*CAUA 3751 AUDITING 1ALecture 2Topic and Reference: PROFESSIONAL CONDUCT

Auditing Notes - Jackson & Stent Chapter 2CAUA 3751

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AGENDA

AGENDAIntroduction, Professional Conduct & EthicsThe IFAC Code of EthicsPart A, General application of the Code Part B, Professional Accountants in Public Practice Part C, Professional Accountants in business Part D, Professional Accountants in South Africa Professional Conduct Disciplinary Rules

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*Professional Conduct Ethics A set of principles or morals(right or wrong); rules of conductImportance of ethics to the Profession One set of rules (rule-based) is not possible Differences in race, religion, culture Conceptual framework approach is bestAppropriate evaluation of, and response to, situations that may threaten independence Four questions to ask yourself??? If YES, decision is correctDecision honest and trustfulIn making decision, will I be acting in way that I like others should treat meWill decision build goodwill (result in greatest good for the greater number?)Would I feel comfortable explaining decision to others, I respect for moral values?CAUA 3751

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*Professional ConductThe IFAC Code of EthicsWith effect 30 June 2006, SAICA adopted IFAC Code of EthicsPart A (Sec 100 150)General application of the Code Part B (Sec 200 290)Professional Accountants in Public Practice Part C (Sec 300 350)Professional Accountants in business Part D (Sec 400 495)Professional Accountants in South Africa CAUA 3751

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*Code of Ethics Part A 5 Fundamental Principles, with which RAs must apply Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour

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*Code of Ethics Part APart A offers an approach for many different situations Conceptual approach Understand the following:Fundamental principlesTypes of threatsSafeguards to be appliedPractically, youIdentify threats to compliance with fundamental principals Evaluate significance of threat Apply professional judgment Apply appropriate safeguards to eliminate or reduce the threat to appropriate levelCAUA 3751

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*Code of Ethics Part AIntegrity (Section 110)Straightforward, honest, fair, truthful in business and professional relationships Should not be associated with information believed to be false, misleading, recklessly provided

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*Code of Ethics Part AObjectivity (Section 120)Remain free of bias , conflict of interest, undue influence in professional judgement

Professional competence and due care (Section 130) Competent Professional knowledge and skill Due care Act carefully, thoroughlyTraining and Supervision to trainees/staffCAUA 3751

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*Code of Ethics Part AConfidentiality (Section 140) SHOULD NOT disclose confidential client information unless Specific authority (client or employer) Legal or professional obligation May NOT use confidential information for Own advantage Advantage of a third party CAUA 3751

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*Code of Ethics Part AConfidentiality (Section 140) Must maintain confidentiality in social environmentApplies to people under control of accountantJoint and vicarious liability (CPC) Duty remains even after the relationship endsDisclosure permitted only whenpermitted by lawProfessional duty CAUA 3751

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*Code of Ethics Part AProfessional behaviour (Section 150)Comply with laws and regulations Do not bring the Professional into disreputeMarketing and promotion done in honest and trustful manner

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*Code of Ethics Part AThreats threaten compliance with the fundamental principles Self-interest threats Financial or other interests of professional accountant or someone close Example; Owns shares in Auditing ClientSelf-review threatsEvaluation of own work Example, written books of Audit Client and audit sameCAUA 3751

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*Code of Ethics Part AThreats threaten compliance with the fundamental principles Advocacy threats Promotion of an opinion or position to point where own objectivity is compromised Example; Valuation and negotiate sellingFamiliarity threats Too sympathetic to interests of others Silent on Fraud as perpetrator is a friendIntimidation threatsDeterred from acting objectively by receiving actual or perceived threats Example; Threatened with dismissalCAUA 3751

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*Code of Ethics Part ASafeguards To eliminate or reduce the threat to an acceptable level 2 categories Created by the Profession, legislation, regulation Imposed on companies, firms etc Created in the work environmentCompany / firm specific CAUA 3751

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*Code of Ethics Part ASituation, circumstances, Relationships & Threats & safeguards

Refer to page 2/9 2/11 for examples of practical situations CAUA 3751

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*Code of Ethics Part BPart B Applicable to professional accountants in Public Practice Addresses specific situations that are relevant and likely to such members

