BDU FBE-ACCT.

DEPT

Code of Professional Conduct

A code of conduct can consist of general statement which emphasizes on positive activities that
encourage a high level of performance, or specific rules that define unacceptable behaviour.
The following are ethical principles that an auditor should obey to:

1. Responsibility: in carrying out their responsibilities as professional, auditors should exercise

sensitive professional and moral judgements in all their activities. All members have
responsibilities to those who use their professional services. And they are responsible to
examine the art of Accounting, maintain public confidence in the profession, and carry out the
self regulatory activities.

2. The Public interest: auditors should accept the obligation to act in a way that will serve the
public interest, respect the public trust, and demonstrate commitment to professionalism.

3. Integrity: to maintain and broaden public confidence, auditors should perform all
professional responsibilities with the highest sense of integrity. i.e. auditors must be honest,
truthful, principled, and courage.

4. Objectivity and Independence: an auditor should maintain objectivity and be free of

conflicts of interest in discharging professional responsibilities. An auditor in public practice
should be independent in fact and in appearance when providing auditing and other
verification services.

Objectivity means being impartial and unbiased in all matters pertaining to an engagement.

Independent in fact: should act with integrity and objectivity;

Independence in appearance: should not have any financial interest or key business relation
ship with the client.

5. Due Care: a member should observe the profession’s technical and ethical standards;
strive continually to improve competence and the quality of service, and discharge professional
responsibility to the best of his/her ability.

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Technical standards: a member shall comply with the following standards:

 Professional competence: undertake only those professional services that the
member or the member’s firm can reasonably expect to complete with
professional competence

 Planning and supervision: adequately plan and supervise the performance of

professional service

 Sufficient relevant data: obtain sufficient relevant data to build reasonable

conclusions

6. Confidentiality: an auditor in public practice shall not disclose any confidential client
information without the specific consent of the client.

Auditors’ Professional Responsibility and Liability

Business Failure, Audit Failure and Audit Risk

Many accounting and legal professionals believe that a major cause of lawsuits against
Independent (private) audit firms is the lack of understanding by financial statement users of
the difference between a business failure and Audit failure and between Audit failure and
Audit risk.

Business Failure: this occurs when the business is unable to repay its lenders, or meet the
expectations of its investors.

Audit Failure: This occurs when the auditor issues an incorrect audit opinion as a result of an
underlying failure to comply with the requirements of Generally Accepted Auditing Standards.

Audit Risk: The risks that the auditor will conclude that the financial statements are fairly
stated and an unqualified opinion can therefore be issued when they are materially misstated.

Auditor’s Responsibility

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1. Better Communication: an auditor should communicate his/her audit result to users

and the character and limitations the audit.

2. Detection of Errors and Irregularities: the auditor is required to design the audit to
provide reasonable assurance of detecting error and irregularities that are material to
the financial statement.

3. Detection of Illegal Client Acts: the auditor should design the audit to detect illegal
acts. An illegal act refers to such acts as the payment of bribes, violation of other specific
laws and governmental regulations and etc. illegal acts may be evidenced by:

 unauthorized transaction
 failure to file tax returns
 and/or etc

4. Doubts as to entity’s going concern assumption : the auditor has a responsibility to

evaluate and disclose whether there is substantial doubt about the entities ability to
continue as going concern for the reasonable period of time. But he/she is not
responsible to for predicting future conditions or events.

5. Prudent person concept: there is agreement with in the profession and the court that
the auditor is not a guarantor or insurer of financial statements. The auditor is only
expected to conduct the audit with due care. Yet, the auditor can not be expected to be
perfect.

Auditors’ Liability to Clients:

Auditors should fulfil the implied or expressed contracts with clients. They are liable to their
clients for negligence and/or breach of contract should they fail to provide the services or not
exercise due care in their performance. An auditor may liable to a client for breach of contract
or wrongful act when he/she:

 Issue a standard audit report when he or she has not made an examination in
accordance with GAAS
 Doesn’t deliver the audit report by the agreed up on date
 Violates the client’s confidential responsibility

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 Fails to exercise due care, that is reasonably expected from him/her

 Intentionally deceits, such as misinterpretation concealment or non disclosure of
material fact, that results damage to another
 Breaches the contract

Auditors’ Liability to Third Parties (actual and potential users of the audit information):

The auditor owns a duty to third parties whose reliance is foreseen by the auditor. The third
party is a person who is not the member with the parties to a contract. Third parties can be
classified as primary beneficiaries and other or general third beneficiaries. A primary
beneficiary is the one about whom the auditor is informed prior to conducting audit. The
auditor is liable to more general third parties for gross negligence and fraud.