AUD 689 - Advanced Auditing Topic 1
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Questions and Answers

What are the two key components of auditor independence?

Independence of mind and independence in appearance.

How can fees from an audit client create a threat to auditor independence?

When the fees from an audit client represent a large proportion of the firm's total fees, it may lead to self-interest or intimidation threats.

What is meant by 'independence of mind' in auditing?

It refers to the state of mind that allows an auditor to make conclusions without being influenced by factors that could impair professional judgment.

Why is 'independence in appearance' important for auditors?

<p>It helps avoid situations where an informed third party may perceive a compromise in the auditor's integrity or objectivity.</p> Signup and view all the answers

What role does professional skepticism play in maintaining auditor independence?

<p>Professional skepticism allows auditors to remain objective and critical, ensuring they are not unduly influenced by audit clients.</p> Signup and view all the answers

What is a potential consequence of long association with an audit client?

<p>It can threaten independence, especially if the auditor becomes too familiar with the client.</p> Signup and view all the answers

Explain the self-interest threat in relation to auditor-client relationships.

<p>The self-interest threat occurs when auditors have a financial dependence on their clients, which may impair their objectivity.</p> Signup and view all the answers

Why are compensation and evaluation policies significant in audit engagements?

<p>These policies can influence an auditor's judgment and may lead to conflicts of interest if not managed properly.</p> Signup and view all the answers

What should a professional accountant do if they become aware of being associated with misleading information?

<p>They should take steps to disassociate from that information.</p> Signup and view all the answers

What is the principle of objectivity in relation to professional accountants?

<p>It requires accountants not to compromise their judgment due to bias, conflict of interest, or undue influence.</p> Signup and view all the answers

What obligation does a professional accountant have regarding professional competence?

<p>They must attain and maintain knowledge and skill to ensure competent professional service.</p> Signup and view all the answers

What constitutes a conflict of interest for a professional accountant?

<p>A situation where personal interests could compromise professional judgment or actions.</p> Signup and view all the answers

Under what conditions should a professional accountant refrain from performing a service?

<p>If their judgment is biased or unduly influenced by circumstances or relationships.</p> Signup and view all the answers

How can a professional accountant ensure they meet the principle of due care?

<p>By acting diligently in accordance with applicable technical and professional standards.</p> Signup and view all the answers

What actions should a professional accountant take if they encounter a conflict of interest?

<p>They should disclose the conflict and avoid activities that impair objectivity.</p> Signup and view all the answers

Why is auditor independence important in the context of professional ethics?

<p>It ensures that auditors provide unbiased opinions that clients and stakeholders can trust.</p> Signup and view all the answers

What actions can an accountant take to minimize self-interest threats when dealing with a client?

<p>An accountant can dispose of or reduce their shareholding in the client and minimize reliance on that client by expanding their client base.</p> Signup and view all the answers

How can a self-review threat be addressed in audit practices?

<p>A self-review threat can be managed by having a separate reviewer who was not part of the audit team review the work performed.</p> Signup and view all the answers

In the context of auditing, what is an example of an advocacy threat?

<p>An example of an advocacy threat is when an auditor continues to participate in business activities of a firm they audit.</p> Signup and view all the answers

What is one way to mitigate familiarity threats in an auditing context?

<p>Rotating the engagement partner can mitigate familiarity threats.</p> Signup and view all the answers

Describe a situation that could lead to a conflict of interest in transaction advisory services.

<p>A conflict of interest can arise when a firm provides transaction advisory services to a client seeking to acquire an audit client while having obtained confidential information during the audit.</p> Signup and view all the answers

What issue arises when providing advice to two competing clients during the same acquisition process?

<p>Providing advice to two clients competing for the same company can create a conflict of interest, potentially compromising each client's competitive position.</p> Signup and view all the answers

How can services provided to both buyers and sellers in the same transaction pose a risk?

<p>Providing services to both the buyer and the seller can lead to conflicting interests, as the advisor may have access to sensitive information from both parties.</p> Signup and view all the answers

What is one potential ethical issue when representing two clients in a legal dispute?

<p>Representing two clients in a legal dispute, like a divorce, raises a significant conflict of interest, as their interests may be directly opposed.</p> Signup and view all the answers

Flashcards

Independence of Mind

The mental attitude that allows unbiased judgment, free from influences that could compromise professional objectivity.

Independence in Appearance

Avoiding circumstances that could lead a reasonable outsider to think a firm's professional judgment is compromised.

Significant Fees from a Client

When a firm's fees from one audit client are a substantial portion of their total revenue.

Self-Interest Threat

The risk that a professional might act in a way that serves their own personal gain rather than the client's best interest.

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Intimidation Threat

The risk that a professional's judgment might be influenced by the client's desire to keep the business relationship.

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Objectivity

Impartiality and fairness; not influenced by personal bias.

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Integrity

Adherence to moral principles and honesty.

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Professional Skepticism

A critical and questioning attitude in evaluating evidence and considering alternative explanations.

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Accountant's Obligation Regarding Information

Accountants must not knowingly associate with reports, returns, or other information that contains materially false or misleading statements, reckless statements, or omissions/obscuring information.

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Professional Objectivity

Accountants must avoid bias, conflicts of interest, and undue influence when making professional judgments.

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Impaired Objectivity

Situations that may compromise an accountant’s objectivity, though impossible to define every situation.

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Professional Competence

Maintaining and increasing professional knowledge and skill to provide good service.

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Accountant's Disassociation

If an accountant discovers information that violates standards, they must detach themselves from it.

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Due Professional Care

Accountants must perform their duties diligently and in accordance with professional standards.

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Material Falsehood

A false statement that significantly impacts a reader's decision about financial statements.

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Conflict of Interest

When a professional's personal interests might compromise their professional judgment.

