IESBA Code – 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

AAA – L3 – Q9 – Rules of professional conduct

Explain the importance of ethical principles, demonstrate independence, and outline when confidential client information can be disclosed.

Question

ICAG has adopted IESBA’s ethical guidance, the International Code of Ethics for Professional Accountants. These rules are applicable to all members and students. If these rules are not complied with disciplinary action may result which could lead to reprimand, fine or exclusion.

Required
(a) Explain why you think fundamental principles of ethics are so fundamental to auditing.
(b) Explain how a member can demonstrate that they are truly independent in carrying out the work they perform, and why it is important that they should do so.
(c) Set out the circumstances in which it is permissible to disclose confidential client information.

Answer

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Tags: Auditor Independence, Client information disclosure, Confidentiality, Disciplinary action, Ethics, IESBA Code, Independence, Professional conduct
Level: Level 3

Topic: Rules of Professional Conduct

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 – Q9 – Regulatory Framework for Auditing

Discuss current audit regulations and reasons for criticism regarding standards, fraud, non-audit services, and auditor tenure. Discuss reasons for criticism of current audit regulations on standards, fraud, non-audit services, and tenure.

Question

The auditing profession has been criticised recently for its role in monitoring potential corporate failure. Radical reforms have been called for in the way the audit is regulated. For example, there has been a call for a change of legislation in the following ways:

Auditing standards: Auditing standards should be set and enforced independently from the accounting profession.
Fraud: Auditing firms should have a duty to detect and report fraud.
Non-audit services: Non-audit services supplied to an audit client should be stopped.
The duration of the appointment of auditors: The appointment of auditors should be for a maximum period of seven years.

Required:
(a) Describe the current regulatory and professional requirements relating to each of the headings listed above.
(b) Discuss the reasons why you feel the audit profession has been criticised over the current regulations in the above areas.

Answer

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Tags: Auditing Standards, Auditor Tenure, Fraud Detection, IESBA Code, Non-Audit Services, Professional Ethics, Regulatory Reform
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

AA – L2 – Q4 – Ethical Issues in Auditing

Explain situations where auditors may disclose confidential client information.

Question

You are an audit manager in Apex & Co, a firm of Chartered Accountants. You are preparing the engagement letter for the audit of TechTrend, a listed company, for the year ended 31 December 20X8.

TechTrend has grown rapidly over the past few years, and is now one of your firm’s most important clients.

TechTrend has been an audit client for eight years and Apex & Co has provided audit, taxation, and management consultancy advice during this time. The client has been satisfied with the services provided, although the taxation fee for the period to 30 June 20X8 remains unpaid.

Audit personnel available for this year’s audit are most of the staff from last year, including Mr. Thompson, an audit partner, and Mr. Lee, an audit senior. Mr. Thompson has been the audit partner since TechTrend became an audit client. You are aware that Sarah Thompson, the daughter of Mr. Thompson, has recently been appointed the financial director at TechTrend.

To celebrate her new appointment, Sarah has suggested taking all of the audit staff out to an expensive restaurant prior to the start of the audit work for this year.

Required:

(a) Explain the situations where an auditor may disclose confidential information about a client.

(b) Identify and explain the risks to independence arising in carrying out your audit of TechTrend for the year ending 31 December 20X8, and suggest ways of mitigating each of the risks you identify.

Answer

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Tags: Auditor Independence, Confidentiality, Ethical Considerations, IESBA Code
Level: Level 1

Topic: Ethical Issues in Auditing

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.

(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

Answer

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Tags: Audit Team, Auditor Independence, Financial Interest, IESBA Code, Self-Interest Threat
Level: Level 2

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

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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.

AAA – L3 – Q9 – Rules of professional conduct

Explain the importance of ethical principles, demonstrate independence, and outline when confidential client information can be disclosed.

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 – Q9 – Regulatory Framework for Auditing

Discuss current audit regulations and reasons for criticism regarding standards, fraud, non-audit services, and auditor tenure. Discuss reasons for criticism of current audit regulations on standards, fraud, non-audit services, and tenure.

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

AA – L2 – Q4 – Ethical Issues in Auditing

Explain situations where auditors may disclose confidential client information.

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.

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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"

AAA – L3 – Q9 – Rules of professional conduct

Explain the importance of ethical principles, demonstrate independence, and outline when confidential client information can be disclosed.

You're reporting an error for "AAA – L3 – Q9 – Rules of professional conduct"

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 – Q9 – Regulatory Framework for Auditing

Discuss current audit regulations and reasons for criticism regarding standards, fraud, non-audit services, and auditor tenure. Discuss reasons for criticism of current audit regulations on standards, fraud, non-audit services, and tenure.

You're reporting an error for "AA – L2 – Q9 – Regulatory Framework for Auditing"

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"

AA – L2 – Q4 – Ethical Issues in Auditing

Explain situations where auditors may disclose confidential client information.

You're reporting an error for "AA – L2 – Q4 – Ethical Issues in Auditing"

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.

You're reporting an error for "AA – L2 – Q1 – Professional Ethics and Code of Conduct for Auditors"

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