Auditing Ethics Own Notes
Ethics
• Recap of an Audit:
- Systematic Process
- To gather and evaluate evidence and information objectively to make an evaluation
- Evaluate the assertations about economic actions and situations made by management
- Determine the correlation of assertations both qualitative and quantitative against
predetermined criteria
- Communicate these results in writing to the users of this data
• How does Ethics tie in with SAICA
- All SAICA members are registered after clerkship and exams
- Ethics (Code of Professional Conduct) are what all CA’s are expected to follow, including
accountants working outside SA, based on an international standard.
- IRBA (Independent Regulatory Board of Auditors) sign off on audit reports being conducted, are
all registered auditors and accountants
- Auditing Profession Act
- Code of Professional Conduct Part A and Part B (B is for registered Auditors) all based on
international standards
Ethics
A set of principles of right conduct and a theory or system of moral values
SAICA Code of Professional Conduct
Part 1A – General Application of the Code
• Applicable to all CAs
• Definitions
- Assurance engagement can be an audit or a review engagement or other assurance
engagements where no opinion is expressed
- Direct financial interest is when something is owned, under control of or can influence the
investment decisions
- Indirect financial interest is where an individual has no control and cannot influence investment
decisions
- Contingent fees are fees contingent on a condition
- Immediate family is your spouse or the equivalent
- Close family is your parent, child or sibling
, - Professional services are audits, reviews, tax, advice
- Conflict of interest is something that creates a threat to objectivity and other fundamentals
Conceptual Framework
• Professional Accountants must:
1. Exercise Professional Judgement
- Apply relevant training, knowledge, skill, and experience
- Consider:
- Is information missing?
- Are there inconsistencies between facts, circumstances, and expectations?
- Is the professional accountant’s expertise sufficient?
- Is further consultation required?
- Does the information provide reasonable basis for conclusion?
- Are there any preconceptions or bias?
- Are there any other possible and reasonable conclusions?
2. Remain alert to new information and changes
3. Use the reasonable and informed third party test (RITP)
- Would the same conclusion be reached by a reasonable and informed third party?
- Weigh all relevant facts and circumstances available at the time (or expected to know)
- Third party does not have to be a professional accountant but must have relevant knowledge
- Evaluates the appropriateness of conclusions in an impartial manner
Identify the Threats – Part 1A
Threats to the Fundamental Principles
1. Self-interest
-Financial or other interest to a CA or a family member, the CA stands to benefit from something
2. Self-review
- “Marking your own Homework”
- The CA worked for the client in the previous year and prepared the financial statements and now
works for the auditing firm and must audit them
3. Advocacy
- A CA promotes an opinion or a position to the point where objectivity might be influenced.
- E.g. You testify on behalf of a client in court, you support them to the point where you are no longer
independent or objective towards them
4. Familiarity
, - Close family, business or social relationship could cause a CA to be sympathetic to the interests of
others. E.g. An audit partner being lifelong friends with a client
5. Intimidation
- The CA could be deterred from acting in an objective manner with threats, whether they are actual or
perceived.
- E.g. A boss puts pressure on an employee to manipulate financial statements by threatening to fire
them. A client threatens to walk away from the auditing firm if the auditors do not give an unqualified
opinion
- Evaluate the significance of the threat by using qualitative and quantitative factors
The Fundamental Principles – Part 1B
• Integrity
- Straight forward and honest in all professional relationships
- Fair dealing and truthfulness
- Not be associated with and does not sign off on – materially false/misleading statements,
recklessly furnished material, omissions that could be misleading, CA(SA) may not be associated
with any of these
• Objectivity
- Do not compromise business judgement due to bias, conflict of interest or undue influences
• Professional Competence and Due Care
- Required to maintain professional knowledge required to render competent professional
services
- Act diligently and professionally in accordance with the applicable standards
- Professional Competence involves attainment, process where you attain the title of a CA(SA),
and maintenance such as training and updates programs.
- Diligence, act in accordance with the requirements of an assignment, thoroughly, carefully, in a
timely manner. Ensure subordinates have the appropriate training and supervision.
