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Ethics for Professional Accountants
Principles of Auditing: An Introduction to International Standards on Auditing - Ch. 3

Rick Stephan Hayes, Philip Wallage, and Hans Gortemaker

[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007

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WHAT ARE ETHICS?

E A sense of agreement in a society as to what is right and wrong. E Ethics represent a set of moral principles, rules of conduct or values.
– Ethics apply when an individual has to make a decision from various alternatives regarding moral principles.

[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007

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Illustration 3.1
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007

Dassen.Slide 3.” [Hayes. Schilder and Wallage. edition 2. a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer. Therefore. to meet the public’s interest “A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.4 Objectives of Accountantancy Profession  Generally.1] © Pearson Education Limited 2007 . Principles of Auditing An Introduction to ISAs.

Schilder and Wallage. AND OBJECTIVITY • Independence ET Section 101 http://pcaobus. Principles of Auditing An Introduction to ISAs. edition 2.aspx • Integrity and Objectivity ET Section 102 http://pcaobus.aspx [Hayes.org/Standards/EI/Pages/ET102 . Dassen.org/Standards/EI/Pages/ET101 .1] © Pearson Education Limited 2007 .Slide 3.5 PCAOB Ethics – US Classes • ET Section 100 INDEPENDENCE. INTEGRITY.

and C: • Part A establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework for applying those principles. B.1] © Pearson Education Limited 2007 . Dassen. • Part B applies to professional accountants in public practice. • Part C applies to professional accountants in business. Principles of Auditing An Introduction to ISAs.Slide 3. edition 2.6 The Code is divided into three parts: A. [Hayes. • Parts B and C illustrate how the conceptual framework is to be applied in certain situations. Schilder and Wallage.

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Part A – Fundamental Principles
Part A establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework that professional accountants shall apply to: (a) Identify threats to compliance with the fundamental principles; (b) Evaluate the significance of the threats identified; and (c) Apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level. Safeguards are necessary when the threats are not at a level at which a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances available to the professional accountant at that time, that compliance with the fundamental principles is not compromised.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007

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Conceptual Framework Approach
• A conceptual framework requires a professional accountant to identify, evaluate and address threats to compliance with the fundamental principles, rather than merely comply with a set of specific rules which may be arbitrary. • When an accountant identifies threats to compliance with the fundamental principles and determines that they are not at an acceptable level, he/she shall determine whether appropriate safeguards are available and can be applied to eliminate the threats or reduce them to an acceptable level.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007

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The IFAC Code of Ethics for Professional Accountants fundamental principles for ALL Accountants:

1) Integrity (Sec 110) 2) Objectivity (Sec 120) 3) Professional Competence and Due Care (Sec 130) 4) Confidentiality (Sec 140) 5) Professional Behavior (Sec 150)

[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007

1] © Pearson Education Limited 2007 . 2) Objectivity: To not allow bias. Principles of Auditing An Introduction to ISAs. conflict of interest or undue influence of others to override professional or business judgments.10 Principles 1) Integrity to be straightforward and honest in all professional and business relationships.Slide 3. Schilder and Wallage. [Hayes. Dassen. edition 2.

Schilder and Wallage.11 Principles 3) Professional Competence and Due Care: to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice. [Hayes. Dassen.1] © Pearson Education Limited 2007 . edition 2. legislation and techniques and act diligently and in accordance with applicable technical and professional standards. Principles of Auditing An Introduction to ISAs.Slide 3.

nor use the information for the personal advantage of the professional accountant or third parties.Slide 3. therefore. edition 2. Principles of Auditing An Introduction to ISAs. 5) Professional Behavior: to comply with relevant laws and regulations and avoid any action that discredits the profession. unless there is a legal or professional right or duty to disclose. [Hayes. not disclose any such information to third parties without proper and specific authority. Schilder and Wallage.12 Principles 4) Confidentiality: To respect the confidentiality of information acquired as a result of professional and business relationships and.1] © Pearson Education Limited 2007 . Dassen.

