What is greenwashing
A PR tactic used to make a company or product appear environmentally friendly, without meaningfully reducing its environmental impact
IESBA code of ethics , fundamental principles
Integrity : straightforward and honest in all professional and business relationships
Objectivity: exercise professional or business judgements without being compromised by bias
Professional competence and due care to technology
Confidentiality
Professional behaviour
FRC ethical standards section 1
Partners and staff of the audit firm must report
Family and other personal relationships
Financial interests
Decisions to join
If an entity relevant to an engagement by the firm which might be perceived as casting doubts about the firms independence, it then requires a firm to
Monitor compliance
Have systems in place to ensure that actual or possible breaches are promptly communicated to the engagement partner
Evaluate the possible implications of identified possible or potential breaches
Report specific circumstance as required by ethical standards
Prohibit management decision taking on behalf of the audited entity
Establish an enforcement mechanism, to ensure that compliance actually happens, through disciplinary procedures
Empower staff to communicate about ethical issues
The ethics partner
Senior partner with a good deal of authority in the firm, available for consultation on ethical matters
Should be consulted when judgements are being made about whether the safeguards in place in the firm are sufficient to counter potential threats
In firms that undertake engagements for PIES or other listed entities, the ethics partner should have direct
Access to the firms non exec directors
Threats to objectivity and independence
Self interest: when any of the firm, its partners, staff or other covered persons has a financial or other interest in the client that could lead to a reluctance to act in a way that is adverse to that interest.
Self review: : This threat arises when an auditor has to review non audit/ additional work or a judgment that they or a different part of their firm previously provided to the client. May be perceived as being unable to take an impartial view of relevant aspects of those financial statements or other subject matters of info
Management: when the audit firm undertakes work that involves making judgements and taking decisions, which are the responsibility of management. Leads to the firm and client having such closely aligned views that retaining objectivity can be challenging
Advocacy: This occurs when the auditor promotes a client’s position or opinion to the point where their objectivity is compromised.
Familiarity: if the professional get to know the client too well, objectivity may be threatened because the auditor becomes predisposed to accept the views of the client without adequately challenging those views and professional skepticism is impaired
Intimidation: This arises when the auditor is prevented from acting with objectivity by actual or perceived pressures or threats from the client
Ethical fundamental principles that should be followed by members of the profession
Behave with integrity in all business and professional relationships
Strive for objectivity in all professional and business relationships
Not accept or perform work beyond own competence
Carry out work with due care, skill and diligence and follow expected technical and professional standards
Respect all confidentiality of info required
Act professionally and comply with relevant laws and regulations
Integrity
Being trustworthy, honest, straightforward, fair and candid , complying with principles, laws and regulations, respecting confidentiality when required
Objectivity
Acting and making judgements and decisions fairly, impartially and on merit, without discrimination, bias or compromise.
Independance
Freedom from conditions and relationships with in the context of an engagement, would compromise the integrity or objectivity of the firm
Where a partner, who could be:
> the engagement partner
>the partner who carries out an independent review of the audit files
>another partner involved on the audit
Is appointed as director or takes on some key management position at the client, within 2 years of being involved in the audit…
The firm shall resign as auditors
The firm shall not accept reappointment as auditor until a two year period, commencing when the former partner ceased to have the ability to influence the conduct and outcome of the audit, has elapsed or the former audit partner ceases employment with the former audited entity.
Procedures and rules regarding a partner or other members joining a client
> partners or any other members of the audit team intending to join a client must inform the firm of their intentions
if someone gives notification, they must be removed from the audit immediately
a review should be carried out on any audit work performed by the team member in the current audit, and where appropriate, the most recent audit
if someone joins the firm from a senior position at the client, they should not be allowed to work on the audit for two years
How often should engagement partners be rotated after acting for the same client
10 years, third party test should be applied, consider if the firms objectivity and independence has been impaired
Rules for long association, PIEs
Audit engagement partner should not hold the role for more than 5 years
Once they have ceased to act, they shall not take up the position again until another 5 years has elapsed
7 years: engagement quality reviewers, key partners involved in the audit and senior staff for listed clients
Exceptions for long association of PIEs
Five year term may be extended for an additional 2 years if the client’s audit committee considers that it is necessary to safeguard the quality of the audit. In this case alternative safeguards need to be introduced.
This fact and the reasons for it must be disclosed to the shareholders, in each additional year to which the extension applies, refusal may mean the partner cannot continue in this role.
In the year an entity becomes a listed/ PIEs: if an engagement partner has already served for 4 or more years , they may continue for no more than 2 years after the entity becomes listed
Contingent fees
Fees where the amount is dependent on some event taking place or conditions being met. Prohibited both for audit and non- audit work
Fees for audit and non-audit services for a LISTED client shall not exceed
10% of the FIRM’S fee income
For NON-AUDIT services, 70% of the average audit fees paid by the client and any group companies in the last three consecutive financial years
Fees for audit and non-audit services for NON-LISTED companies shall not exceed
15% of the firm’s fee income
Rules for contingent fees
Audit engagement partner shall ensure that sufficient partners and staff are assigned to the audit irrespective of the audit fee to be charged
Audit fees shall not be influenced or determined by the provision of non-audit services to the audited entity
Audit staff shall not be assessed or have their performance appraisal or their pay related to their ability to cross sell the firms products
There shall be a firm’s policy on the extent to which gifts, hospitality etc may be accepted from audited entities
The firm shall resign as auditor where there is actual or potential litigation between the firm and the audited entity
Where fees amounts to 5-10%(listed clients) or 10-15% (non-listed) this fact needs to be
Disclosed to the ethics partner and those charged with governance at the client
Appropriate safeguards adopted where necessary
External hot review taken (non-listed, listed done anyways)
For a non audit service being provided to a non-PIE audit client, the partner must
Identify and assess the significance of any related threats to integrity, including whether independence would be compromised
Identify and assess the effectiveness of any safeguards
Consider whether it is probable that an OBJECTIVE, REASONABLE and INFORMED third party, having regard to the threats and safeguards, would conclude that the proposed service would not impair INTEGRITY OR OBJECTIVITY AND COMPROMISE INDEPENDENCE
Internal audit: the firm shall
Not undertake internal audit work for any audit client, whether listed or otherwise
Non-PIE IT: the firm shall not design, provide or implement IT systems where,
They would be important to any significant part of the accounting or financial management systems or to the production of FS
The firm would take on the role of management
Non-PIE VALUATION: the firm shall not undertake valuation services where the valuation would both:
Involve a significant degree of subjective judgement
Have a material effect on the FS
