AT - CODE OF PROFESSIONAL ETHICS Flashcards Preview

AUDITING THEORY > AT - CODE OF PROFESSIONAL ETHICS > Flashcards

Flashcards in AT - CODE OF PROFESSIONAL ETHICS Deck (27)
Loading flashcards...
1
Q

Where is the Code of Ethics for Professional Accountants in the Philippines based from?

A

International Federations of Accountants’ (IFAC) Code of Ethics for Professional Accountants.

2
Q

The Code of Ethics is divided into ___ parts. Discuss each part briefly.

A

The Code of ethics is divided into THREE (3) parts.

Part A - establishes the fundamental principles of professional ethics and conceptual framework that professional accountants shall apply.

Part B - Applies to Accountants in PUBLIC PRACTICE and how the conceptual framework applies to them

Part C - Applies to Accountants in BUSINESS and how the conceptual framework applies to them.

3
Q

What are the prerequisite/fundamental principles enumerated in Part A of the Code of Ethics? Briefly discuss each.

A
  1. Integrity - honesty,fair-dealing and truthfulness. An accountant should NOT BE ASSOCIATED WITH INCORRECT/INCOMPLETE/MISLEADING STATEMENTS/INFORMATION.
  2. Objectivity - fair,intellectually honest and free from conflicts of interest/biases.
  3. Professional Competence and due Care - continued improvement of knowledge and skills to be able to render competent and professional service.

a. Attainment of professional competence - formal
education, examination and experience

b. Maintenance of professional competence - being
aware of developments affecting the profession

c. Due Care - performance of service in accordance with
technical and professional standards.

  1. Confidentiality - non-disclosure of any information without proper and specific authorization UNLESS there is a legal or professional right/duty to disclose. Also, non-usage of said information for the advantage of the accountant or a 3rd person.
  2. Professional Behavior - compliance with relevant laws and regulations and refrain from any conduct which might bring DISCREDIT to the profession.
4
Q

What are the instances wherein confidential information may be disclosed?

A
  1. When there is permission from client/employer
  2. Disclosure is required by law (subpoena)
  3. Professional duty/right to disclose(defense in case of litigation)
5
Q

What are the requirements under the Conceptual Framework of the Code of Ethics with regards to threats to compliance with fundamental principles?

A
  1. Identify threats to compliance with fundamental principles
  2. Evaluate significance of threats identified
  3. Apply safeguards, when necessary to eliminate threats or reduce them to an acceptable level.
6
Q

What are the threats to compliance with the fundamental principles?

A
  1. Self-interest
  2. Self-review
  3. Advocacy
  4. Familiarity
  5. Intimidation
7
Q

Explain the Self-interest threat to the fundamental principles.

A

It is the threat that a conflict of interest will inappropriately influence the professional accountant’s judgment/behavior.

8
Q

Explain the Self-review threat to the fundamental principles.

A

It is the threat that a professional accountant will NOT OBJECTIVELY EVALUATE THE RESULTS of the previous judgment made or service performed in forming a conclusion about the subject matter of the engagement.

9
Q

Explain the Advocacy threat to the fundamental principles.

A

It is the threat that a professional accountant will promote a client or employer’s position to the point that the professional accountant’s objectivity is compromised.

10
Q

Explain the Familiarity threat to the fundamental principles.

A

It is the threat that a professional accountant will promote a client or employer’s position to the point that the professional accountant’s objectivity is compromised.

11
Q

Explain the Intimidation threat to the fundamental principles.

A

It is the threat that the professional accountant will be deterred from acting objectively because of actual or perceived pressures, including undue influences.

12
Q

What are safeguards?

A

Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level. It has two broad categories:

  1. Safeguards created by the profession/legislation/regulation
  2. Safeguards in the work environment
    a. Firm-wide safeguards
    b. Engagement-specific safeguards
    c. Safeguards within the client’s systems and
    procedures
13
Q

When accepting a client, what must an accountant in public practice do first in compliance with the fundamental principles of the Code of Ethics?

A

The professional accountant, BEFORE ACCEPTING A NEW CLIENT RELATIONSHIP, must consider WHETHER THE ACCEPTANCE WOULD CREATE ANY THREATS TO THE COMPLIANCE WITH THE FUNDAMENTAL PRINCIPLES.