Slide 3. required by law.13 Disclosure of Confidential Information • May be disclosed when disclosure is authorized by the client. Dassen. where there is a professional duty or right to disclose (such as in a peer review quality control program) or to comply with technical standards or ethics requirements.1] © Pearson Education Limited 2007 . Principles of Auditing An Introduction to ISAs. edition 2. Schilder and Wallage. [Hayes.

1] © Pearson Education Limited 2007 . Principles of Auditing An Introduction to ISAs. edition 2. Schilder and Wallage. but to ethics) Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats fall into the following categories: • Intimidation threats • Self-interest threats • Self-review threats • Advocacy threats • Familiarity threats [Hayes. Dassen.14 Threats and Safeguards (no longer related just to Independence.Slide 3.

Schilder and Wallage.15 Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level.1] © Pearson Education Limited 2007 . edition 2. Principles of Auditing An Introduction to ISAs. [Hayes.Slide 3. Dassen.

Dassen.Slide 3. Schilder and Wallage. edition 2.1] © Pearson Education Limited 2007 .16 Figure 3.5 [Hayes. Principles of Auditing An Introduction to ISAs.

edition 2. Schilder and Wallage. Principles of Auditing An Introduction to ISAs. from the directors. actual or perceived. Dassen. officers or employees of an assurance client.1] © Pearson Education Limited 2007 .17 Intimidation Threat Intimidation Threat -occurs when a member of the assurance team may be deterred from acting objectively and exercising professional skepticism by threats.Slide 3. [Hayes.

edition 2. Being threatened with litigation.Slide 3.18 Examples of Intimidation Threats Being threatened with dismissal from a client engagement.1] © Pearson Education Limited 2007 . An audit client indicating that it will not award a planned non assurance contract to the firm if the firm continues to disagree with the client’s accounting treatment. A professional accountant feeling pressured to agree with the judgment of a client employee because the employee has more expertise on the matter in question. A professional accountant being informed by a partner of the firm that a planned promotion will not occur unless the accountant agrees with an audit client’s inappropriate accounting treatment. Principles of Auditing An Introduction to ISAs. [Hayes. Dassen. Being pressured to reduce inappropriately the extent of work performed in order to reduce fees. Schilder and Wallage.

Slide 3. Dassen. Principles of Auditing An Introduction to ISAs. an assurance client. Schilder and Wallage. edition 2.19 Self-Interest Threat A Self-interest threat occurs when an auditor could benefit from a financial interest in. or other self-interest conflict with.1] © Pearson Education Limited 2007 . [Hayes.

Slide 3. • Contingent fees relating to an assurance engagement. • Having a close business relationship with a client. • Concern about the possibility of losing a client. Schilder and Wallage. edition 2. • Potential employment with a client. • Undue dependence on total fees from a client. Dassen.20 Self Interest Threats Circumstances (In Part B) • A financial interest in a client or jointly holding a financial interest with a client. [Hayes. Principles of Auditing An Introduction to ISAs.1] © Pearson Education Limited 2007 . • Discovering a significant error when evaluating the results of a previous professional service performed by a member of the professional accountant’s firm.

edition 2.1] © Pearson Education Limited 2007 . [Hayes. Schilder and Wallage.Slide 3. Principles of Auditing An Introduction to ISAs. Dassen.21 Self-Review Threat Self-Review Threat – occurs when (1) results of a previous engagement needs to be re-evaluated in reaching conclusions on the present assurance engagement or (2) when a member of the assurance team previously was an employee of the client (especially a director or officer) in a position to exert significant influence over the subject matter of the assurance engagement.