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Transaction Advisory Service

Consulting services provided to a client who wants to buy or sell a company or asset, including financial and strategic advice.

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Confidentiality Relevant to Transaction?

When an accountant has access to sensitive information during an audit that could be used to gain an advantage in a M&A deal.

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Competing to Acquire the Same Company

Clients engaging in a bidding war to buy the same business, potentially creating a conflict for an accountant advising both parties.

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Seller and Buyer, Same Transaction

An accountant providing services to both parties involved in a sale, potentially leading to conflicting interests.

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Valuations for Adversarial Parties

An accountant performing valuations of assets for two parties in a dispute, where each party might want a different outcome.

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Representing Clients in a Legal Dispute

An accountant representing both clients who are suing each other, creating a conflict of interest.

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Example: Divorce Proceedings

A situation where an accountant represents both parties in a divorce, which raises ethical concerns due to differing financial goals.

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Study Notes

AUD 689 - Advanced Auditing - Topic 1

  • Topic: MIA By-Laws on Professional Ethics, Conduct, and Practice
  • Learning Objectives:
    • Understand MIA By-Laws requirements
    • Understand applicability of MIA By-Laws to auditors
  • MIA By-Laws (on Professional Ethics, Conduct, and Practice):
    • Issued by MIA in Malaysia
    • Provides standard of conduct in daily professional life
    • Important for gaining public confidence in auditors' services
    • Establishes the highest standards of ethics, professionalism, and professional conduct expected in the profession.
    • Amended as of 28 August 2023, effective 15 December 2023.
    • A breach triggers a complaint of unprofessional conduct.
    • Members required to answer the complaint before the MIA Investigation and Disciplinary Committees.

Contents of MIA By-Laws

  • Part A: By-Laws on Professional Ethics:

    • Part 1: Complying with the Code, Fundamental Principles, and Conceptual Framework
      • Section 100: Complying with the Code
      • Section 110: Fundamental Principles
        • Subsection 111: Integrity
        • Subsection 112: Objectivity
        • Subsection 113: Professional Competence and Due Care
        • Subsection 114: Confidentiality
        • Subsection 115: Professional Behaviour
      • Section 120: The Conceptual Framework
        • Types of Threats:
          • Self-interest threat
          • Self-review threat
          • Advocacy threat
          • Familiarity threat
          • Intimidation threat
    • Part 2: Professional Accountants in Business
      • Section 200 – Applying the Conceptual Framework
      • Section 210 – Conflicts of Interest
      • Section 220 – Preparation and Presentation of Information
      • Section 230 – Acting with Sufficient Expertise
      • Section 240 – Financial Interests
      • Section 250 – Inducements (including gifts and hospitality)
      • Section 260 – Responding to Non-Compliance with Laws and Regulations
      • Section 270 – Pressure to Breach Fundamental Principles
    • Part 3: Professional Accountants in Public Practice
      • Section 300 – Applying the Conceptual Framework
      • Section 310 – Conflicts of Interest
      • Section 320 – Professional Appointments
      • Section 321 – Second Opinions
      • Section 330 – Remuneration
      • Section 340 – Inducements (including gifts and hospitality)
      • Section 350 – Custody of Client Assets
      • Section 360 – Responding to non-compliance with laws and regulations

  • Part B: By-Laws on Professional Conduct and Practice:

    • Part 1: For All Professional Accountants
    • Part 2: For Members in Public Practice

Specific Sections

  • Section 300: Applying the Conceptual Framework
    • Identifying threats (Self-interest, Self-review, Advocacy, Familiarity, Intimidation)
    • Examples of threats
  • Section 310: Conflict of Interest
    • Providing transaction advisory service
    • Conflicts relating to competing parties
    • Preparing valuations
    • Representing clients with adversarial positions
  • Section 320: Professional Appointments – Client Acceptance
    • Investigation of client background and activities
    • Identifying threats to fundamental principles
    • Elimination or reduction of threats
    • Declining appointment if necessary
    • Considerations for acceptance
  • Section 321: Second Opinions
    • Providing second opinions to non-existing clients
    • Important actions to be taken
  • Section 330: Fees and Other Types of Remuneration
    • Fair reflection of work involved
    • Considerations in determining fees
    • Quoting lower fees
  • Section 340: Inducements (including gifts and hospitality)
    • Types of inducements (gifts, hospitality, entertainment, etc.)
    • Examples of threats
    • Safeguards (transparency with senior management, registering inducements, review by independent parties, donating inducements)
  • Section 350: Custody of Client Assets
    • Responsibilities when handling client assets
    • Key procedures (separate storage, using assets appropriately)
  • Section 360: Responding to Non-Compliance with Laws and Regulations
    • Non-compliance actions (omissions, commission, intentional or unintentional)
    • Addressing the non-compliance (rectifying, deterring future acts, disclosing)
  • Section 400-430: Independence for audit and review engagements
    • Section 400: Applying the Conceptual Framework to Independence for Audit and Review Engagements (Independence of mind and appearance)
    • Section 410: Fees discussion
    • Section 420: discussion of Gifts and Hospitality
    • Section 430: discussion of Actual or Threatened litigation
  • Section 510-540: Financial Interests and Relationships
    • Various sections regarding conflicts of interest related to financial interests and business relationships.
  • Section 600: Provision of Non-Assurance Services to an Audit Client
    • Non-assurance services to audit clients and their impacts

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Mia Aud689 Advanced Auditing PDF

Description

This quiz covers the MIA By-Laws on Professional Ethics, Conduct, and Practice, focusing on their requirements and applicability to auditors. Understanding these by-laws is essential for maintaining ethical standards and public confidence in the auditing profession. It addresses recent amendments and the implications of breaches in conduct.

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