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Seminar 3 Professional Ethics and Judgement Part 2 - Coggle Diagram

- - - - Investments in audit clients - auditor or their immediate family member cannot have direct financial interest or a material indirect financial interest in an audit client as it creates too great a self-interest threat
      - Loans to and from audit clients - auditor cannot loan to/from client that are not financial institutions, *unless they are immaterial to the auditor and institution, as they create too great a self-interest threat.
        
        Fees from client must be collected promptly, as overdue fees may create a self-interest threat, especially if they are not paid before the issue of a subsequent audit or review report.
        
        Loans from or deposits with a financial institution are allowed, provided they are under normal lending procedures and, if it is material, that there are adequate safeguards.
      - Goods and services from clients - purchase of goods and services from an assurance client would not generally constitute a threat to independence, provided the transaction is in the normal course of business and on an arm’s length basis.
        
        gifts or hospitality beyond normal, insignificant social courtesies should not be accepted, as they would create unacceptable self-interest and familiarity threats.
    - - Generally, auditor must not assume management responsibility for an audit client. Examples of activities that would generally be considered a management responsibility:
        
        setting policies and strategic direction
        
        hiring and firing employees
        
        directing and taking responsibility for actions of the entity’s employees
        
        authorising a transaction
        
        controlling bank accounts or investments
        
        determining which recommendations of the audit firm should be implemented
        
        reporting to those charged with governance on behalf of management
        
        taking responsibility for the preparation of the financial report
        
        A self-review threat exists where an auditor participates in the preparation of the audit client’s accounting records or financial reports. The significance of the threat depends upon the individual’s involvement in the preparation process and whether the client is a public interest entity.
        Appropriate services that may be offered by the auditor include technical assistance, for example, on accounting standards or principles, disclosures, or appropriateness of controls, assisting in the preparation of consolidated financial reports and proposing adjusting journal entries. These services promote the fair presentation of the financial report and do not generally threaten independence. For other accounting and bookkeeping services, including payroll, the significance of the self-review threat is high and safeguards are required if the service is offered
        
        For audit clients that are not public interest entities, the self-review threat from providing accounting/bookkeeping services on financial information that forms the basis of the financial report is too high to allow the auditor to undertake the service unless the assistance provided is solely of a routine or mechanical nature. (e.g. of acceptable services include recording transactions the client has authorised, posting coded transactions to a general ledger or preparing a financial report based on the client’s trial balance.
        
        For public interest audit clients, accounting/bookkeeping services on financial information which forms the basis of the financial report cannot be undertaken as there is no safeguard that reduces the threat to an acceptable level. The only exception to this is where they are routine and mechanical and relate to a division that is immaterial.
        In no circumstances must the auditor originate, authorise or approve transactions on behalf of an audit client.
        
        taking responsibility for the design, implementation and maintenance of internal control.
  - - - significance of the self-review threat is considered too high to allow the provision of services where the valuation relates to amounts that are material in relation to the financial report and where the valuation involves a significant degree of subjectivity. In these circumstances the valuation service should be refused or the auditor must withdraw from the audit.