Principles of Auditing An Introduction to ISAs. or having recently been.22 Self-Review Threats Circumstances (In Part B) • Reporting on the operation of financial systems after being involved in their design or implementation. [Hayes. a director or officer of that client. Schilder and Wallage. edition 2.1] © Pearson Education Limited 2007 . • A member of the assurance team being. employed by the client in a position to exert direct and significant influence over the subject matter of the engagement. • Performing a service for a client that directly affects the subject matter information of the assurance engagement.Slide 3. • Having prepared the original data used to generate records that are the subject matter of the engagement. • A member of the assurance team being. Dassen. or having recently been.

underwriting or otherwise dealing in financial securities or shares of an assurance client. an assurance client’s position or opinion.1] © Pearson Education Limited 2007 . [Hayes. or seems to promote.23 Advocacy Threat An Advocacy Threat – occurs when a member of the assurance team promotes.Slide 3. the auditor subordinates his judgment to that of the client. Examples of circumstances that create advocacy threats : Selling. Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties. edition 2. Schilder and Wallage. Principles of Auditing An Introduction to ISAs. That is. Dassen.

Slide 3. Principles of Auditing An Introduction to ISAs. edition 2. its directors. Schilder and Wallage. Dassen.24 Familiarity Threat Familiarity Threat ─ occurs when an auditor becomes too sympathetic to the client’s interests because he has a close relationship with an assurance client. officers or employees. [Hayes.1] © Pearson Education Limited 2007 .

edition 2. unless the value is trivial or inconsequential.25 Familiarity Threats Circumstances (In Part B) Immediate family member or close family member who is a director. Schilder and Wallage. or influential employee of the assurance client. [Hayes. A director or officer of the client or an employee in a position to exert significant influence over the subject matter of the engagement having recently served as the engagement partner.1] © Pearson Education Limited 2007 . is in a position to exert direct and significant influence over the subject matter of the engagement. Acceptance of gifts or preferential treatment from a client.Slide 3. Dassen. Senior personnel having a long association with the assurance client. as an employee of the assurance client. officer. Principles of Auditing An Introduction to ISAs. A member of the assurance team having a close family member who.

1] © Pearson Education Limited 2007 . edition 2.26 Safeguards Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad categories: (1) Safeguards created by the profession. (2) Safeguards in the work environment. [Hayes.Slide 3. Dassen. Principles of Auditing An Introduction to ISAs. Schilder and Wallage. legislation or regulation.

legislation or regulation include: Educational. Corporate governance regulations. Professional or regulatory monitoring and disciplinary procedures External review by a third party of the reports. Dassen. [Hayes. returns.27 Safeguards created by the profession. training and experience requirements for entry into the profession. Principles of Auditing An Introduction to ISAs. Schilder and Wallage. edition 2.Slide 3. communications or information produced by a professional accountant.1] © Pearson Education Limited 2007 . Professional standards. Continuing professional development requirements.

Principles of Auditing An Introduction to ISAs.1] © Pearson Education Limited 2007 . evaluate the significance of those threats. Dassen. Schilder and Wallage. and apply safeguards  A disciplinary mechanism to promote compliance with policies and procedures. edition 2.  Quality control policies  Documented policies regarding the need to identify threats to compliance with the fundamental principles.Slide 3. [Hayes.28 Firm-wide safeguards in the work environment may include:  Leadership that stresses the importance of compliance with the fundamental principles and the duty to act in the public interest.

Principles of Auditing An Introduction to ISAs.29 Examples of engagement-specific safeguards in the work environment  Having a professional accountant who was not a member of the assurance team review the assurance work performed or otherwise advise as necessary.  Discussing ethical issues with those charged with governance of the client. [Hayes. Dassen.1] © Pearson Education Limited 2007 . a professional regulatory body or another professional accountant.Slide 3. such as a committee of independent directors. Schilder and Wallage.  Consulting an independent third party. edition 2.

1] © Pearson Education Limited 2007 .30 PART B Contents [Hayes. edition 2. Schilder and Wallage. Principles of Auditing An Introduction to ISAs.Slide 3. Dassen.

1] © Pearson Education Limited 2007 . [Hayes. Principles of Auditing An Introduction to ISAs.agree to provide only those services that the accountant is competent to perform.consider whether acceptance would create any threats to compliance with the fundamental principles • Engagement Acceptance .Slide 3. Dassen. Schilder and Wallage.31 Professional Appointment • Client Acceptance . edition 2.