- Inform clients of the limitations of the service. Obtain knowledge of the relevant industry where
you can otherwise hire an expert to assist
• Confidentiality
- Refrain from disclosing confidential information (Unless there is a legal or professional right or
duty to disclose)
- Maintain confidentiality in social, business and family environments
- Maintain confidentiality of information disclosed by prospective client
Ethics
• Recap of an Audit:
- Systematic Process
- To gather and evaluate evidence and information objectively to make an evaluation
- Evaluate the assertations about economic actions and situations made by management
- Determine the correlation of assertations both qualitative and quantitative against
predetermined criteria
- Communicate these results in writing to the users of this data
• How does Ethics tie in with SAICA
- All SAICA members are registered after clerkship and exams
- Ethics (Code of Professional Conduct) are what all CA’s are expected to follow, including
accountants working outside SA, based on an international standard.
- IRBA (Independent Regulatory Board of Auditors) sign off on audit reports being conducted, are
all registered auditors and accountants
- Auditing Profession Act
- Code of Professional Conduct Part A and Part B (B is for registered Auditors) all based on
international standards
Ethics
A set of principles of right conduct and a theory or system of moral values
SAICA Code of Professional Conduct
Part 1A – General Application of the Code
• Applicable to all CAs
• Definitions
- Assurance engagement can be an audit or a review engagement or other assurance
engagements where no opinion is expressed
- Direct financial interest is when something is owned, under control of or can influence the
investment decisions
- Indirect financial interest is where an individual has no control and cannot influence investment
decisions
- Contingent fees are fees contingent on a condition
- Immediate family is your spouse or the equivalent
- Close family is your parent, child or sibling
, - Professional services are audits, reviews, tax, advice
- Conflict of interest is something that creates a threat to objectivity and other fundamentals
Conceptual Framework
• Professional Accountants must:
1. Exercise Professional Judgement
- Apply relevant training, knowledge, skill, and experience
- Consider:
- Is information missing?
- Are there inconsistencies between facts, circumstances, and expectations?
- Is the professional accountant’s expertise sufficient?
- Is further consultation required?
- Does the information provide reasonable basis for conclusion?
- Are there any preconceptions or bias?
- Are there any other possible and reasonable conclusions?
2. Remain alert to new information and changes
3. Use the reasonable and informed third party test (RITP)
- Would the same conclusion be reached by a reasonable and informed third party?
- Weigh all relevant facts and circumstances available at the time (or expected to know)
- Third party does not have to be a professional accountant but must have relevant knowledge
- Evaluates the appropriateness of conclusions in an impartial manner
Identify the Threats – Part 1A
Threats to the Fundamental Principles
1. Self-interest
-Financial or other interest to a CA or a family member, the CA stands to benefit from something
2. Self-review
- “Marking your own Homework”
- The CA worked for the client in the previous year and prepared the financial statements and now
works for the auditing firm and must audit them
3. Advocacy
- A CA promotes an opinion or a position to the point where objectivity might be influenced.
- E.g. You testify on behalf of a client in court, you support them to the point where you are no longer
independent or objective towards them
4. Familiarity
, - Close family, business or social relationship could cause a CA to be sympathetic to the interests of
others. E.g. An audit partner being lifelong friends with a client
5. Intimidation
- The CA could be deterred from acting in an objective manner with threats, whether they are actual or
perceived.
- E.g. A boss puts pressure on an employee to manipulate financial statements by threatening to fire
them. A client threatens to walk away from the auditing firm if the auditors do not give an unqualified
opinion
- Evaluate the significance of the threat by using qualitative and quantitative factors
The Fundamental Principles – Part 1B
• Integrity
- Straight forward and honest in all professional relationships
- Fair dealing and truthfulness
- Not be associated with and does not sign off on – materially false/misleading statements,
recklessly furnished material, omissions that could be misleading, CA(SA) may not be associated
with any of these
• Objectivity
- Do not compromise business judgement due to bias, conflict of interest or undue influences
• Professional Competence and Due Care
- Required to maintain professional knowledge required to render competent professional
services
- Act diligently and professionally in accordance with the applicable standards
- Professional Competence involves attainment, process where you attain the title of a CA(SA),
and maintenance such as training and updates programs.
- Diligence, act in accordance with the requirements of an assignment, thoroughly, carefully, in a
timely manner. Ensure subordinates have the appropriate training and supervision.
- Inform clients of the limitations of the service. Obtain knowledge of the relevant industry where
you can otherwise hire an expert to assist
• Confidentiality
- Refrain from disclosing confidential information (Unless there is a legal or professional right or
duty to disclose)
- Maintain confidentiality in social, business and family environments
- Maintain confidentiality of information disclosed by prospective client
