審計(jì)學(xué)英文教學(xué)課件：Chapter 3 Ethics

1、Chapter 3Ethics1Lecturer 陳丹234Fundamental principles Independence principle5ICPOPFundamental principles Integrity Members should be straightforward and honest in all professional and business relationships.6 Objectivity Members should not allow bias, conflict of interests or undue influence of other

2、s to override professional and business judgments.7Fundamental principlesConflict of interests 8“一仆二主”的auditor Conflict of interests 9 Type 1 conflicts between interests of different clientsSafeguards:Build a Chinese wall within the firm so as to avoid affecting the interests of any client.Advise on

3、e client to employ another auditor.Conflicts of interests 10Provided that you issue a clean opinion!You owe me 1 million audit fee. Pay it now! Conflict of interests 11 Type 2 conflict between auditors and clients interests long-term overdue audit feeA client sues the member for negligence in the pr

4、evious audit.The member competes directly with a client.The member has a joint venture with a company that is in competition with a client.Conflict of interests 12 Type 2 conflict between auditors and clients interests Not accept or continue the engagement (significant conflict of interest)Notify th

5、e client of the conflict of interest and obtain his consent to actProfessional competenceAttain and maintain professional knowledge and skillAct in accordance with the requirements of an assignment carefully with professional scepticism, thoroughly and on a timely basis.13Due care: Members should ob

6、serve the professions standards and strive to improve competence.How? -CPDFundamental principles Professional behavior (not commit an act discreditable to the profession)Behave with courtesy and consideration Dont make exaggerated claims for the services they can offer, the qualifications they posse

7、ss, or experience they have gainedDont make disparaging references or un substantiated comparisons to the work of othersComply with laws and regulations(not exhaustive )14Fundamental principles15工會代表How should the CPA respond to the request of providing the clients financial information? Confidentia

8、lity Definition Exception16Fundamental principlesConfidentialityDefinitionDont disclose any information to third parties without proper and specific authority.Confidential information (eg. Officers salaries, product pricing, advertising plans, product cost data) acquired as a result of professional

9、and business relationships should not be used for his personal advantage or for the advantage of a third party.How long?- forever17Fundamental principlesException of confidentiality Disclosure is authorized by the clientObligatory disclosureVoluntary disclosure18Exception of confidentialityException

10、Reason or purposeExampleObligatory disclosure there is a legal right or duty to disclose (whistle-blowing responsibility)Compelled by law Provision of evidence under a court order or summons.The client has committed money-laundering, treason, drug-trafficking or terrorist offences.19Exception of con

11、fidentialityExceptionReason or purposeExampleVoluntary disclosure there is a public duty to disclose or there is a professional right or duty to disclose To protect the public interestsDirectors are involved in fraudulent activities The client released toxic chemicals, which is unauthorized To prote

12、ct the members interestsSue for unpaid feesDefend the member himself against a negligence action or disciplinary proceedingsCompelled by non-governmental bodies which have statutory powersComply with the quality review of ACCA2021Past Exam QuestionsJune 14 Q3dDec 12 Q4aDec 11 Q4cJune 11 Q4aJune 10 Q

13、4aDec 07 Q2aJune 07 Q6cJune 06 Q4a2223242526CPACPAs wifeHow dare you accept red packet without telling me?Is the CPA independent?IndependenceActual independence Perceived independence27 Actual independence Independence of mindMaintain an unbiased attitude through the auditObjective and impartial in

14、reaching his conclusion regardless of whether his conclusions will be pleasing or beneficial to the client.28IndependencePerceived independence Independence in appearanceInterpretation of the auditors independence by third parties and hence their faith in himHe may be independent in fact but if the

15、third parties view him to be not independent, then the value of the F/Ss could be diminished.29IndependenceQuestion answering frameworkStep 1 Step 2 Step 330IndependenceStep 1: Identifying circumstances and relationships that create threats to independenceSelf-interests threatSelf-review threatAdvoc

16、acy threatFamiliarity threatIntimidation threatDefinition? Examples?31Independence32Self-interests threat may arise as a result of the financial or other interests of members or of immediate or close family.Independence33Self-review threatmay arise when a previous judgement needs to be re-evaluated

17、by members responsible for that judgement.Independence34Advocacy threatmay arise when the assurance firm promotes a position or opinion to the point that subsequent objectivity is compromised.Independence35Familiarity threatmay arise when members become too sympathetic to the interests of others bec

18、ause of a close relationship.Independence36Intimidation threatmay arise when members are deterred from acting objectively by threats, actual or perceived.IndependenceStep 2: Evaluating whether the threats are significantStep 3: If the threats are significant, identify and apply safeguards to:- Elimi

19、nate these threats; or- Reduce these threats to an acceptable level by the application of safeguards. No safeguard available decline the engagement, or discontinue it37IndependenceGeneral safeguards:Remove the individual from the team.Discuss the issue with those charged with governance. Keep the cl

20、ients audit committee informed of the situation.Consult a third party such as ACCA.Assign an independent partner to review the work carried out.Formulate the quality control procedures which requires members to disclose relevant information to the firm. E.g. financial interests of themselves and clo

21、se family members (culture of voluntary disclosure)38Independence1. Financial interestIdentify: self-interest threatEvaluate:The materiality of the interest to the ownerThe role of the owner in the firmSpecific Safeguard: Dispose the interest39IndependenceAreas of threats and Specific Safeguards 2.

