Ethics

Professional ethics, independence and audit qualityModern Auditing & Assurance Services 6th edition Leung et al. Chapter 3explain the role and duties of the professional accountant discuss the basic ethical principles for auditorsdescribe the conceptual framework of professional independence state the importance of audit quality and the standards for technical competence

acc5aas20152Learning ObjectivesASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial InformationASA 700 Forming and Opinion and Reporting on a Financial ReportAPES 110 Code of Ethics for Professional AccountantsAPES 210 Conformity with Auditing and Assurance Standardsacc5aas20153StandardsA systematic body of theoryAuthority Community sanction Ethical codesCultureacc5aas20154The Concept of a ProfessionMastery of skills acquired by training and education.Adherence to a common code of values and conduct.Acceptance of a duty to society as a whole.acc5aas20155Characteristics of a profession(as defined by IFAC p.99)CompetenceIntegrity in client dealingsObjectivity in the offering of servicesConfidentiality in client matters Disciplineacc5aas20156Duties of a professionSustaining a fiduciary relationshipBehavior, skills and knowledge, reputation

Values required to carry out duties and maintain rightsHonesty, integrity, due care, objectivity, confidentiality, competenceacc5aas20157Professional accountants duties Ethics espouses principles that:Distinguish right from wrongGuide how one ought to behaveEthical theories and codesProvide the bases for developing and understanding principles and obligationsacc5aas20158EthicsEthics is concerned with the evaluation of choices where options are not clear, or where there is no absolute right or wrong.

The study and practice of ethics are important to be able to examine a situation critically where there is a conflict of loyalties and interest.acc5aas20159Why is ethics important?An understanding of ethics and ethical issuesTeleology DeontologyVirtue ethicsEthical relativismacc5aas201510Ethical Theories Considers actions according to the consequences of that behaviour

Utilitarianism is the most common formA right action is one that maximises net benefitsacc5aas201511Teleology or ConsequentialismAn action is right because of the intention rather than the outcome

Duties generally include a responsibility to be:Fair to allRespect others, particularly their rightsacc5aas201512Deontology or Non-ConsequentialismVirtue ethicsTo act morally based on ones characterMoral behaviour is a natural result of one's character

Ethical relativismMoral values are relative to the particular environmentRelevant to international businessacc5aas201513Other theoriesProfessional ethics for accountantsStandards of behavior for accountantsProfessionalism, highest level of performanceServing the public interest

The Code of Ethics for Professional Accountants APES 110acc5aas201514Professional Ethics and the AccountantPart A Fundamental principles

Part B Members in public practice

Part C Members in business acc5aas201515Code of Ethics for Professional Accountants APES 110 IntegrityObjectivityProfessional competence & due careConfidentialityProfessional behaviourRefer APES 110. para100.4acc5aas201516Fundamental PrinciplesIndependence Statutory provisions, CLERPmind and appearancePartner rotationFamiliarityNon-assurance servicesAccounting, valuation, taxation, internal audit, IT etc.

acc5aas201517Code of EthicsSelf interestSelf reviewAdvocacyFamiliarityIntimidationPublic practice behaviour(Refer Tables 3.1 and 3.2 text)acc5aas201518Categories of threats (APES 110 para. 100.12)Education and experienceContinuing professional developmentGovernance regulationsProfessional standardsDisciplinary proceduresExternal review(refer APES110 para.100.12ff for further details)acc5aas201519SafeguardsCornerstone of the auditing professionIndependence in mind and appearanceRefer APES 110 para. 290.4-12

acc5aas201520Professional IndependenceThe fact of independence (actual)State of mind of the auditorForming an opinion without compromiseThe appearance of independence(perceived)How others (a reasonable person) will view the auditorThird person test avoiding situations where a reasonable person, knowing all the facts, would conclude that integrity and objectivity is compromised.acc5aas201521Professional IndependenceFinancial interestsLoans and guaranteesBusiness/family/personal relationshipsEmployment relationshipsStaff secondment of staff by audit firmLong association with audit clientacc5aas201522Threats to independenceNon-assurance and servicesFeesCompensation and evaluation policies Gifts and hospitality Actual or threatened litigation acc5aas201523Threats to independenceStatutory provisions (key provisions covered in textbook in Table 3.3)Right of accessDuty to report breaches of Corp ActAppointment and termsAudit fees disclosed in accountsacc5aas201524Professional IndependenceCorporation ActOpinionCompliance with standardstrue and fairDeclaration required by auditorsacc5aas201525Statutory provisions ASIC has responsibility for surveillance, investigation and enforcement of regulatory requirements for auditor independence

ASIC undertakes Audit Inspections Programsacc5aas201526ASIC Auditor monitoringAim to improve financial reporting i.e.To promote quality external auditsTo review compliance and independenceMostly carried out on firms auditing public listed or public interest entitiesUndertaken every 18 months

acc5aas201527Audit Inspection Program (ASIC)Auditor appointment, independence and rotationAGMs (annual general meetings)Expansion of auditors dutiesNotify ASIC of any attempts of influence, manipulation etc. in the conduct of the audit acc5aas201528CLERP (Corporate law economic reform program)Technical competenceAccounting concepts and standardsAuditing standards and guidance statementsStandards for taxation, insolvency and management consulting servicesCompliance with standardsEthical competenceQuality controls

acc5aas201529Audit Quality