Uploaded by Teneswari Radha

Professional Ethics

advertisement
Professional Ethics
Week 3
4-1
Results from the original reseach
Case
Description
Yes
No
No answer
1
Stealing to save a life
29%
67%
4%
2
Whistle-blowing
69%
27%
4%
3
Facilitation payment
98%
0%
2%
4-2
Special Need for Ethical
Conduct in Professions
Ethics – a system or code of conduct based on
moral duties and obligations that indicate how
an individual should behave in society
Our society has attached a special meaning
to the term professional.
A professional is expected to conduct himself
at a higher level than most other members of
society.
4-3
MIA By-laws
(on Professional Conduct & Ethics)
•
Effective from 2007
•
Divided into 3 main parts:
 Part A: Applicable to all members
 Part B: Applicable to professional
accountants in public practice
 Part C: Applicable to professional
accountants in business
4-4
Fundamental Principles of Ethics
Integrity
Objectivity
Professional competence & due care
Confidentiality
Professional behaviour
4-5
Integrity
•
Straightforward, honest, fair dealing,
truthfulness
•
Should not be associated with reports (or any
information) where they believe that the
information:
1.
Contains a materially false or misleading
statement
2.
Contain statements or information furnished
recklessly
3.
Omits/obscures information required to be
included, where such omission/obscurity would
be misleading
4-6
Objectivity
•
Do not compromise
professional/business judgment because
of bias, conflict of interest, undue
influence of others.
•
Relationships that bias/unduly influence
professional judgment should be
avoided.
4-7
Professional Competence & Due Care
•
Must maintain professional knowledge & skill
•
Must act diligently according to technical/prof
standards
•
Competency attained through formal education,
practical training, experience, CPE (must be
maintained thereafter)
•
Must ensure that those working under his
authority have appropriate training &
supervision
•
May conduct additional research or consult with
other professionals during engagement
4-8
Continuing Professional Education
(CPE)
•
For maintenance of technical knowledge &
competency
•
Structured learning  courses, conferences,
seminars, study programs, study for postqualification courses/degrees, writing of
technical articles/papers/books, member of MIA
committee
•
Unstructured  private reading/study, technical
research for practical work
4-9
Continuing Professional Education
(CPE) (Contd.)
•
At least 120 CPE credit hours for every rolling 3
calendar year period (i.e.40 hours per year)
•
60 hours  structured & verifiable
•
At least 20 hours of structured & verifiable
training should be obtained each calendar year
•
CPE audit will be conducted by random
4 - 10
Confidentiality
•
Cannot disclose confidential info while acting in
professional capacity, and also even in a social
environment.
•
Must maintain confidentiality disclosed by a
prospective client, employer, info within a
firm/orgn
•
Must ensure that staff maintain confidentiality as
well
•
Confidentiality continues even after the end of
relationships between accountant &
client/employer
•
Cannot use info for personal gain/ advantage of
3rd party
4 - 11
Confidentiality (Contd.)
•
May be required to disclose confidential info
when:
1.
Permitted by law & is authorised by
client/employer
2.
Required by law, e.g. to produce documents for
legal proceedings, disclosure to public
authorities about any law infringements
3.
To comply with quality review or respond to an
inquiry/investigation of a prof body, to protect
the prof interests of a prof accountant, to
comply with technical standards & ethics
requirements
4 - 12
Professional Behaviour
•
Must comply with relevant laws & regulations
•
Avoid any action that discredits the profession
•
In promoting themselves, they should not:
1.
Make exaggerated claims about their service,
their qualifications & experience.
2.
Make disparaging references or unsubstantiated
comparisons to the work of others.
4 - 13
IFAC Conceptual framework
•
Framework vs a set of rules
•
Impossible to define every situation
that may arise which would
threaten compliance with
fundamental principles
•
Professional accountant must
evaluate every threat accordingly
4 - 14
Threats to
compliance/independence
1. Self-interest threats
2. Self-review threats
3. Advocacy threats
4. Familiarity threats
5. Intimidation threats
4 - 15
Safeguards
Measures that may reduce or eliminate
threats to compliance to an acceptable
level
IFAC Code classifies safeguards into:
1. Created by the profession,
legislation or regulation
2. In the work environment (office
code of ethic)
4 - 16
Ethical Conflict Resolution
1.
Consider relevant facts, the ethical issues
involved, fundamental principles which are
related, established internal procedures &
alternative courses of action.
2.
Consult with appropriate persons for help.
3.
Consider consulting those charged with
governance (e.g. BOD or Audit Committee).
4.
Document the issue, details of discussions held,
decisions taken.
5.
Obtain professional advice from professional
body/legal advisors.