14
Q

When accepting an engagement, what must an accountant in public practice do first in compliance with the fundamental principles of the Code of Ethics?

A

Before accepting an engagement, the professional accountant must first determine WHETHER HE IS COMPETENT ENOUGH TO PERFORM THE SERVICE.

15
Q

What must a professional accountant do when there is a change in professional appointment, such as said professional accountant in public practice is asked to replace another?

A

The incoming professional accountant must DETERMINE WHETHER THERE ARE ANY REASONS, PROFESSIONAL OR OTHER, FOR NOT ACCEPTING THE ENGAGEMENT, such as circumstances that may threaten compliance with fundamental principles.

16
Q

What threat is created when the accountant has a DIRECT FINANCIAL INTEREST OR MATERIAL INDIRECT FINANCIAL INTEREST in a client?

A

Self-interest threat.

17
Q

What threat is created when the accountant receives a lower fee compared to another?

A

It is in itself not unethical, but if the fee is so low that appropriate procedures would be difficult to perform with said fee, self-interest threat to professional competence and due care is created.

18
Q

What threats are created by contingent fees?

A

Contingent fees may give rise to self-interest and objectivity threat.

19
Q

What are the rules when marketing professional services?

A

GENERALLY, ANY FORM OF ADVERTISEMENT IS ALLOWED.

A professional accountant in public practice should NOT BRING THE PROFESSION INTO DISREPUTE WHEN MARKETING PROFESSIONAL SERVICES and be honest. It must not:

a. Make exaggerated claims for services
b. Make disparaging references/comparisons to the work of another.

20
Q

What are the rules on gifts and hospitality received by the professional accountant in public practice?

A

A professional accountant in public practice/immediate family member must not accept such offer when the threats to compliance with fundamental principles cannot be eliminated.

21
Q

What are the rules on the custody of client assets for accountants in public practice?

A

A professional accountant in public practice SHOULD NOT ASSUME CUSTODY OF CLIENT ASSETS UNLESS PERMITTED BY LAW.

Holding client assets creates self-interest threats and objectivity.

22
Q

What is independence in auditing?

A

It means taking an UNBIASED VIEWPOINT in the performance of the examination and in the preparation of the report. It has two phases:

a. Independence of mind
b. Independence of appearance

23
Q

When is independence required of a professional accountant?

A

Only for ASSURANCE SERVICES, which are divided into three, namely:

  1. FS audit - all MEMBERS OF THE ASSURANCE TEAM, FIRM, AND NETWORK FIRM must be independent of the assurance client
  2. Non-audit Not-restricted - MEMBERS OF THE ASSURANCE TEAM AND FIRM must be independent of the assurance client. The report here is not restricted to users.
  3. Non-audit Restricted - MEMBERS OF THE ASSURANCE TEAM must be independent of the assurance client AND THE FIRM MUST NOT HAVE ANY MATERIAL FINANCIAL INTEREST IN THE ASSURANCE CLIENT. The report here is restricted to specified users.
24
Q

Discuss the relationship between financial interest and the CPA’s independence.

A

ANY DIRECT FINANCIAL INTEREST, WHETHER MATERIAL OR NOT, IMPAIRS INDEPENDENCE OF THE CPA. There is direct financial interest when the CPA has CONTROL over the investment vehicle of the financial interest held or when he has influence in investment decisions.

AN INDIRECT FINANCIAL INTEREST MUST BE MATERIAL TO IMPAIR THE CPA’S INDEPENDENCE.

25
Q

Discuss the relationship between loan and guarantees granted by the client to the CPA and its effect on independence.

A

If the client is a FINANCIAL INSTITUTION, independence is not impaired when:

a. the lending is done under normal lending procedures and terms
b. the amount is immaterial to both the CPA and client

If the client is NOT A FINANCIAL INSTITUTION, independence is not impaired when THE AMOUNT LENT IS IMMATERIAL TO BOTH PARTIES.

26
Q

Does provision of taxation services impair independence?

A

No.

27
Q

Discuss provision of legal services to assurance clients and its effect on CPA’s independence.

A

Acting as an ADVOCATE OF THE CLIENT IN RESOLUTION OF DISPUTES/LITIGATION where the amount is material impairs the CPA’s independence.

Provision of ADVISORY SERVICES on the other hand, does not impair CPA’s independence.