22、Close business relationshipIdentify: self-interest threatEvaluate:- The materiality of the interest to the owner- The role of the owner in the firmSpecific Safeguards:Terminate the business relationshipExclusion: Purchasing goods and services from an assurance client on an arms length basis.40Indepe

23、ndence3. Employment with an audit clientIdentify: self-interest threat, familiarity threat, intimadation threatEvaluate:- The present role of the relevant individual- The former role of the relevant individual- The likely level of involvement with the audit team/engagementThe length of time that has

24、 elapsed between positions 41Independence3. Employment with an audit clientSpecific safeguards:- The relevant individual not be assigned to the audit team- Assign a sufficiently experienced auditor as compared with the one who has left- Make the audit plan unpredictable42Independence4. Recent servic

25、e with an audit clientIdentify: self-review threatEvaluate:the roles in client and in firm the length of time that has elapsed between rolesSpecific Safeguards:time gap is at least two years43Independence5. Family and other personal relationshipsIdentify: self-interest threat, familiarity threatEval

26、uate:- the closeness of the relationship - the responsibilities of the member on the audit team- the role of the other party in the audit clientGeneral Safeguards44Independence6. Gifts and hospitalityIdentify: self-interest threatEvaluate: whether the value of gift/hospitality from the audit client

27、is modest.45Independence6. Gifts and hospitalityWhat is modest?- Actual amount involved- Is it in the normal course of social courtesy?- Under what circumstance was the gifts given?Specific Safeguards:Ask engagement partner for permissionRefuse the valuable gift/hospitality46Independence7. Loans and

28、 guaranteeIdentify: self-interest threatEvaluate:- The nature of the lending institution- The nature of the loan (normal commercial terms?)- The materiality of the amount to the borrower47IndependenceAudit client (not bank)Firm or memberBank Firm or memberOn abnormal commercial termsImmaterial amoun

29、t No threat to independenceNormal commercial termsMember No threat Material amount firmThreat but safeguards, eg. An independent review48An audit firm or individual on the audit engagement should not enter into any loan or guarantee arrangement with a client that is not a bank or similar institution

30、.8. Lowballing (a firm quotes a significantly lower fee level for an audit than would have been charged by the predecessor firm)Identify: self-interest threat (In order to acquire and retain clients, the firm may cut corners and save audit cost. Then the audit team could not maintain professional sk

31、epticism and objectivity)49Independence8. Lowballing Evaluate: the fee level as compared with the market priceSpecific safeguards: Maintain records such that the firm is able to demonstrate that appropriate staff and time are assigned50Independence9. Overdue fees (actually an interest-free loan)Iden

32、tify: self-interest threatEvaluate: the materiality of the amount to the firm 51Independence9. Overdue fees Specific Safeguards:- Before the audit work starts, the situation should be reviewed to ascertain whether the overdue fees, taken together with the fee for the current assignment, could be reg

33、arded as a significant loan.- Discuss the issue with those charged with governance and obtain reasons for non-payment and press for payment.- Firm may delay starting the audit work for this year until the fee is paid to remove the potential independence problem.- If the fee is not paid at all then f

34、irm may decline to carry out the audit.52Independence5310. Contingent fees (calculated on a predetermined basis relating to the outcome or result of a transaction or the work performed)Identify: self-interest threatIndependence54EvaluateSafeguardsAssurance engagementNo safeguardRelated servicesThe d

35、egree of variability in the feeThe materiality of the amount to the firm-Use professionals who are not part of the assurance team for the related service-Review or determine the fee by an unrelated third party10. Contingent feesIndependence11. High Percentage of fees (Undue dependence on a client)Id

36、entify: self-interest threatEvaluate: The percentage of fee paid by one client or group of connected clients exceeds 15% of the gross practice income?A large proportion of the revenue of an individual partner from a client?temporary or for consecutive two years?Specific safeguards: Take steps to red

37、uce the dependence on the client55Independence12. Recruitment Identify: self-interest threat (the audit client may decline to pay the audit fee since the unqualified staff who is in a position to influence the F/S was recruited by the firm or the firm may acquire bad reputation for recruitment servi