32 Changes in a Professional Appointment An auditor who is asked to replace another auditor shall determine whether there are any reasons. professional or otherwise. Dassen.1] © Pearson Education Limited 2007 . for not accepting the engagement. [Hayes. This may require direct communication with the existing auditor to establish the facts and circumstances regarding the proposed change so that the replacement auditor can decide whether it would be appropriate to accept the engagement. edition 2. Schilder and Wallage.Slide 3. Principles of Auditing An Introduction to ISAs.

including the following .33 Safeguards for Accepting an Audit Engagement Safeguards.shall be applied to eliminate any threats or reduce them to an acceptable level: – Before accepting the engagement state that contact with the existing accountant will be requested – Asking the existing accountant to provide known information on any facts or circumstances thatthe proposed accountant needs to be aware of before deciding whether to accept the engagement. Principles of Auditing An Introduction to ISAs. Dassen. or – Obtaining necessary information from other sources. edition 2. [Hayes.1] © Pearson Education Limited 2007 .Slide 3. Schilder and Wallage.

the existing accountant should provide information honestly and unambiguously. the proposed accountant should try to obtain information about any possible threats by other means such as through inquiries of third parties or background investigations on senior management.1] © Pearson Education Limited 2007 .Slide 3. Dassen. edition 2. Schilder and Wallage.34 Information from Existing Auditor Once client permission is obtained. If the proposed accountant is unable to communicate with the existing accountant. Principles of Auditing An Introduction to ISAs. [Hayes.

[Hayes. edition 2.35 Conflicts of Interest An accountant should take reasonable steps to identify circumstances that could pose a conflict of interest. Dassen.Slide 3. Schilder and Wallage. Principles of Auditing An Introduction to ISAs.1] © Pearson Education Limited 2007 .

describing the limitations surrounding any opinion and providing the existing accountant with a copy of the opinion may be required. Principles of Auditing An Introduction to ISAs. Schilder and Wallage. [Hayes.1] © Pearson Education Limited 2007 . auditing.36 Second Opinions Providing a second opinion on the application of accounting. Dassen. reporting or other standards or principles by or on behalf of a company that is not an existing client may cause threats to compliance with the fundamental principles Safeguards such as seeking client permission to contact the existing accountant.Slide 3. edition 2.

Principles of Auditing An Introduction to ISAs.37 Fees and Other Types of Remuneration An auditor may quote whatever fee deemed to be appropriate. Schilder and Wallage. edition 2. a self-interest threat to professional competence and due care is created if the fee quoted is so low that it may be difficult to perform the engagement. [Hayes.Slide 3.1] © Pearson Education Limited 2007 . Dassen. However. Accepting a referral fee or commission relating to a client creates a self-interest threat to objectivity and professional competence and due care.

Principles of Auditing An Introduction to ISAs. edition 2.1] © Pearson Education Limited 2007 . [Hayes. there may be potential threats to compliance with the fundamental principles.Slide 3. Dassen. Schilder and Wallage.38 Advertising and Marketing When a professional accountant in public practice solicits new work through advertising or other forms of marketing.

Schilder and Wallage. [Hayes.Slide 3.39 What Advertising Cannot Do An accountant should not bring the profession into disrepute when marketing professional services. edition 2. qualifications possessed or experience gained. She should be honest and truthful and should not: • Make exaggerated claims for services offered. or • Make disparaging references to unsubstantiated comparisons to the work of another. Principles of Auditing An Introduction to ISAs. Dassen.1] © Pearson Education Limited 2007 .

huge opportunities can slip by unnoticed. That’s why the experts at our firm maintain a close relationship with our clients all year round.Slide 3.” [Hayes. Without the objective oversight of a practiced eye. Principles of Auditing An Introduction to ISAs. rather than merely reviewing financial records annually. and minor problems can quickly evolve into significant issues. Dassen.40 Example of Bad Advertising “At our firm we believe the financial success of any business requires regular monitoring and attention to the smallest detail. Schilder and Wallage. edition 2.1] © Pearson Education Limited 2007 .

