Professional Documents
Culture Documents
TOPICS OUTLINE
2
Importance of Ethics
4
Assume that you have worked for a public accounting firm for approximately six
months, and you were recently assigned to the audit of a small manufacturing company.
The senior auditor on the job assigned you the task of extracting financial information
about comparing companies from several financial databases on the Internet. She
indicated that the work must be completed by Monday morning. While you had hoped to
complete the assignment on Friday, things didn't work out and you had to come to work
on Saturday.
On Saturday, your expectation that it would take only a couple hours to complete the task
faded and you didn't finish until 4 p.m., after eight hours of work. You believe that part
of the problem was that you were out late Friday and you just weren't all that efficient.
Although you completed the task, you exceeded the budgeted hours for the task by six
hours. Because of the circumstances (inefficient work and the blown budget), you are
tempted to underreport the number of hours that you actually worked. While your firm
has an informal policy that encourages employees to report all hours worked, you are
aware that the policy is often ignored by other staff auditors. In addition, you are aware
that your evaluation on this audit will be based not only on the quality of your work, but
also on your ability to meet time budgets. You have been criticized on your evaluations
on previous engagements for taking too long to perform certain tasks.
5
Ethical Dilemma
– Issues
– Parties involved & rights
– Alternative courses of action
– Likely consequences or impact
– Decision on appropriate action
6
Regulatory Framework on
Ethical Conducts
– Audit firm
– Auditor
– Audit process
7
Elements of Quality Control
ISQC 1
Acceptance and
Leadership: Tone at the Relevant Ethical
Continuance of
Top Requirements
Relationships
Engagement
Human Resources Monitoring
Performance
8
IFAC: International Ethical Standards
Board (IESB) & MIA By-Laws
– Integrity
– Objectivity and Independence
– Professional competence and due care
– Confidentiality
– Professional behavior – commission, fees,
marketing/advertising/promotion, solicitation,
family relationship, loans, non audit services
9
Integrity & Objectivity
– Integrity
• Not breach public trust.
• straightforward, honest, sincere, responsible
• members should perform all professional responsibilities with
the highest sense of integrity
– Objectivity
• fair, not prejudice/ bias
• members should be objective and free of conflicts when
performing professional responsibilities.
10
Auditor Independence
13
Safeguards to threats
18
Compensation – Fees, commission,
profit sharing
• Should BE:
• Fair reflection of work done (i.e. skill, knowledge,
time & degree of risk).
•Fee should be based on MIA recommended basis - %
of turnover/ Net assets
• Should NOT:
• Charge on a percentage/ contingency basis
• Too low
• Referral fee or Commissions is prohibited
19
Changes In Professional
Appointments
PROPOSED AUDITOR need to: EXISTING AUDITOR (upon
– Request client’s permission to received the request) needs to:
communicate with existing – If no professional reason why
auditor. If such permission should not take to appointment –
refused, he should not take the reply the fact to the proposed
appointment. auditor
– On receipt permission, write to – If there are such reason – obtained
existing auditor for any client permission to disclose the fact
professional reason he should to the proposed auditor. If this
not take appointment. permission is not granted, report the
– Upon received reply, determine fact to the proposed auditor.
to accept or not.
20
Unacceptable Acts
– Suspension
– Termination
Professional Judgment
&
Skepticisms
23
Financial Reporting
Framework
– Objective of Financial – Assumptions
Reporting – Going concern
– True & Fair view – Business as economic entity
– Conceptual Framework – Accrual basis
(Accounting Standards)
– Constraints
– Measurement – valuation
– Materiality
– Recognition – classification
– Presentation
– Disclosure
24
Qualitative characteristics of
FR
– Usefulness – Faithful representation
– Comparability – Completeness
– Verifiability – Neutrality (free from
– Timeliness bias)
– Relevance
– Predictive / confirmatory
value
25
Financial Reporting & Professional
Judgment
– Measurement / Valuation
– Historical cost – acquisition price
– Fair value – market based
– Current cost – replacement cost
– Impairment loss: historical cost vs fair value
– Recognition
– Asset or expense ??
– Liability or revenue ??
26
Professional Judgment
Process
– Definition of Professional Judgment
– Process of reaching a decision where there are number of
alternatives solutions
– f(PJ) = cognitive, job training, knowledge, cultural, tone at
the top
– Threats: Time constraint, Limited capacity (mentality,
resources), Bias (self-interest)
27
The Role of Professional
Skepticism in Auditors’
Judgments
– skepticism defined as “an attitude that includes a questioning
mind and a critical assessment of audit evidence”
– Professional skepticism includes being alert to
– contradictory evidence,
– authenticity & integrity of evidence,
– Management explanations against corroborated evidence
– (unusual) conditions that may indicate possible fraud
– circumstances that suggest the need for audit procedures in
addition to those required by the ISAs
The Role of Professional
Skepticism in Auditors’
Judgments
– An auditor who is professionally skeptical will do the following:
Planning
– Reasonably question the honesty and integrity of management;
risk indicators (risk / control)
– Fieldwork
– Critically question contradictory audit evidence
– Carefully evaluate the reliability of management explanation
– Critically evaluate reliability and sufficiency of evidence