You are on page 1of 6

BAC 3624

Advanced Auditing

Tutorial 2

Question 1
Malaysian Institute of Accountants’ By – Laws (on Professional Conduct and
Ethics) requires its members, whether in public practice, in business or in
employment, to comply with the five fundamental principles of ethics.
You are required to discuss the meaning of each of these fundamental
principles.

ANSWER
The five fundamental principles of the Malaysian Institute of Accountants’ By –
Laws (on Professional Conduct and Ethics) are;

Integrity

Objectivity

Competence and Due Care

Confidentiality

Professional behaviour

Integrity
The principle of integrity requires a member to be sincere, honest and
straightforward in his professional and business relationships. A member who
knowingly makes or permits false and misleading entries in the financial
statements or records would be considered to have violated the principle of
integrity.
Similarly, in dealing with his employer's external auditors, a member must be
truthful and not knowingly misrepresent facts or knowingly fail to disclose
material facts.
To protect the integrity of his professional services, a member should not
associate himself with any reports or statements that he believes is false,
materially misleading or is furnished negligently.

relevant practical training and experience. A conflict of interest can affect objectivity. gifts or entertainment that might impair judgement and create unfairness should be avoided. In undertaking any professional assignment. Competence and Due Care Competency for professionals is attained through formal education. and continuing professional education. members must continue to be aware of and understand current technical and business developments. Continuing professional development (CPD) is essential for every profession as we are now operating in a rapidly changing environment. a member should be aware of factors that may give rise to conflict of interest. To maintain objectivity in professional judgement. The MIA By – Laws (on Professional Conduct and Ethics) states that the principle of competence and due care must cover the following two requirements: 1) To maintain professional knowledge and skill at the level required to ensure competent services are provided. accounting standards.BAC 3624 Advanced Auditing Tutorial 2 Objectivity It is the duty of a member to present or report on information objectively. To maintain professional competence. Rapid changes in legislation. developments in technology and increased public expectations continue to place increasing demands on the work of the accountants and on the profession. relationships. Objectivity principle requires the members to maintain an attitude of impartiality and not to allow biases to influence their objectivity in making professional judgement. Confidentiality . and 2) To act diligently in accordance with technical and professional standards.

members have access to much confidential information about their client's or their employer's business affairs. It would be harmful to the business of the client or employer if such information is disclosed to outsiders without the knowledge and consent of the client or employer. information not normally available to the public. The principle of confidentiality requires the member to refrain from the following: 1) Disclosing confidential information outside the firm or the employing organisation without proper and specific authority. 2) Using such confidential information to their personal advantage or the advantage of others. use of confidential information obtained in official capacity for "insider" securities dealings at the stock exchange is also a legal offence under Section 132A of the Companies Act. Question 2 . Professional behaviour Professional accountants have an obligation to act in a manner consistent with the good reputation of the profession. 1965. It is important that this duty of confidentiality be observed not only during the professional relationship between the client and the accountants but also after the end of the relationship.BAC 3624 Advanced Auditing Tutorial 2 In the course of performing their professional duties. Unprofessional conduct which is discreditable to the accountancy profession includes negligence in the performance of their duties and unlawful activities. Thus a member who is convicted of a serious crime could have his membership revoked by the professional body. A member should be law abiding and refrain from any conduct or activity that might bring discredit to the profession. In addition to the ethical requirements.

apply suitable safeguards to eliminate or reduce the threat to an acceptable level. Under this approach. a professional accountant has an obligation to • Identify circumstances.BAC 3624 Advanced Auditing Tutorial 2 Explain the conceptual framework approach to ethics outlined in the IFAC Code of Ethics. . The framework for ethical compliance requires the professional accountants to identify. and address any threats to compliance with the fundamental principles. evaluate. relationships or interests that may create a threat to compliance with the fundamental ethical principles • Evaluate the significance of the threat when such a threat has been identified. ANSWER The IFAC conceptual framework for applying the fundamental ethical principles is essentially a principle-based approach. The obligation to evaluate and address threats to compliance arises when a professional accountant knows. and • If the identified threat is considered significant. or is expected to know of circumstances that may compromise compliance with the fundamental principles.

You have been asked lo prepare a proposal of other professional services for the company.BAC 3624 Advanced Auditing Tutorial 2 Question 3 You are the audit manager of Bento Bhd. Additionally. The company also has not undertaken any formal tax planning activities and feels that it pays a higher percentage of its income in taxes than its competitors. The client is growing rapidly and introducing many new products. What types of non-audit services may not be permissible for audit clients unless certain safeguards are applied? c. an audit client which is in the manufacturing industry and is also listed on the Stock Exchange. What are the types of non-audit services that a public accounting firm normally provides to its clients? b. because the threats to independence are too significant and thus are prohibited under the code of ethics? ANSWER . What are the types of non-audit services your firm should not provide to Bento Bhd. Required: a. it is concerned that its monitoring activities are inadequate because it does not have an internal audit department. yet still has an out -of-date information and accounting system.

• Developing projections and/or forecasts for the company's new products. personnel providing the non-audit services should not participate in the audit. • Helping the company develop an effective audit committee. • Providing tax-planning advice. the audit firm would be prohibited from helping the client design or implement a software system and from providing internal audit outsourcing. Provision of tax-planning advice is allowed by independence rules. For most types of non audit services to audit clients. . Because Bento Bhd is a public listed company audit client. • Outsourcing the internal audit function. b. In addition. The audit firm should discuss with those charged with governance the independence issues arising from provision of non audit services and inform them of the nature and extent of fees charged for the non audit services.BAC 3624 Advanced Auditing Tutorial 2 a. and not performing an advocacy role. Assisting the client to develop projections and/or forecasts for the company's new products and other non-audit work would be subject to approval by the audit committee and would be strictly limited by the principles of not performing a management function. Non-audit services commonly provided by accounting firms include • Tax services • Accounting and book keeping • Internal auditing • Management consultancy • Design of information and accounting systems • Secretarial • Business valuation • Developing an automated accounting system. The auditors should avoid making management decisions and ensure that the client acknowledges its responsibility for the result of the work performed by the firm. the auditors are required to apply suitable safeguards to ensure that professional independence and objectivity are not compromised. not auditing one's own work. c.