Five attributes of a profession:
- Systematic theories - A body of knowledge organized into systematic theories.
- Authority - Authority to exercise professional judgment.
- Community sanction - Community sanction with powers and privileges.
- Ethical codes - Ethical codes that are explicit, systematic, and binding.
- Culture - A professional culture symbolized by values, norms, and symbols of practice
Duties of a profession
Maintenance of:
* Competence in the field of expertise and knowledge
* Integrity in client dealings
* Objectivity in offering services
* Confidentiality in client matters
* Discipline over members who do not discharge these duties according to public expectations.
Duties of the auditor
M* a fiduciary duty of care towards society in performing an auditing service
* to exercise reasonable care and skill
* Maintain independence.
* to provide an audit opinion in an audit report using a standardised format
* professional duties to ensure accounting standards are consistently applied in the auditee’s financial statements
* duties to comply with all auditing and professional standards including relevant ethical requirements
Integrity
To be straightforward and honest in all professional and business relationships
Objectivity
To not allow bias, conflict of interest or undue influence of others to override professional or business judgements (note similarity to Independence)
Professional competence and due care
To maintain professional knowledge and skill at the level required to ensure that a client receives competent assurance services
Confidentiality
To respect the confidentiality of information acquired as a result of professional and business relationships
Professional behaviour
To comply with relevant laws and regulations and avoid any action that discredits the assurance practitioner’s profession
A self-interest threat
– the threat that a financial or other interest will inappropriately influence the assurance practitioner’s judgement or behaviour;
A self-review threat
– the threat that an assurance practitioner will not appropriately evaluate the results of a previous judgement made or service performed by the practitioner, or by another individual within the practitioner’s firm;
An advocacy threat
– the threat that a practitioner will promote a client’s position to the point that the practitioner’s objectivity is compromised;
A familiarity threat
– the threat that due to a long or close relationship with a client, a practitioner will be too sympathetic to their interests or too accepting of their work; and
An intimidation threat
– the threat that a practitioner will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the assurance practitioner.
Independence of mind
The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgement, thereby allowing an individual to act with integrity and exercise objectivity and professional scepticism.
- State of mind
- conclusion without being affected by influences
- that compromise professional judgement. Professional accountant exercise scepticism
- act with integrity and objectivity.
exists when an auditor can maintain an unbiased attitude in the audit process.
Independence in appearance
The avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude that a firm’s or an audit, review or assurance team member’s integrity, objectivity or professional scepticism has been compromised.
Independence in appearance means avoiding situations and facts that are so significant that a reasonable person, knowing all relevant facts and having considered the safeguards in place, would reasonably conclude that a firm’s or a professional accountant’s integrity and objectivity had been impaired
relies on external persons having a perception of the audit(ors) being independent from the client.
Safeguard Examples
- Educational, training and experience requirements for entry into the profession
- Continuing professional development requirements
- Professional standards
- another reviewer who is not a member of the team
- Different partner
- Involving another firm to perform or re-perform part of the engagement
- Separating teams when dealing with matters of a confidential nature
Critically evaluate whether an auditor can be completely independent when conducting an audit.
- Completely independent is not possible e.g. auditors rely on their clients as a source of income and form close relationships with their clients over time. This will cloud their objectivity and “independence in mind” when undertaking the audit.
- Independence in appearance may result in complying with the Code of Ethics and putting the necessary safeguards in place as outlined in the Code however, this may not be sufficient to maintain integrity and objectivity in undertaking an audit engagement in circumstances that are not directly covered in the Code
“Independence is a static concept”
- Although there are regulations around what independence is it is the spirit of independence which is important rather than mechanically applying the rules.
- One engagement will differ from the other and the amount of independence required will differ
- Standards are updated all the time, the courts will test and bring about new interpretations of independence
- Changes in the business environment may bring about circumstances where the concept of independence may need to be reviewed
- Therefore, independence is not a static concept.
Explain why critical evaluation of ethical issues is important for the auditing profession.
- An understanding of ethical issues and critical thinking are important to become a CA or CPA
- It assists the auditor to take appropriate action when faced with an ethical dilemma in the auditing profession
- An auditor should exercise professional scepticism in their role as an auditor and critically evaluate ethical issues that may cloud their judgement as it is important that they act ethically due to the large number of users who rely on their work to assist with decision making.
- The work of auditors is open to public scrutiny and critical evaluation of ethical issues is needed to maintain credibility of the profession, so auditors act in public interest.
How should practitioners comply with PES 1
- Identify threats to compliance.
- Evaluate and address these threats.
- Use professional judgment and the reasonable and informed third party test.
- Ensure full compliance as detailed in PES 1.
What are the fundamental principles outlined in PES 1?
- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behavior
What are the five types of threats to a practitioner’s compliance with fundamental principles?
- Self-interest threat
- Self-review threat
- Advocacy threat
- Familiarity threat
- Intimidation threat
How should threats to compliance be addressed?
- Eliminate the circumstances creating the threat.
- Apply safeguards to reduce the threat to an acceptable level.
- Decline or end the specific professional activity if necessary.
What is the difference between independence of mind and independence in appearance?
Back:
- Independence of Mind: The ability to maintain an unbiased attitude in the audit process.
- Independence in Appearance: Avoiding situations that would lead a reasonable person to believe that independence has been compromised.
