethical Threats, IESBA Code, Non-Audit Services, Tax Services
Level: Level 2

Topic: Audit-Related Services

AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors

Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

Question

(a) You are a manager in the audit firm of XYZ & Co; and this is your first time you have worked on one of the firm’s established clients, Vark Co. The main activity of Vark Co is providing investment advice to individuals regarding saving for retirement, purchase of shares and securities and investing in tax efficient savings schemes. Vark is regulated by the relevant financial services authority.
You have been asked to start the audit planning for Vark Co, by Mr. Lee, a partner in XYZ & Co. Mr. Lee has been the engagement partner for Vark Co, for the past nine years and so has excellent knowledge of the client. Mr. Lee informs you that Mr. Tan, the audit senior, received investment advice from Vark Co during the year and intends to do the same next year.
In an initial meeting with the finance director of Vark Co, you learnt that the audit team will not be entertained on Vark 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 trust that your firm will accept a fixed fee for representing Vark Co in court in a dispute regarding the amount of sales tax payable to the taxation authorities. Sales tax payable is material to the current year financial statements.
Required:
(i) Explain the ethical threats which may affect the auditor of Vark Co.
(ii) For each ethical threat, discuss how the effect of the threat can be mitigated.

(b) Discuss the benefits of Vark Co establishing an internal audit function.

Answer

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Tags: Auditor Independence, Benefits, Contingent Fees Internal Audit, Corporate Governance, Ethical Threats, Financial Services Regulation, IESBA Code, Non-Audit Services, Safeguards
Level: Level 2

Topic: Internal Audits

AA – L2 – Q11 – Professional Ethics and Code of Conduct for Auditors

Explain why auditor independence is essential and discuss advantages/disadvantages of auditors providing consulting services.

Question

Independence

The responsibilities of external auditors are not always well understood. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities.

Required

(a) Explain why it is essential for external auditors to be independent of their clients.

(b) Explain the advantages and disadvantages of external auditors providing consulting services to their audit clients.

Answer

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Tags: Auditor Independence, Ethical Threats, IESBA Code, Non-Audit Services, Professional Ethics
Level: Level 2

Topic: Professional Ethics and Code of Conduct for Auditors (IESBA Code)

AA – L2 – Q8 – Regulatory Framework for Auditing

Explain how legislation and IESBA Code ensure auditor independence at Apex Ventures. Discuss threats to auditor independence in three scenarios at Pinnacle Partners and suggest safeguards

Question

(a) State how legislation and the IESBA International Code of Ethics for Professional Accountants each seek to ensure the independence and objectivity of auditors at Apex Ventures.

(b) The following three situations have arisen in the audit firm of Pinnacle Partners:
(i) One of the partners, Mr. Thompson, and his wife, have been invited by the managing director of Summit Tiles, an audit client, to celebrate the company’s 20th anniversary with management over a long weekend at a beach resort. Mr. Thompson has been the engagement partner since incorporation of the company.
(ii) The firm has been approached and asked to accept appointment as auditors of Ridge Paints. One of the firm’s audit managers is company secretary of the company, although he takes no part in the management of the company. His parents are the directors and shareholders of Ridge Paints.
(iii) The directors of Crest Floors are unhappy with the level of fees charged by the firm. They are still refusing to agree an outstanding bill for taxation and advisory work and are demanding a reduction in the audit fee this year to match a quote they have received from another firm.

Required
Comment on the situations described above, recognising any threats to independence or objectivity, and suggesting what safeguards the firm should put in place to deal with such threats.

Answer

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Tags: Auditor Independence, Ethical Threats, Family Relationships, Fee Disputes Auditor Independence, Hospitality, IESBA Code, Legislation, Objectivity, Safeguards
Level: Level 2

Topic: Regulatory Framework for Auditing

Tag (SQ): Ethical Threats

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AA – L2 – Q15 – Professional Ethics and Code of Conduct for Auditors

Identify threats to auditor independence from non-audit services and board appointment at HealthTrend Co, and suggest resolutions. Describe matters and procedures to consider before accepting appointment as statutory auditor of HealthTrend Co.

AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors

Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

AA – L2 – Q11 – Professional Ethics and Code of Conduct for Auditors

Explain why auditor independence is essential and discuss advantages/disadvantages of auditors providing consulting services.

AA – L2 – Q8 – Regulatory Framework for Auditing

Explain how legislation and IESBA Code ensure auditor independence at Apex Ventures. Discuss threats to auditor independence in three scenarios at Pinnacle Partners and suggest safeguards

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AA – L2 – Q15 – Professional Ethics and Code of Conduct for Auditors

Identify threats to auditor independence from non-audit services and board appointment at HealthTrend Co, and suggest resolutions. Describe matters and procedures to consider before accepting appointment as statutory auditor of HealthTrend Co.

You're reporting an error for "AA – L2 – Q15 – Professional Ethics and Code of Conduct for Auditors"

AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors

Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

You're reporting an error for "AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors"

AA – L2 – Q11 – Professional Ethics and Code of Conduct for Auditors

Explain why auditor independence is essential and discuss advantages/disadvantages of auditors providing consulting services.

You're reporting an error for "AA – L2 – Q11 – Professional Ethics and Code of Conduct for Auditors"

AA – L2 – Q8 – Regulatory Framework for Auditing

Explain how legislation and IESBA Code ensure auditor independence at Apex Ventures. Discuss threats to auditor independence in three scenarios at Pinnacle Partners and suggest safeguards

You're reporting an error for "AA – L2 – Q8 – Regulatory Framework for Auditing"

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