[Hayes. having knowledge of all relevant information.Slide 3.41 Gifts and Hospitality Self-interest threats to objectivity may be created if a gift from a client is accepted. would consider clearly insignificant. intimidation threats to objectivity may result from the possibility of such offers being made public.1] © Pearson Education Limited 2007 . edition 2. Principles of Auditing An Introduction to ISAs. Schilder and Wallage. Dassen. Gifts or hospitality which are acceptable are those which a reasonable and informed third party.

and Use such assets only for the purpose for which they are intended At all times. and any income. be ready to account for those assets. edition 2. Schilder and Wallage.42 Custody of Client Assets  To safeguard against a self interest threat to objectivity . dividends or gains generated Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets [Hayes. Principles of Auditing An Introduction to ISAs. Dassen.Slide 3.1] © Pearson Education Limited 2007 . a professional accountant in public practice entrusted with money (or other assets) belonging to others should: Keep such assets separately from personal or firm assets.

Schilder and Wallage. Principles of Auditing An Introduction to ISAs. edition 2. [Hayes.43 Objectivity – All Services When providing any professional service the auditor should consider whether there are threats to compliance with the fundamental principle of objectivity resulting from having interests in. Independence of mind and in appearance is necessary to express a conclusion.1] © Pearson Education Limited 2007 . a client or directors. officers or employees. without bias. and be seen to express a conclusion. or relationships with.Slide 3. conflict of interest or undue influence of others. Dassen. In an assurance service the auditor is required to be independent of the assurance client.

Slide 3.44 [Hayes. Principles of Auditing An Introduction to ISAs.1] © Pearson Education Limited 2007 . Dassen. Schilder and Wallage. edition 2.

Schilder and Wallage. edition 2.Slide 3.1] © Pearson Education Limited 2007 .45 Independence Sec 290 continued [Hayes. Dassen. Principles of Auditing An Introduction to ISAs.

Slide 3. Dassen. Schilder and Wallage. [Hayes. Principles of Auditing An Introduction to ISAs. edition 2. • An auditor must be independent from his audit client both in mind and appearance. businesses. employment or other relationships between them that a “reasonable and informed third party” would conclude compromised independence.46 European Union Auditor Independence • Member States shall prescribe that auditors shall not carry out statutory audits if they are not independent in accordance with the law of the Member State which requires the audit.1] © Pearson Education Limited 2007 . The auditor should not audit a client if there are any financial.

Schilder and Wallage.1] © Pearson Education Limited 2007 . Dassen.47 Independence – Mind and Appearance The conceptual framework involves two views of independence to which the auditor must comply: 1) Independence of Mind is the state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment. [Hayes.Slide 3. integrity. thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism. 2) Independence in Appearance is the avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude. weighing all the specific facts and circumstances. that a firm’s. objectivity or professional skepticism has been compromised. Principles of Auditing An Introduction to ISAs. edition 2.

firms and.Slide 3. that members of assurance teams. therefore. Dassen. edition 2. Schilder and Wallage.48 Independence—Assurance Engagements In the case of an assurance engagement it is in the public interest and. Principles of Auditing An Introduction to ISAs. required by the Code of Ethics. network firms be independent of assurance clients [Hayes. when applicable.1] © Pearson Education Limited 2007 .

202. Study of mandatory rotation of registered public accounting firms. 201. Sec. Schilder and Wallage. Sec. Services outside the scope of practice of auditors. Considerations by appropriate State regulatory authorities. Dassen. Auditor reports to audit committees. Commission authority. Sec. Principles of Auditing An Introduction to ISAs. Sec. 207. Sec. Audit partner rotation.1] © Pearson Education Limited 2007 . Sec.Slide 3. 204. 205. 203. Sec. Pre-approval requirements. Conforming amendments. edition 2. 206. 208. [Hayes. Sec. 209.49 Independence in the Sarbanes-Oxley Act of 2002 TITLE II – AUDITOR INDEPENDENCE Sec. Conflicts of interest.

