Safeguards – Knowsia

SCS – L3 – Q30 – Ethical theories

Advise Apea Chemist Ltd on two approaches to managing ethics in organizations.

Question

Apea Chemist Ltd is a company engaged in the manufacturing of various drugs for the local market. There have been series of ethical infractions within the company. Some top managements have been accused of insider trading, bribing of some key staff of the regulatory authorities and attempts to cover up alleged distribution of expired drugs. There is total breakdown of ethical standards within the company. The board of directors have expressed grave concerns about the current happenings in the company. At its last quarterly meeting, the board resolved to engage the services of a corporate governance expert to help address the situation. The board understands that there are two major approaches to managing ethics in an organization.

Required:
As a corporate governance expert, you have been engaged by the board to advise it on TWO approaches to the management of ethics in organizations. (bi)

The International Federation of Accountants (IFAC) Code of Ethics discusses the need for professional accountants to be aware of and avoid conflict of interest situation as well as maintain independence in carrying out their professional duties. The professional accountant is exposed to several threats to independence, which are likely to lead to conflict of interest. A threat may arise where an assurance firm provides services other than assurance services to an assurance client.

Required:
(i) Identify the specific threat a professional accountant or assurance firm faces by providing the following services:

Preparing accounting records and financial statements.
Valuation services.
(ii) Suggest TWO measures each a professional accountant can take to minimize the threats identified in (i).

Answer

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Tags: Conflict Resolution, Ethics, Independence, Professional Accountant, Safeguards
Level: Level 3

Topic: Conflicts of interest and ethical conflict resolution

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 – 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

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SCS – L3 – Q30 – Ethical theories

Advise Apea Chemist Ltd on two approaches to managing ethics in organizations.

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 – 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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SCS – L3 – Q30 – Ethical theories

Advise Apea Chemist Ltd on two approaches to managing ethics in organizations.

You're reporting an error for "SCS – L3 – Q30 – Ethical theories"

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 – 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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