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*Code of Ethics Part B Section 210 Professional Appointment Client acceptance Responsibility Would acceptance of a new client threaten compliance with the Fundamental Principles? E.g. Adult movie producerE.g. Company that organizes Raves Threatens Integrity Professional behaviour Objectivity CAUA 3751

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*Code of Ethics Part BSection 210 Professional appointment Client acceptance Safeguards Screening of clients before acceptance Quality control (ISA 220R)Discussions with Mgt, CFOPrevious AuditorDiscussion with 3rd Parties, i.e. BankersSearch the InternetCAUA 3751

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*Code of Ethics Part BSection 210 Professional appointmentEngagement acceptance Responsibility Consider competence to perform the engagement to the required standard ThreatsSelf-Interest ThreatProfessional competence and due care Professional behaviour Safeguards Quality control policies and proceduresCAUA 3751

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*Code of Ethics Part BSection 210 Professional appointment Changes in professional appointment Responsibility Replacing another professional accountant Reasons for not accepting the appointment Responsibilities to other professional accountants Confidentiality considerations Threats Professional competence and due careProfessional behaviour Integrity

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*Code of Ethics Part BSection 210 Professional appointment Changes in professional appointment Safeguards Discuss clients affairs with existing accountant Clients permission, else significant threat?Enquiring of circumstances that should be aware of Existing accountant Obtain clients permission to discuss affairs with proposed accountant Provide correct information Rather put Senior partner in charge of matter CAUA 3751

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*Code of Ethics Part BSection 220 Conflicts of Interests Responsibility Consider situations where the interests of the firm may conflict with the interests of the client (same market or two similar clients in similar market)Threats Competing in the same industry or market Clients that are in direct competition Objectivity Confidentiality

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*Code of Ethics Part BSection 220 Conflicts of InterestsSafeguards Notification of conflict of interests; consent to offer services Use of separate engagement teams Guidelines regarding confidentiality and professional behaviour Confidentiality agreements CAUA 3751

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*Code of Ethics Part BSection 240 Fees and other types of remuneration Normal fees Responsibility Are entitled to fair remuneration Threats Fees too low unable to perform the engagement in accordance with the applicable standards Threats to professional competence and due care, integrity and objectivityQuoting of fixed fees CAUA 3751

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*Code of Ethics Part BSection 240 Fees and other types of remunerationNormal fees Safeguards Providing basis on which fees will be charged Knowledge and skill required Level of training and experience Time spent on engagement Degree of responsibility Investment in technology Alerting client of possible changes to fee Terms of engagement Time and staffing CAUA 3751

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*Code of Ethics Part BSection 240 Fees and other types of remunerationContingency feesCalculated on a predetermined basis Determined by outcome of work done Self-interest threat to objectivity Not allowed for assurance engagements Referral fees Permissible do not compromise fundamental principles CAUA 3751

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*Code of Ethics Part BSection 250 Marketing Professional ServicesResponsibilityMarket services in manner not to discredit profession, not bad tasteThreats Dishonest, exaggerated, obnoxious, critical of other firms Threats to integrity and professional behavior Safeguards Quality control policies and proceduresCAUA 3751

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*Code of Ethics Part BSection 260 Gifts and HospitalityResponsibilityMay accept insignificant giftsTurn down gifts which may alter relationshipThreats Significant gifts are a threats to objectivity Safeguards Policy of prohibiting the acceptance of giftsQuality control committee to approve acceptance of gifts or hospitalityCAUA 3751

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*Code of Ethics Part BSection 270 Custody of client AssetsResponsibilityMay take assets, provided not from illegal sources Kept separately identifiableThreats May misuse client assetsClient may launder illegal moneyTreats to integrity, objectivity and professional behaviour CAUA 3751

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*Code of Ethics Part BSection 270 Custody of client Assets (continue)Safeguards All client assets kept separately from firm assetsAgree in writing purpose of use of assetsRecords all movements, and available for inspectionPrior to accepting, ensure that source is not illegal.CAUA 3751

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*Code of Ethics Part B Section 290 Independence (Assurance engagements) Approach to be applied Identify threats to independence Evaluate whether threat is clearly insignificant Independence in mindIndependence in appearance Extent of public interest Reasonable person test Where NOT clearly insignificant, apply safeguardsCAUA 3751