Dassen. or provided tax advice on. certain types of potentially abusive tax transactions to an audit client or persons employed by that client and must seek audit committee approval for any tax services  Firms must be independent of their audit clients throughout the audit period [Hayes. Schilder and Wallage. and contingent fees –US Classes  Not independent if the audit firm provided any service or product to an audit client for a contingent fee or a commission.1] © Pearson Education Limited 2007 .  Not independent if the firm provided assistance in planning. Principles of Auditing An Introduction to ISAs. edition 2.50 PCAOB Ethics and Independence rules concerning independence. tax services.Slide 3.

edition 2. Principles of Auditing An Introduction to ISAs.Slide 3. the rationale [Hayes. Schilder and Wallage. the nature of the threat and the safeguards in place If no safeguards are necessary. Dassen.51 Documentation of Independence The professional accountant must document conclusions regarding compliance with independence requirements.1] © Pearson Education Limited 2007 . and the substance of any relevant discussions that support those conclusions.

Dassen. Principles of Auditing An Introduction to ISAs. edition 2.Slide 3.1] © Pearson Education Limited 2007 .52 Engagement Period Independence from the audit client is required both during the engagement period and the period covered by the financial statements. Schilder and Wallage. [Hayes.

[Hayes. Principles of Auditing An Introduction to ISAs.1] © Pearson Education Limited 2007 . the selfinterest threat created would be so significant that no safeguards could reduce the threat to an acceptable level . a member of that individual’s immediate family. Dassen. or a firm has a direct financial interest or a material indirect financial interest in the audit client. edition 2.53 Financial Interests If a member of the audit team.Slide 3. Schilder and Wallage.

Family and Personal Relationships A close business relationship between a firm. or a member of that individual’s immediate family. Dassen. The business relationship must not be entered into because NO safeguards would be sufficient and the individual with the relationship must be removed from the audit team [Hayes.Slide 3. edition 2.1] © Pearson Education Limited 2007 . Schilder and Wallage.54 Business. or a member of the audit team. arises from a commercial relationship or common financial interest and may create self-interest or intimidation threats. and the audit client or its management. Principles of Auditing An Introduction to ISAs.

Dassen. Schilder and Wallage. tax planning that impacts the financial statements.55 Provision of Non-assurance Services to Audit Clients Providing non-assurance services to assurance clients may create threats to the independence of the firm or members of the audit team. legal. Examples: services that assume a management responsibility. IT. corp finance [Hayes. valuation. bookkeeping. Principles of Auditing An Introduction to ISAs. Providing certain non-assurance services to an audit client may create a threat to independence so significant that no safeguards could reduce the threat to an acceptable level.Slide 3. edition 2. internal audit services.1] © Pearson Education Limited 2007 .

investment adviser. 2) financial information systems design and implementation.Slide 3. or contribution-inkind reports. is impermissible. 8) legal services and expert services unrelated to the audit. [Hayes. by regulation. or investment banking services. Schilder and Wallage. fairness opinions.56 Independence in the Sarbanes-Oxley Act of 2002 Prohibited non-audit service contemporaneously with the audit include: 1) bookkeeping or other services related to the accounting records or financial statements of the audit client. 5) internal audit outsourcing services. Principles of Auditing An Introduction to ISAs. and 9) any other service that the Board determines.1] © Pearson Education Limited 2007 . 6) management functions or human resources. 7) broker or dealer. edition 2. Dassen. 4) actuarial services. 3) appraisal or valuation services.

[Hayes.1] © Pearson Education Limited 2007 . Dassen. Schilder and Wallage. edition 2.Slide 3. Principles of Auditing An Introduction to ISAs. The IESBA Ethics Code discusses threats to independence in pricing auditing services in terms of size.57 Fees Professional fees should be a fair reflection of the value of the professional service performed for the client. the time necessary for the services and the degree of responsibility that performing those services entails. whether fees are overdue. taking into account the skill and knowledge required. the level of training and experience of the persons performing the services. and contingent fees.

