Explore auditor's professional code of ethics

Professional Code of Ethics

Professional auditors have a liability to protect and take a good care of the public interest. Similarly, they have a responsibility to care for the reputation of the accountancy profession. The professional code of ethics enables the auditors to meet these responsibilities by giving them ethical instructions. The ACCA has identified the five main fundamental principles. These are explained in the following terms:

Integrity

For those who act in the public interest, integrity is a requirement. In relation to auditors, the auditors’ need to ensure that they are straightforward and act with integrity. This requires not only honesty but a wide-range of linked qualities as well as justice, courage and confidentiality. Integrity insists that the auditors is not affected by conflicts of interest. Most importantly, an auditor should not knowingly be associated with information that they believe is false or misleading information.

Objectivity

Objectivity makes sure that the auditors provide fair and impartial consideration to all situations that are related to the tasks that they are doing at that period. Most importantly, objectivity makes sure that bias is disregarded. As objectivity is a fundamental ethic principle, it requires that the members to not let unfairness or conflicts of interest to set aside professional or business judgements. The auditors are allowed to express their opinions based on all the existing evidences and the auditor’s professional judgements. On the other hand, auditors are also required to disagree where appropriate with the management judgements. Additionally, an auditor should not undertake a professional service if a relationship biases impacts the auditor’s professional judgement with respect to that service.

Professional Competence & due care

The members have an obligation to provide professional knowledge and skills at the level that the clients expect. The purpose of doing that is to make sure that the clients or the directors’ get suitable services based on recent developments in practice and legislation. Additionally, they also they need to act diligently in accordance with available technical and professional standards. Furthermore, auditors should make sure that those working under the auditor’s authority in a professional capacity have appropriate training and management.

Confidentiality

It is important that the auditors to treat the information that they gained from professional work as confidential. They should not disclose such information unless it is required by law, unless it is already known to third party or unless the auditor has a professional right or duty to disclose it. Most importantly, as stated by the Code of Ethics, auditors should not use information for his own or other’s benefit. If the a member discloses such information without what I have mentioned above, the directors and management might fail to disclose such information to the auditors and that the effectiveness of the audit may in this case be impaired. As an auditor, it is important to maintain confidentiality of information within the company.

Professional behaviour

All auditors must obey all the relevant laws and regulations and stay away from any action that they know or they think may damage affect the profession; such as actions that informed third party. Additionally, auditors should be straightforward and honest and not exaggerate their experiences or the services that they are able to provide to their clients.

In relation to professional code of ethics threats, there are six broad ‘threats’ to auditors’ independence.

Self-interest threat

A self-interest threat occurs when an auditors put their self-interests first before their clients. These self-interests could be financial or other personal interests. In other words, auditor’s self-interest could be earning high amount of income from a client. This may cause threats because they are focusing on those self-interests rather than their interest in performing great audit work.

Self-review threat

A self-review threat also occurs when an auditors re-evaluate their own judgements/decisions or judgements/decisions made by others in the firm. This may cause threats to auditors’ independence because it is difficult to assess without bias one’s work. In order to maintain objectivity in self-review threats is to not provide the service.

Management threat

Auditors’ are prohibited to make a decision on behalf of the firm that they are auditing. Management threats can happen when auditors take on non-audit services for instance, getting involved in management decision making such as the design, selection and operation of a financial IT systems.

Advocacy threat

This threat is present when an auditor takes on work involving promoting their client’s position or representing by providing legal services to their audit clients. Supporting a client in litigation or a regulatory investigation could affect independence.

Familiarity threat

Familiarity threat occurs when an auditor has a close or long personal or professional relationship with the client. If the auditor and the client have known each other for a number of years, this could affect objectivity because; the auditor may sometimes accept the client’s opinion just because of their familiarity.

Intimidation threat

An intimidation threat is present when the auditors conduct is influenced by fear or threat. For instance where the auditor is threatened with replacement when there are some sort of disagreements between the auditor and the client.

Areas of risks and their safeguards

ï‚· Financial interests

ï‚· Family relationships

ï‚· Business relationships

ï‚· Loans

ï‚· Fees

ï‚· Undue independence

ï‚· Gifts and hospitality

ï‚· Second opinion

ï‚· Provision of other services

Auditors specific threats to their ind

Forbidden

http://www.fm-magazine.com/study-centre/course-notes/test-professional-competence-management-accounting#

file:///C:/Users/Amun/Downloads/IRBA%20Code%20of%20Professional%20Conduct%20-%20ED%20Final%2020%20November%202009.pdf

file:///C:/Users/Amun/Downloads/IRBA%20Code%20of%20Professional%20Conduct%20-%20ED%20Final%2020%20November%202009.pdf

http://opentuition.com/wp-content/blogs.dir/1/files/group-documents/15/1289109599-ProfessionalEthics.pdf

the past several years, the politicians in the USA such as Congressman Dingell and Austin Mitchell, the members of parliament in the UK such as DTI (Department of Trade and Industry) and SEC have raised questions about auditors’ ability to stay independent of their audit clients. They noted that auditors are in practice, hired, fired and paid by the clients’ managements.