- 15 Marks
AA – L2 – Q1 – Professional Ethics and Code of Conduct for Auditors
Discuss the independence threat from an audit manager holding shares in Sycamore and required safeguards.
Question
It has been suggested that the most important matter affecting the credibility of the auditor is that of ‘independence’.
Required
Comment on the following situations in the context of the independence of the auditor, showing clearly the threats involved and the safeguards required by the IESBA International Code of Ethics for Professional Accountants:
(a) The audit manager in charge of the audit assignment of Scott holds 1,000 $1 ordinary shares in the company (total shares in issue – 100,000). The audit partner holds no shares.
(b) An audit partner of a firm of Chartered Accountants is a personal friend of the chief accountant of Peters Ltd. The chief accountant is not a director of the company and the partner is not responsible for the audit of Peters Ltd.
(c) The audit fee for Freya, a listed company, is $175,000. The total fee income of the audit firm is $700,000.
(d) The audit senior in charge of the audit of Green, a bank, has a personal loan from the Green Bank of $2,000 on which he is currently paying a market rate of interest.
(e) An audit partner is responsible for two audit assignments: Pepper and Tomato. Pepper has recently tendered for a contract with Tomato for a supply of material quantities of goods over a number of years. Tomato has asked the audit partner to advise on the matter
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