Principles of Auditing An Introduction to ISAs. edition 2.Slide 3. Schilder and Wallage. Dassen.58 Examples in Part C [Hayes.1] © Pearson Education Limited 2007 .

director. a partner.Slide 3. volunteers • Part C of the IESBA Code describes how the conceptual framework contained in Part A applies in certain situations to a salaried employee. Principles of Auditing An Introduction to ISAs.59 Part C – employees. financial interests. acting with sufficient expertise. preparation and reporting information. edition 2. an owner manager. Dassen. Schilder and Wallage.1] © Pearson Education Limited 2007 . management. or a volunteer (professional accountant in business) • Part C also addresses circumstances in which compliance with the fundamental principles may be compromised by potential conflicts. and inducements. [Hayes.

[Hayes. Dassen. or activity that impairs or might impair integrity. occupation. edition 2. Schilder and Wallage.60 A professional accountant in business shall not knowingly engage in any business.Slide 3. objectivity or the good reputation of the profession and as a result would be incompatible with the fundamental principles. Principles of Auditing An Introduction to ISAs.1] © Pearson Education Limited 2007 .

Pressure may be applied to act contrary to law or regulation or to technical or professional standards. Dassen. edition 2. [Hayes. or facilitate unethical or illegal earnings management strategies.1] © Pearson Education Limited 2007 .61 Potential Conflicts • There may be times when responsibilities to an employing organization and professional obligations to comply with the fundamental principles are in conflict.Slide 3. Principles of Auditing An Introduction to ISAs. Schilder and Wallage.

– Using a formal dispute resolution process within the employing organization. from within the employing organization. where appropriate.62 Safeguards against potential conflict • Safeguards applied should be applied to eliminate or reduce these threats to an acceptable level. Schilder and Wallage. Principles of Auditing An Introduction to ISAs. for example: – Obtaining advice.Slide 3. Dassen. an independent professional advisor or a relevant professional body. [Hayes. edition 2.1] © Pearson Education Limited 2007 . – Seeking legal advice.

[Hayes. management's discussion and analysis. Dassen. honestly and in accordance with relevant professional standards. Schilder and Wallage. Principles of Auditing An Introduction to ISAs. financial statements.).1] © Pearson Education Limited 2007 . etc.Slide 3.63 Preparation and Reporting of Information For information used by others inside or outside the employing organization (for example. a professional accountant in business has an obligation to prepare and present it fairly. edition 2. forecasts and budgets.

Schilder and Wallage.Slide 3. She must not intentionally mislead an employer as to the level of expertise or experience possessed. Dassen. [Hayes.64 Acting with Sufficient Expertise The fundamental principle of professional competence and due care requires that a professional accountant in business only undertake significant tasks for she has sufficient specific training or experience. She should seek appropriate expert advice and assistance when required.1] © Pearson Education Limited 2007 . edition 2. Principles of Auditing An Introduction to ISAs.

65 Financial Interest A professional accountant must neither manipulate information nor use confidential information for personal gain.Slide 3. edition 2. holds share options. Schilder and Wallage. Principles of Auditing An Introduction to ISAs. A threat exists if . Dassen. [Hayes. or is eligible for a profit related bonus directly affected by decisions made by the professional accountant.1] © Pearson Education Limited 2007 . for example she: Holds a direct or indirect financial interest in the employing organization. Safeguards must be put in place.

edition 2. or obtain confidential information. [Hayes. Safeguards include informing higher levels of management. Principles of Auditing An Introduction to ISAs. encourage illegal or dishonest behavior. Schilder and Wallage.66 Inducements Self-interest and intimidation threats to objectivity or confidentiality are created when an inducement is made in an attempt to unduly influence actions or decisions. Dassen.1] © Pearson Education Limited 2007 . third parties. or professional organizations.Slide 3.

1] © Pearson Education Limited 2007 .Slide 3. Dassen.67 Thank You for Your Attention Any Questions? [Hayes. Schilder and Wallage. edition 2. Principles of Auditing An Introduction to ISAs.