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PROFESSIONAL ETHICS - Coggle Diagram

- - - - Remove individual from team and structure to avoid handling family-related matters.
      - Potential threat when team member has significant family or personal relationships with client.
    - - Significant threat if employee retains significant connection to firm, such as benefits or participation in business activities.
      - Safeguard measures include reviewing engagement team composition and conducting independent partner/quality control review.
      - Threat arises when an employee becomes a director or employee of a client, influencing financial statements or other assurance engagements.
      - Compromised independence unless key audit partner ceases.
      - Partner must have issued audited financial statements for at least 12 months.
      - Partner not part of audit team for audited financial statements.
    - - Independent partner/quality control reviews are necessary.
      - Key audit partners must be rotated every seven years, with a minimum two-year break.
      - Rotation of senior personnel is necessary.
      - In exceptional circumstances, a maximum one-year extension is allowed.
      - Long-term association of senior personnel can lead to trust issues.
    - - Inconsequential gifts should only be accepted with partner's approval.
      - Offers must be documented in audit file, even if refused.
      - Acceptance of gifts from clients can reduce objectivity.
  - - - Firms can't provide services to listed clients, relating to internal controls over financial reporting or accounting systems.
      - Separate teams must be used for services.
      - Risk of self-review due to auditor's reluctance to admit or identify errors.
    - - Involvement only for tax returns doesn't create threat.
      - Firms can't prepare tax calculations for listed audit clients.
      - Tax calculations for financial statements and tax planning advice create self-review threat.
      - Separate team required for service provision.
    - - Firms cannot provide accounting and bookkeeping services to listed audit clients.
      - Risk of self-review due to auditor's reluctance to admit or identify errors.
      - If services are provided to unlisted clients, separate teams must be used.
    - - Uses methodologies and techniques to compute specific values for assets, liabilities, or businesses.
      - Valuation of matters material to financial statements should not be provided.
      - Involves making assumptions about future developments.
      - For listed audit clients, valuation services material to financial statements should not be provided.
    - - Individuals should not be assigned to engagement team until at least two years after client employment ends.
      - Firm employees or partners cannot be assurance client employees or directors due to lack of safeguards.
      - Threat of significant influence over financial statement matters of another assurance engagement.
  - - - Threat is significant if significant connection exists between audit partner and firm, such as entitlement to benefits or participation in firm's business activities.
      - Safeguard measures include reviewing engagement team composition and conducting independent partner/quality control review.
      - Audit partner joining client as director or employee can exert significant influence over financial statements or other assurance engagements.
      - Partner not part of audit team for audited financial statements.
      - Independence compromised unless key audit partner ceases.
      - Public interest entity audited financial statements for at least 12 months.
    - - Firm resignation or decline of audit may be necessary.
      - Continued assurance engagement may be possible if threat is minimal.
      - Management may reluctance to disclose relevant information to auditor.
      - Steps include discussing the matter with client's audit committee, removing individuals involved, and obtaining external review of work.
      - Litigation can disrupt trust between auditor and client, potentially affecting impartiality.
  - - - Can be joint venture or marketing arrangement.
      - No safeguard can reduce threat, hence client engagement must be declined.
      - Involves significant and material business relationship between audit firm, team members, or immediate family members and client.
      - Personal relationships with audit client should be removed from audit team.
    - - May be considered a client loan.
      - Do not perform further work until outstanding fees are paid or repayment arrangement agreed upon.
    - - Removal from assurance engagement is possible.
      - Independent review of significant judgements by team members is required.
      - Safety measures include not affecting future employment.
      - Engagement team members may be considered employees of the client.
      - Firm policies should require notification of potential employment.
    - - Safeguard reduces risk to acceptable level.
      - Independent review by partner from other firm office.
      - Safeguard applies if loan from lending institution to audit firm is material.
      - The engagement with the client must be declined.
      - The arrangement is significant and no safeguard can reduce it to acceptable levels.
      - These arrangements are not bank or similar institutions.
      - Audit firms or individuals may enter into material loans or guarantees with clients.
    - - Example: overlooking profit reduction in audit adjustment.
      - Auditors aim to maximize audit fee by achieving specific outcomes.
      - Unpermitted under ACCA Code of Conduct.
      - Fees calculated on a predetermined basis based on transaction outcome.
      - Audit firms should decline services if fee is contingent on result.
    - - Inconsequential gifts should only be accepted with partner's approval.
      - Offers must be documented in audit file, even if refused.
      - Acceptance of gifts from clients can reduce objectivity.
    - - Firm resignation or decline from audit is necessary.
      - Management may reluctance to disclose relevant information to auditor.
      - Other assurance engagements can continue if threat is not significant.
      - Steps include discussing the matter with client's audit committee, removing an individual from the team if litigation involves them, and obtaining an external review of work done.
      - Litigation can disrupt trust between auditor and client, affecting impartiality.
    - - Overdependence could lead to ignoring necessary adjustments due to fear of losing the client.
      - Safeguard measures include disclosure to governance-charged parties, independent engagement quality control review, and reducing dependency by increasing clients or reducing nonassurance services.
      - Firm's independence threatened if total fees from a listed audit client exceed 15% for two consecutive years.
    - - Shares should be disposed of immediately if a team member or employee is removed.
      - Non-audit team employees must dispose of shares as soon as possible.
      - Audit adjustments should not affect the value of the investment.
      - Audit firm partners must dispose of shares or decline engagement with clients if they choose not to.
      - Audit firm, team members, or immediate family members holding beneficial shares in clients should maximize return.