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*Code of Ethics Part BSituation, circumstances, Relationships &Threats & safeguards

Refer to page 2/21 2/35CAUA 3751

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*Code of Ethics Part DSection 410 Tax practice Responsibility No association with a tax return or communication Statements etc that are False or misleading Reckless Contain omissions or obscuritiesThreat Objectivity Integrity Professional behaviour

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*Code of Ethics Part DSection 400 Joint and Vicarious Liability Responsibility Is responsible for breaches of CodeHis or her EmployeesUnder his supervisionHis or her partners, fellow shareholders, fellow membersMy not circumvent the provisions of the CodeMay not permit other to breach Code on his or her behalfCAUA 3751

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*Code of Ethics Part DSection 410 Tax practiceSafeguards Put forward the best position for the client Professional competence, integrity, objectivity Within the law Ensure that client understands SARS may challenge tax return Client is responsible for the tax return All advise in writing CAUA 3751

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*Code of Ethics Part DSection 410 Tax practiceSafeguards Material errors etc in tax return Notify the client Advise the client to disclose matters to SARS Where client is not willing to make disclosures Accountant is now associated with incorrect return Cannot make disclosures to SARS confidentiality Notify SARS that no longer associated with return give no details

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*Code of Ethics Part DSection 430 DiscriminationDiscriminatory practices based on matter such as race, color, religion, sex, marital status, age or origin are contrary to codeExample, pay lower salary to woman or deny promotion based on gender or raceCAUA 3751

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*Code of Ethics Part DSection 450 Publicity, Advertising and SolicitationAdvertising and PublicityGood TasteThe following not good tasteRacist, sensationalize, offends religious beliefs, derides of public figure, odiousAdvertisementsShould not state prices or bases of professional feesSolicitationDirect mailing permitted but not follow-upsMay not call prospective clientsMay not cold callCAUA 3751

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*Code of Ethics Part DSection 460 Responsibility to ColleaguesColleagues should remain loyal to fellow membersPromote co-operation and good relationsAssist each other in complying with CodeNot criticize other member irresponsiblyShould extent same professional consideration to non-members of the professionCAUA 3751

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*Code of Ethics Part DSection 470 RecruitingEducational InstitutionsBursaries, prizes may be offeredCompetitors staffNot directly or indirectly offer employment if not first contact Colleagues Only in response to Advertisement may employee be engaged, but employer needs to be informed latterCAUA 3751

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*Code of Ethics Part DSection 480 Signing of Reports or CertificatesResponsibilities may not be delegated other than to partner provided that full circumstances are reported to:ClientIRBA/PAABCAUA 3751

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*Code of Ethics Part DSection 490 Stationery and letterheadsShould include normal letterhead informationBut may include:Partners namesProfessional assistantsEmployees or consultantsNames of associatesCAUA 3751

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*Disciplinary Rules The opposite of Professional Conduct is Improper Conduct

Link Rules to Code where possible

Refer to page 2/47 2/49 CAUA 3751

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*Disciplinary RulesImproper Conduct Contravention of Auditing Profession Act and any other Act Dishonesty Theft, Fraud, perjury, bribery, corruptionIn carrying out work and dutiesIn relation to any office of trustFailure to perform work with reasonable care and skill Evasion of any tax etc. Failing to account separately clients possessionsDivulging confidential information

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*Disciplinary RulesImproper Conduct Contingent fees (Permitted under certain circumstances)Accepting reward from 3rd PartyVouching for accuracy of forecastsCAUA 3751

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*Disciplinary RulesRegarded as Improper Conduct Contraventions in respect of Trainee accountantsImposing restraints after traineeship Requiring compensation for cancellation of training contractFailing in responsibilities to IRBA / other persons Contraventions in respect of relinquishing engagements CAUA 3751

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*Disciplinary Rules Regarded as Improper Conduct Soliciting, advertising or canvassing for workContravention of IRBA Code Conduct bring Profession into disreputeImproperDiscredibleUnprofessionalDishonorableCAUA 3751

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*Disciplinary RulesA Registered auditor found guilty of Improper Conduct may be sentenced toA caution or reprimandA fine not exceeding N$100 000A suspension of the right to practice for a specific periodCancellation or registration and removal of practitioners name from registerCAUA 3751

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Tx !!!!!!!*CAUA 3751

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