CPA Review: Auditing Theory - Code of Ethics

Professional accountants are bound to be truthful, honest, and fair in their dealings. It's about more than honesty; it's about acting ethically in all aspects of the profession.

The principle of Objectivity demands that professional accountants remain impartial, free from bias, and uninfluenced by personal interests in their judgment.

Professional accountants are expected to have the necessary knowledge, skills, and training to perform their services effectively and competently.

Professional accountants have a responsibility to protect confidential information gained during their professional work from unauthorized disclosure.

Professional accountants need to ensure that their clients understand the limitations of tax advice and services. They shouldn't make promises that cannot be fulfilled.

When professional accountants work in another country, they must adhere to the stricter ethical requirements between the two countries.

Professional accountants must market their services in a manner that promotes the good reputation of the profession and avoids false or misleading claims.

Professional accountants must be independent of mind and appearance. They shouldn't be influenced by factors that could compromise their judgment.

Assurance engagements include providing a high or moderate level of assurance that information meets specific criteria.

An assurance report may be expressly restricted for use by identified users, meaning that it cannot be shared with others.

There are threats to independence that could arise from a close business relationship with a client, such as financial interests or undue dependence on fees.

A self-interest threat arises when a professional accountant or firm has a financial interest in the client that could compromise their objectivity.

A self-review threat occurs when a professional accountant is asked to re-evaluate their own previous work, which could lead to bias.

An advocacy threat arises when a professional accountant promotes a client's interests to the point of compromising their objectivity.

A familiarity threat arises from a close relationship with a client, which can lead to a lack of critical judgment.

An intimidation threat arises when a professional accountant is pressured or threatened by a client, influencing their judgment and independence.

Safeguards refer to actions taken to eliminate or reduce threats to independence to an acceptable level.

Some safeguards are created by professional bodies, legislation, or regulations to maintain ethical standards in the profession.

Safeguards within the client's own systems and procedures can help reduce threats. This can include having a strong audit committee.

Safeguards within the firm's systems and procedures can help maintain independence. This can include having clear policies on accepting engagements and avoiding conflicts.

If a professional accountant cannot reduce threats to independence to an acceptable level, they should refuse to perform the engagement or withdraw.

The engagement period for an assurance engagement starts when the accountant starts working and ends with the issuance of the report.

A direct financial interest or material indirect financial interest in a client can create threats to independence. Disposing of the interest is often the only solution.

Loans and guarantees from a client can create threats to independence. Loan terms should be normal and the loan should not be material.

Close business relationships, such as joint ventures or distribution arrangements, can create threats to independence.

Family and personal relationships between a professional accountant and a client's employees can create threats to independence.

A member of the assurance team cannot participate in an engagement if they have previously worked for the client in a position of significant influence.

Serving as an officer or director on the board of a client can create threats to independence.

A long association of senior personnel with a client can create a familiarity threat, which can be mitigated by rotation of lead partners.

A firm cannot provide non-assurance services to audit clients that create self-interest or self-review threats. This includes making management decisions for the client.

A firm cannot prepare financial statements or accounting records for audit clients, as this creates a threat to independence.

Valuation services can create threats to independence, especially if they involve significant subjectivity. The firm may need to withdraw from the audit.

Contingent fees, which are based on the outcome of the work, create threats to independence. They should be avoided.