38、ce )Evaluate: The position of the individual to be recruited Whether the client has drawn up the criteria by which candidates are to be selectedSpecific safeguards: Must not make management decisions for the client56Independence13. Provision of other services to audit clientsAuditors taking on non-a

39、udit workAdvantage: cost-efficient considerationDisadvantage: impair auditors independence Identify: Advocacy threat (when corporate finance or legal service is provided)Self-interest threat (undue dependence on a client)Self-review threat57Independence13. Provision of other services to audit client

40、sEvaluate:The nature of other servicesMateriality of the fees from other servicesThe nature of the client (public interest company?)58Independence13. Provision of other services to audit clientsSpecific Safeguards:Use different teams of staff (Chinese wall)Ensure clients acknowledge of its responsib

41、ilityThere is no objection in principle to provide other services to audit clients but care must be take not to perform mgt functions or to make mgt decisionsAccountancy work must not be performed for a public interest audit client except in emergency situation59Independence13. Provision of other se

42、rvices to audit clientsSpecific Safeguards:Audit firm must not carry out valuations which involve a significant degree of subjectivity on matters which will be material to the F/S. For a public interest client the degree of subjectivity is irrelevant. Tax calculations must not be prepared for public

43、 interest audit clients.60Independence13. Provision of other services to audit clientsSpecific Safeguards:Audit firm must not promote, deal in or underwrite a audit clients shares.Audit firm must not design or implement IT systems that form a significant part of the IC over financial reporting or ge

44、nerate information that is significant to the accounting records or F/S for public interest audit clients.61Independence14. Long association with audit clientsIdentify: familiarity threatEvaluate:The length of time the individual has been on the audit teamThe role of the individual Specific Safeguar

45、ds:Rotate engagement partner and senior members off the assurance team62Independence15. Threat of litigation / Threat of removal as the auditor/ Dominant personality of client director attempting to influence decisions / Pressure to reduce inappropriately the extent of work performed in order to red

46、uce feesIdentify: intimidation threatEvaluate:The reason for the litigationThe materiality of the litigation The nature of the engagementGeneral safeguard63Independence64Fundamental principlesIndependence principleIPOPCThree steps 65SummaryAdhere to code of ethics and accounting principles, refuse t

47、o falsify accounts. 誠信為本，操守為重，堅(jiān)持準(zhǔn)則，不做假賬。 -朱镕基To be a professional is easy, to be ethical is not, something to be cherished! 成職業(yè)人易，守德難，且行且珍惜！ -陳丹66Past Exam QuestionsJune 15 Q1Dec 13 Q4cJune 13 Q2aJune 12 Q3bJune 11 Q4cJune 10 Q4bJune 09 Q5biiiDec 08 Q3aJune 06 Q4b67June 12 Q3bEthical threat Managing

48、 riskCurrant & Co has audited Orange for many years. A familiarity threat may arise as the team members are sympathetic to the interests of Orange and hence may not maintain their professional scepticism and objectivity.Currant & Co should have regular independent internal or external quality review

49、. Ideally refuse reappointment as an audit firm of Orange in the following several years.68Ethical threat Managing riskOrange has asked the engagement partner of Currant & Co to attend meetings with potential investors. This represents an advocacy threat as the audit firm may be perceived as promoti

50、ng investment in Orange and this threatens objectivity.The engagement partner should politely decline this request from Orange, as it represents too great a threat to independence.69Ethical threat Managing riskDue to the stock exchange listing, Orange has requested that Currant & Co produce the F/S.

51、 This represents a self-review threat . Currant & Co are the auditor and preparer of the F/S, who will be viewed unindependent by the potential investors. Ideally, Currant & Co should not undertake the preparation of the F/S. Due to the imminent listing, this would probably represent too high a risk

52、. If Currant & Co choose to produce the F/S then separate teams should undertake each assignment and the audit team should not be part of the accounts preparation process.70Ethical threat Managing riskThe assistant finance director of Orange has joined Currant & Co as a partner and has been proposed

53、 as the review partner. This represents a self-review threat, as he was in a position to influence the F/S whilst working at Orange; if he is the review partner there could be a risk of him reviewing his own work.This partner must not be involved in the audit of Orange for a period of at least two y

54、ears. An alternative review partner should be appointed.71Ethical threat Managing riskOrange has several potential assurance assignments available and Currant & Co wishes to be appointed to these.There is a potential self-interest threat as these service fees along with the external audit fee could

55、represent a significant proportion of Currant & Cos fee income.The firm should assess whether these assignments along with the audit fee would represent more than 15% of gross practice income for two consecutive years. If so currant & Co should advise Orange to seek advice from another firm. 72Ethical threat Managing riskOrange has implied to Currant & Co that they must complete the audit quickly and with minimal questions/issues if they wish to obtain the assurance assignments.This creates an intimidation threat on the team as the