Ethics and Terms of Audit Engagement - Chapter 11

A set of moral principles and rules of conduct that guides professionals in their work. These principles ensure ethical behavior and promote the public good.

Professional ethics are vital because they build trust and confidence in the profession, safeguarding the interests of the public and the profession itself.

Specific ethical principles that govern the conduct of auditors. They are crucial for maintaining the integrity of financial audits and ensuring trust in audited statements.

The overall well-being and benefit of society. Professional ethics prioritize the public interest by ensuring that professional services are performed with integrity and for the greater good.

The Institute of Chartered Accountants of India, the professional body that sets and enforces ethical standards for Chartered Accountants in India.

These are core principles that govern the actions of Chartered Accountants. They include integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.

Following and adhering to the ethical standards and principles set by professional organizations, as well as the law.

Written ethical guidelines and codes of conduct that provide clear rules and standards for professional behavior.

A high level of confidence that an audit performed according to auditing standards will identify significant errors or fraud, but not a guaranteed result.

An error or fraud that could potentially influence the financial decisions of users of financial statements.

Intentional misrepresentation or concealment of information to gain an unfair advantage.

An unintentional mistake in financial reporting.

A questioning mind that critically evaluates evidence and considers the potential for fraud or errors.

Policies and procedures designed to prevent and detect errors and fraud.

The assumption that a company will continue operating in the foreseeable future.

A weakness in internal control that could allow material misstatement to go unnoticed.

A written agreement between the auditor and the client, outlining the terms of the audit engagement. It specifies the scope, responsibilities, and expectations of both parties.

To reduce the risk of misunderstandings between the auditor and the client about the scope and objectives of the audit.

The engagement letter should describe the objectives and scope of the audit. This includes the period being audited and the specific financial statements being reviewed.

The engagement letter should clearly state the responsibilities of the auditor, including performing the audit according to professional standards and providing an opinion on the financial statements.

The engagement letter should outline the responsibilities of management, including ensuring the accuracy of the financial statements and preparing them according to relevant accounting standards.

The engagement letter should identify the applicable financial reporting framework, such as IFRS or GAAP, that will be used for preparing the financial statements.

The engagement letter should reference the type and content of the report to be issued by the auditor, while acknowledging that the report's form and content may vary depending on circumstances.

If laws or regulations clearly define the terms of the audit, an engagement letter may not be needed, but the auditor must still confirm that management understands their responsibilities and acknowledges the applicable regulations.

A firm should establish policies to ensure its personnel, including experts and network firms, maintain independence as required by the code.

Firms must identify and evaluate situations that could threaten their independence, taking steps to eliminate or reduce threats through safeguards or withdrawing from engagements.

Engagement partners are responsible for informing the firm about client engagements and notifying any circumstances affecting independence.

Firms should obtain written confirmation of compliance with independence policies annually from all personnel required to be independent.

Before accepting an engagement, firms should gather information on the client's integrity, competence, and ethical compliance.

Firms should assess the integrity of clients by considering factors like the reputation of principal owners, key management, and related parties.

When issues are identified during client acceptance, firms should document how they were resolved before proceeding with the engagement.

Firms should regularly assess whether to continue existing engagements based on the client's circumstances and any emerging issues.

Conditions that must be in place for an audit to be conducted, including management using a suitable accounting framework and agreeing to the audit's premise.

An auditor should only agree to changing the terms of an engagement if there's a valid reason. Otherwise, they may withdraw from the audit.

Auditors are responsible for maintaining high quality audits to ensure reliable financial reporting and public confidence.

Standards for quality control in auditing. SQC 1 applies to all engagements while SA 220 focuses specifically on audits.

A firm's process for ensuring compliance with professional standards and legal requirements, aiming for accurate reports.

An auditor may withdraw from an engagement if unable to agree to terms changes and management won't comply with the original terms.

When withdrawing from an audit, an auditor may be obligated to report circumstances to relevant parties, like those overseeing governance.

A questioning mind that critically evaluates evidence during an audit, considering the potential for fraud or errors. Auditors must maintain a healthy skepticism throughout the audit process.

A written contract between an auditor and a client outlining the objectives, scope, and responsibilities of the audit engagement.

An auditor can modify the form and content of their audit report based on the findings of the audit. If a significant issue is discovered, the auditor may need to issue a modified opinion.

Management is responsible for preparing accurate financial statements in accordance with applicable accounting standards.

Before accepting an audit engagement, an auditor must make sure certain conditions are met, including management acknowledging responsibility for the financial statements and providing access to information.

An auditor may decline to accept an audit if management refuses to acknowledge their responsibility for the accuracy of the financial statements or if the accounting framework used is unacceptable.

Auditors need to consider the integrity of the principal owners of a company before accepting an audit engagement. This involves assessing their ethical behavior and reputation.

SA 210 and SA 220 are International Auditing Standards (ISA) that define specific requirements for auditors concerning responsibilities regarding management's responsibilities for financial statements and the integrity of principal owners.