6.
Withdraw from engagement/resign.
4 - 17
Enforcement & Disciplinary Action
•
•
•
•
MIA (Disciplinary) Rules 2002
Investigation Committee
Investigates any complaint referred to it and
determines whether or not the matter is to be
referred to the Disciplinary Committee.
May dismiss the complaint if insufficient grounds
May not give a reason for dismissal
Disciplinary Board – disciplines members by:
Termination of membership, suspension,
cancellation of practising certificate, fine not
exceeding RM5,000, admonition, payment of
investigation costs, education
Disciplinary Appeal Board
May confirm, reverse, vary the decision of the
Disciplinary Committee. Decision is final.
4 - 18
Independence
Independence in auditing means taking an
unbiased viewpoint in performing audit
tests, evaluating the results, and
issuing the audit report.
Independence of mind
Independence in appearance
4 - 19
Independence (Contd.)
Different levels of independence requirements:
Type of engagement
Who must be independent:
Audit
Members of the audit team, the firm,
network firms
Other assertion-based
assurance engagements
Members of the audit team, the firm
Direct reporting assurance Members of the audit team, the firm
engagement
Restricted use reports
Members of the team & their
immediate & close family. Firm must
have no financial interest.
4 - 20
Independence (Contd.)
Threats to
independence
Self-interest 
members of firm can
benefit from financial
interest in assurance
client
Examples
Direct financial interest
& material indirect
financial interest
Loan/guarantee to/from
client
Overdependence on total
fees on client
Close business
relationship
Contingent fees
4 - 21
Independence (Contd.)
Threats
Examples
Self-review
Judgement of previous audit may
influence current audit.
Auditor was previously an officer of
the audit client, or was in a position
to influence the subject matter of
the engagement, e.g. financial
statements.
4 - 22
Independence (Contd.)
Threats
Examples
Advocacy
Auditor acts as a promoter of shares
(& etc) on behalf of the audit client.
Familiarity
Auditor sympathetic to client’s
interests because of close
relationship, e.g. family connections,
close friends, long term relationship
Threats of firm dismissal,
replacement because of disputes.
Intimidation
4 - 23
Safeguards against
threats to independence
Safeguards
Examples
Profession, Professional standards, entry requirements
legislation, to profession, CPE, independent
regulation requirements required by law
professional code of ethics (MIA By-Laws)
Companies Act 1965 – prohibitions against
appointment as auditors
4 - 24
Safeguards against
threats to independence (Contd.)
Safeguards
Examples
Within
Good corporate governance structure –
assurance effective audit committee, competent
client
management, policies for fair financial
reporting, transparent relationship with
auditors
Within
firm’s own
systems
(audit
firm)
Quality control procedures, policies to identify
non-independent interests or relationships,
use of separate reporting lines for
performance of non-audit engagements,
removal of ‘offending’ individual from team,
rotation of senior personnel, additional
professional accountant to review
4 - 25
Gifts & hospitality
- Self-interest & familiarity threats
- But depends on the nature, value & intent
behind the offer
- If offer is made in the normal course of
business without specific intent to
influence decision-making or to obtain
information  not a significant threat
- Intimidation threat when there is a
possibility of such offers being made public
- Should not accept any gift/hospitality
unless value is insignificant
4 - 26
Specific situations
Read Chapter 9, pages 646-656
4 - 27
Financial interest (FI)
•
Self-interest threat. But need to evaluate role of person
holding financial interest, materiality of interest, type of
financial interest (direct or indirect), degree of
control/influence over interest
•
For ALL assurance clients:
Member of team or their
immediate family member has a
direct/material indirect FI in
assurance client (even if
received as inheritance or gift)
Sell direct FI, sell indirect FI or
sell enough so that FI is
immaterial, remove member from
team
Close family member with
direct/material indirect FI
Close family member may sell
direct FI/indirect FI or sell
enough so that FI is immaterial,
discuss the matter with those
charged with CG, involve
additional professional accountant
to review work, remove member
4 - 28
from team
Financial interest (Contd.)
1. Partners + immediate
family members outside the
assurance team
2. Partners + managerial
employees providing nonassurance services
3. Individuals who have a
close personal relationship
with a team member
Existence of threat depends
on firm’s organisational,
operating & reporting
structure & nature of
relationship between the
individual & team member.
Policies to restrict people from
holding such interests, discuss
matter with those charged
with governance, involve
additional accountant to
review work.
4 - 29
Financial interest (Contd.)
•
For audit clients: If a firm/network firm has

