Professional Documents
Culture Documents
(1.1) Integrity implies not merely honesty but fair dealing and
truthfulness.
conflicts of interest.
(1.2) Professional accountants serve in many different capacities and
should demonstrate their objectivity in varying circumstances. Regardless
of service or capacity, professional accountants should protect the
integrity of their professional services, and maintain objectivity in their
judgment
(1.3) In selecting the situations and practices to be specifically dealt
within ethics requirements relating to objectivity, adequate consideration
should be given to the following factors:
o Professional accountants are exposed to situations which involve
the possibility of pressures being exerted on them. These pressures
may impair their objectivity.
o It is impracticable to define and prescribe all such situations where
these possible pressures exist.
to
ensure
that
returns,
communications
or
other
information
where
the
imposes
an
obligation
on
all
professional
accountants
not
to
acquired
as
result
of
professional
and business
employer.
140.4- of information within the firm or employing organization.
after
the
end
of
relationships
between
professional
Disclosure
to
the
appropriate
public
authorities
of
the
extent
it
is
practicable;
when
the
situation
involves
conclusions,
professional
judgment
should
be
used
in
Attainment
of
professional
competence-(Certified
Public
Accountant)
(b) Maintenance of professional competence-(Continuing Professional
Education) -requires a continuing awareness and an understanding of
relevant technical professional and business developments.
Diligence encompasses the responsibility to act in accordance with the
requirements of an assignment, carefully, thoroughly and on a timely basis.
professional
accountant
shall
decline
to
perform
or
shall
or employees.
A professional accountant in public practice who provides an assurance
service is required to be independent of the assurance client
is performing.
Safeguards to eliminate and reduce these threats to an acceptable
level may include:
(a) Withdrawing from the engagement team.
(b)Supervisory procedures.
(c) Terminating the financial or business relationship giving rise to the
threat.
(d)Discussing the issue with higher levels of management within the
firm.
(e) Discussing the issue with those charged with governance of the
client.
290.12 The examples presented in this section are intended to illustrate the
application of the conceptual framework and are not intended to be, nor
should they be interpreted as, an exhaustive list of all circumstances that
may create threats to independence. Consequently, it is not sufficient for a
member of an assurance team, a firm or a network firm merely to comply
with the examples presented, rather they should apply the framework to the
particular circumstances they face.
290.13 The nature of the threats to independence and the applicable
safeguards necessary to eliminate the threats or reduce them to an
acceptable level differ depending on the characteristics of the individual
assurance
engagement:
whether
it
is
financial
statement
audit
threats the firm has reason to believe may be created by financial interests
in the client held by other entities in the network or by relationships between
the client and other entities in the network.
290.23 Even though a firm does not belong to a network and does not use a
common brand name as part of its firm name, it may give the appearance
that it belongs to a network if it makes reference in its stationery or
promotional materials to being a member of an association of firms.
Accordingly, a firm should carefully consider how it describes any such
memberships in order to avoid the perception that it belongs to a network.
290.24 If a firm sells a component of its practice, the sales agreement
sometimes provides that, for a limited period of time, the component may
continue to use the name of the firm, or an element of the name, even
though it is no longer connected to the firm. In such circumstances, while the
two entities may be practicing under a common name, the facts are such
that they do not belong to a larger structure aimed at co-operation and are,
therefore, not network firms. Those entities should carefully consider
how to disclose that they are not network firms when presenting
themselves to outside parties.
290.25 Where the larger structure is aimed at co-operation and the entities
within the structure share a significant part of professional resources, it is
considered to be a network. Professional resources include:
Common systems that enable firms to exchange information such as
client data, billing, and time records;
Partners and staff;
Technical departments to consult on technical or industry specific
issues, transactions or events for assurance engagements;
Audit methodology or audit manuals; and
Training courses and facilities.
290.26 The determination of whether the professional resources shared are
significant, and therefore the firms are network firms, should be made based
on the relevant facts and circumstances. Where the shared resources are
threats
to
independence
are
created by
relationships
with
independence
requirements
include
prohibitions
regarding
certain
to
independence
and
considering
the
applicable
safeguards
clearly insignificant in the context of the subject matter information. This will
take into account factors such as:
Threats to Independence
48. Independence is potentially affected by self-interest, self-review,
advocacy, familiarity and intimidation threats.
49. Self-interest Threat occurs when a firm, network firm, or a member of
the assurance team could benefit from a financial interest in, or other selfinterest conflict with, an assurance client.
Examples of circumstances that may create this threat include, but are not
limited to:
(a) a direct financial interest or material indirect financial interest in an
assurance client;
(b) a loan or guarantee to or from an assurance client or any of its
directors or officers;
(c) undue dependence on total fees from an assurance client;
(d) concern about the possibility of losing the engagement;
(e) having a close business relationship with an assurance client;
(f) potential employment with an assurance client; and
(g) contingent fees relating to assurance engagements.
50. Self-review Threat occurs when:
(a) any product or judgement of a previous assurance engagement or
non-assurance engagement needs to be re-evaluated in reaching
conclusions on the assurance engagement; or
54. The firm and members of the assurance team must remain independent
by taking into account the context in which they practise, the threats to
independence and the safeguards available to eliminate the threats or
reduce them to an acceptable level.
55. When the safeguards available, such as those described below, are
insufficient to eliminate the threats to independence or to reduce them to an
acceptable level, or when a firm chooses not to eliminate the activities or
interests creating the threat, the only course of action available must be
refusal to perform, or withdrawal from, the assurance engagement. It is
important to note that while certain safeguards may address independence
in mind they may not satisfy the independence in appearance test.