A direct FI  must sell FI

A material indirect FI  sell FI or reduce to
immaterial level

A material FI in an entity that has a controlling
interest in audit client  sell FI or reduce to
immaterial level
•
Other partners & their immediate family (not on the
audit team), partners & managerial employees who
provide non-assurance services to the client cannot
hold a FI in the audit client
4 - 30
Financial interest (Contd.)
•
For non-audit clients: If a firm/network firm has

A direct FI  must sell FI

An material indirect FI  sell FI or reduce to
immaterial level

A material FI in an entity that has a controlling
interest in non-audit client  sell FI or reduce to
immaterial level
4 - 31
Loans & guarantees
-
Cannot provide or obtain a loan/guarantee to
OR from an assurance client (self-interest
threat)
-
But can obtain loans/guarantees from clients
whose business is that of a lending institution
 must be normal commercial procedures,
and amount of loan is immaterial
-
If loan is material, may reduce self-interest
threat by involving an additional professional
accountant from outside the firm to review
the work performed
• Applies to members of team & their
immediate family
4 - 32
Close business relationships with clients
•
Commercial/common FI  self-interest or
intimidation threats
•
E.g. joint ventures with clients
•
Will be a threat if FI is material and relationship
is significant
•
Only courses action are to:
1. Terminate business relationship
2. Reduce magnitude of relationship
3. Refuse to perform engagement
4. In the case of an individual being involved,
remove him from the team.
4 - 33
Family & personal relationships
• Self-interest, familiarity or intimidation threats
1. Team member + immediate family
member
2. Team member + close family member
3. Team member + any other persons
having a close relationship with team
member
4. Partner/employee of the firm, not a
team member + director/officer/
employee of client
Remove individual
from engagement.
Structure the team
so that individual
does not deal with
matters within the
responsibility of
the person in
question.
…who can exercise significant influence
over the client company
4 - 34
Employment with assurance clients
•
Self-interest, familiarity or intimidation threats
•
When a previous team member is now an employee of
the assurance client
•
Especially when significant connections remain between
the individual & the former firm
•
Threat depends on position of individual now at the
assurance client, amount of involvement he will have
with the assurance team, length of time that has
passed since he was with the assurance team, his
former position at the assurance team
•
Safeguards: modify the assurance plan for the
assurance engagement, assign an assurance team who
have sufficient experience in relation to the individual,
additional professional accountant to review work,
quality control review of engagement.
4 - 35
Employment with assurance clients
(Contd.)
• Further safeguards to reduce threat:
 The individual is not entitled to any
benefits/payments from the firm unless these
are made in accordance with fixed predetermined arrangements
 The individual does not continue to participate
or appear to participate in the firm’s business
or professional activities
• If the former lead engagement partner of the
firm wants to join the BOD of the client, he
must wait for 2 years from the date of the last
assurance report for which he was
responsible.
4 - 36
Recent service with
assurance clients
•
Self-interest, self-review & familiarity threats
•
When an assurance team member was previously
an employee with the assurance client
•
Especially so when the subject matter has been
prepared by him
During the period covered by the
Firm must withdraw
assurance report, a member of the
assurance team had served as
officer/director of the client
Before the period covered by the
assurance report, a member of the
assurance team had served as
officer/director of the client
Involve professional
accountant to review
work, discuss issue with
those charged with
governance
4 - 37
Long association with assurance clients
•
Using same senior personnel on an assurance
engagement over a long period of time
•
Familiarity threat
•
Safeguards:
 Rotate senior personnel
 Additional professional accountant to review work
 Independent internal quality review
•
For listed & public interest companies, rotation of lead
engagement partner after < 5 years; same partner
cannot resume as lead engagement partner until after
2 years
4 - 38
Provision of non-audit services
to client – Accounting services
•
Self-review threat – when the FS are subsequently
audited by the firm
•
CANNOT make management decisions on the
client’s behalf, e.g.
1. Determine/change journal entries or account
classifications without the approval of client
2. Authorising/approving transactions
3. Preparing source documents, valuation assumptions &
making changes to such documents or data.
•
CAN give technical assistance & advice on
accounting principles to promote fair presentation
of FS
4 - 39
Provision of non-audit services
to client – Accounting services
•
For non-listed client, if the threat of self-review is not
clearly significant, should have the following safeguards:
1. Ensure that services are not performed by members of
the assurance team.
2. Have policies/procedures to prohibit individuals providing
such services from making any managerial decisions
3. All source data & underlying assumptions to be
originated by client
4. Obtaining audit client for approval for any proposed
journal entries or other changes affecting the FS
•
For listed audit clients, CANNOT provide accounting
services.
4 - 40
Provision of non-audit services
to client – Taxation services
• Compliance, planning, resolution of tax
disputes, provision of formal tax opinion
• Not a threat
4 - 41
Provision of non-audit services
to client – Internal audit services
•
Self-review threat
•
For listed companies, CANNOT perform internal audit
services.
•
For non-listed companies, if threat is not significant,
safeguards would be to ensure that:
1.
Client is responsible for internal audit activities &
acknowledges its responsibility
2.
Client has designated a competent employee to be
responsible
3.
Audit client & the audit committee approves the scope, risk
& frequency of internal audit work
4.
Client evaluates the adequacy of the internal audit
procedures & the findings
5.
Client ensures that the findings and recommendations are
reported appropriately to the audit committee or BOD.
4 - 42
Provision of non-audit services
to client – IT systems services
•
•





Design and implementation of financial IT
systems that are used to generate information
forming part of a client’s FS  self-review threat
Safeguards - ensuring that audit client:
Is responsible for establishing and monitoring a
system of internal controls
Designates a competent employee to be
responsible
Makes all management decisions with respect to
the D & I process
Evaluates the adequacy & results of the D & I of
the system
Is responsible for the operation of the system
(hardware or software) & the data used or
generated by the system.
4 - 43
Provision of non-audit services
to client – IT systems services (Contd.)
•


•


For listed entity or public interest entity - should
not accept an engagement where:
the systems are important to any significant part
of the accounting system or to the production of
the FS
the engagement would lead to the firm’s personnel
taking decisions which are mgt’s responsibility.
Additional safeguards - ensuring that:
Services performed by personnel with no
involvement in the audit engagement
audit is reviewed by an independent partner to
ensure that the financial IT work performed has
been properly and effectively assessed in the
context of the audit.
4 - 44
Temporary staff assignments
to audit clients
• The lending of staff by a firm to an audit
client
• Self-review threat when the individual is in a
position to influence the preparation of the
FS
• Can be done in an emergency
• But personnel cannot make management
decisions, approve/sign agreements &
exercise discretionary authority to commit
client
4 - 45
Actual/threatened litigation
- Self-interest or intimidation threats
- Client management and the assurance
team must be completely honest with
each other and there must be full
disclosure regarding all aspects of a
client’s business operations.
- The firm and the client’s management
may be placed in adversarial positions
by litigation, affecting management’s
willingness to make complete
disclosures.
4 - 46
Actual/threatened litigation (Contd.)
- Safeguards:
 Disclose to the audit committee or BOD
the extent and nature of the litigation
 If the litigation involves a member of the
assurance team, remove that individual
from the assurance team
 Involve an additional independent
professional accountant to review the
work done
 Withdraw from, or refuse to accept, the
assurance engagement.
4 - 47
Acts Discreditable to the Profession
•
•
•
•
•
•
•
•
•
Retention of client records after a demand is made
for them (except for exercise of right of lien)
Making or permiting or directing another to make
false and misleading entries in the FS or records of
an entity
Assisting clients to evade tax
Issuing any cheque with the intention to defraud
Carrying out his work negligently or incompetently
Commit act that threatens integrity or objectivity
or professional independence
Attesting any statement which he knows to be
false, incorrect or misleading
Found guilty of criminal/civil proceedings before a
Court of law
Declared a bankrupt in a Court of law
4 - 48
Anywhere Pty Ltd
Question 1
• If yes, Mary should advise Anywhere and will work on
her private time
• Not reasonable to receive remuneration and using the
employer’s resources to earn additional income
• Mary chose not to disclose her own business
• Disobeys employer’s policy on e-mail usage
• Clients and employers have the right to receive a
competent service
• Mary’s behaviour is inconsistent with the principles of
integrity and professional competence and due care
• John lacks the necessary experience and skill
4 - 49
Anywhere Pty Ltd
Question 2
• It is alright for Mary to provide her services to willing
clients but must not violate professional and legal
requirements
• Services provided should be of professional standard
and quality
• Integrity?
• Solicitation?
4 - 50
Anywhere Pty Ltd
Question 3
• What are the facts?
• What ethical issues?
• Conflict of interest – employer or clients
• What alternative courses of action?
• What action would you take if you were Mary?
4 - 51
Practice MIA By Law
Tips: 1) Indicate whether MIA by Law has
been violated. Identify the threats.
2) Provide reason why the law was violated.
3) Explain safeguards available.
Practice: Tutorial questions 19-30 (pg. 664)
and 19-33 (pg. 665) of your text book.
4 - 52
Download