Independence in appearance is equally as important as independence in
mind because, unless an auditor is considered by users of the information as
independent, the auditors independence in mind is largely irrelevant.
In deciding whether to accept an assignment, the firm must ensure
that they areindependent in mind and in appearance.
56. When threats are identified, other than those that are clearly
insignificant, appropriate safeguards must be identified and applied to
eliminate the threats or reduce them to an acceptable level. This decision
must be documented.
57. The nature of the safeguards to be applied will vary depending upon the
circumstances. Consideration must always be given to what a reasonable
and informed third party, having knowledge of all relevant information,
including safeguards applied, would reasonably conclude to be unacceptable.
The consideration will be affected by matters such as the significance of the
threat, the nature of the assurance engagement, the intended users of the
assurance report and the structure of the firm.
58. Safeguards fall into three broad categories:
(a) safeguards created by the profession, legislation or regulation;
(b) safeguards within the assurance client; and
(c) safeguards within the firms own systems and procedures.
The firm and the members of the assurance team must select appropriate
safeguards to eliminate or reduce threats to independence, other than those
that are clearly insignificant, to an acceptable level. It is the responsibility of
Institute members conducting assurance engagements to ensure that they
are independent and to carefully consider and respond appropriately to
circumstances that threaten independence. In general, safeguards adopted
by an Institute member will be those within the firms own systems and
procedures as these will be within the control of the member.
59. Safeguards created by the profession, legislation or regulation include
the following:
(a) educational, training and experience requirements for entry into the
profession;
(b) continuing education requirements;
(c) professional standards, monitoring and disciplinary processes;
(d) external review of a firms quality control system; and
(e) legislation governing the independence requirements of the firm.
60. Safeguards within the assurance client include the following:
(a)
when
management
appoints
the
firm,
persons
other
than
and the audit committee (or other governance body if there is no audit
committee) regarding relationships and other matters that might, in the
firms opinion, reasonably be thought to bear on independence.
62. Firms must establish policies and procedures relating to communications
on the matter of independence with audit committees or others charged with
governance. In the case of audit clients, the firm must communicate orally
and in writing at least annually, all relationships and other matters between
the firm, network firms and the audit client that, in the firms professional
judgement, may reasonably be thought to bear on independence.
63. Matters to be communicated will vary in each circumstance and should
be decided by the firm, but should generally address the relevant matters
set out in Code of Ethics: Independence.
64. Safeguards within the firms own systems and procedures may include
firm-wide safeguards such as:
(a) leadership that stresses the importance of independence and the
expectation that members of assurance teams will act in the public
interest;
(b) policies and procedures to implement and monitor quality control of
assurance engagements;
(c) documented independence policies regarding the identification of
threats to independence, the evaluation of the significance of these
threats and the identification and application of safeguards to
eliminate or reduce the threats, other than those that are clearly
insignificant, to an acceptable level;
(d) internal policies and procedures to monitor compliance with firm
policies and procedures as they relate to independence;
(e) policies and procedures that will enable the identification of
interests or relationships between the firm or members of the
assurance team and assurance clients;
(f) policies and procedures to monitor and, if necessary, manage the
reliance on revenue received from a single assurance client;
(g) using different partners and teams with separate reporting lines for
the provision of non-assurance services to an assurance client;
(h) policies and procedures to prohibit individuals who are not
members of the assurance team from influencing the outcome of the
assurance engagement;
(i) timely communication of a firms policies and procedures, and any
changes thereto, to all partners and professional staff, including
appropriate training and education thereon;
(j) designating a member of senior management as responsible for
overseeing the adequate functioning of the safeguarding system;
(k) a means of advising partners and professional staff of those
assurance clients and related entities from which they must be
independent;
(l) a disciplinary mechanism to promote compliance with policies and
procedures;and
(m) policies and procedures to empower staff to communicate to senior
levels within the firm any issue of independence and objectivity that
concerns them, including informing staff of the procedures open to
them.
65. Safeguards within the firms own systems and procedures may include
engagement specific safeguards such as the following:
(a) involving an additional Institute member to review the work done or
otherwise advise as necessary. This individual could be someone from
outside the firm or network firm, or someone within the firm or network
firm who was not otherwise associated with the assurance team;
(b) consulting a third party, such as a committee of independent
directors, a professional regulatory body or another Institute member;
(c) rotation of senior personnel;
(d) discussing independence issues with the audit committee or others
charged with governance;
period
covered
by
the
financial
statements,
but
before
the
where
compliance
with
the
fundamental
principles
is
Linked to Financial
Reporting and Decision Making
Professional accountants in business may have financial interests,
including those arising from compensation or incentive arrangements, or
may know of financial interests of immediate or close family
members, that, in certain circumstances, may create threats to compliance
with the fundamental principles.
Self-interest threats to objectivity or confidentiality may be created through
the existence of the motive and opportunity to manipulate pricesensitive information in order to gain financially.
business.
Holds, directly or indirectly, deferred bonus share entitlements
or share options in the employing organization, the value of which
could
be
directly
affected
by
decisions
made
by
the
professional
accountant
in
business
shall
not
manipulate
Policies
and
procedures
for
committee
independent
of
management.
Disclosure of all relevant interests, and of any plans to exercise
entitlements or trade in relevant shares, to those charged with the
internal policies.
Consultation, where
employing organization.
Consultation, where appropriate, with those charged with the
governance
of
the
appropriate,
employing
with
superiors
organization
or
within
the
relevant
professional bodies.
Up-to-date
education
on
ethical
issues
and on the
legal