1. Auditing & Investigations I
Professional Ethics

2. Key issues Fundamental Principles of Professional Ethics
Accepting audit appointments.
Agreeing the terms of the Engagement.

3. Branches of Accountants
Accountants in Practices (Auditors) – These provides assurance to accounting information prepared by accountants in business.
Accountants in Business (Industry and Commerce – These are involved in measuring, preparing and reporting economic activities of business or companies they work for (also known as salaried employees)

4. 1. Fundamental Principles of Professional Ethics
IFAC’s IESB provide 5 fundamental principles in the Code of Ethics for professional Accountants
Integrity – Accountants are expected to be straightforward and honest in all professional and business relationships.
Objectivity – Accountants should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

5. 1. Fundamental Principles
3. Professional Competence and Due Care – to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional services based on current developments in practice, legislation and techniques and act diligently and in accordance with applicable technical and professional standards.

6. 1. Fundamental Principles
4. Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the professional accountant or third parties.

7. 1. Fundamental Principles
5. Professional Behaviour – to comply with relevant laws and regulations and avoid any action that discredits the profession.

8. 1.2. Threats to fundamental Principles
Self Interest Threats – the threats that a financial or other interest will inappropriately influence the professional accountant’s judgement or behaviour;
Self Review threat – the threat that a professional accountant will not appropriately evaluate results of a previous judgement;
Advocacy Threat – the threat that a professional accountant will promote a client’s or employer’s position to the point that objectivity is compromised.

9. Cont..
Familiarity threats – The threat that due to long or close relationship with a client or employer, professional accountant be too sympathetic to their interest or too accepting to their work;
Intimidation - the threat that professional accountant will be deterred from acting objectively because of actual or perceived pressures.

10. 2.Accepting the Appointment
The present and proposed auditors must communicate with each other prior to the audit being accepted;
If the client refuses to give permission to the proposed auditors to make contact, the proposed auditors must decline nomination.

11. 2.1. Tendering and Obtaining work
Any advert should not be misleading; fall short of local regulatory or legislative requirements; or discredit the work of others, or bring disrepute to the profession.
Fee negotiation and low balling – auditor are expected to provide services that match the priced charged. Low baling is not allowed.
Auditors should consider ethical issues and independence before obtaining work from a particular client.

12. 2.2. Before accepting Appointment
Ensure professionally qualified to act
Consider whether they could be disqualified on legal or ethical
grounds
Ensure existing resources adequate
Consider available time, staff and technical expertise
Obtain references
Make independent enquiries if directors are not personally
known
Communicate with present auditors
Enquire whether there are reasons/circumstances behind the
change which the new auditors ought to know, also as a
courtesy

13. 2.3. After Accepting
Ensure that the outgoing auditors' removal or resignation has been properly conducted in accordance with national legislation. The new auditors should see a valid notice of the outgoing auditors' resignation, or confirm that the outgoing auditors were properly removed.
Ensure that the new auditors' appointment is valid. The new auditors should obtain a copy of the resolution passed at the general meeting appointing them as the company's auditors.
Set up and submit a letter of engagement to the directors of the company. Letters of engagement are discussed in the next section.

14. Client Screening
Common Criterial
Management integrity – is the company controlled by a one or few dominant personalities.
Risk – Low risk (good long term prospects, well financed, strong internal controls, professional mgt) and High risk (lack of finance, lack of finance professionals, questionable mgt)
Engagement Economics – expected fees from the client should reflect risk associated with client.
Relationship with client – Independence.
Ability to perform the work – skills and expertise availability.

15. 3. Agreeing with the term of Engagement
The terms of the audit engagement should be agreed with management and recorded in an audit engagement letter.
ISA210 - states the auditor should accept or continue an audit engagement only when the basis on which it is to be carried out has been agreed.
The auditors should establish whether the preconditions for an audit are present and confirming that there is a common understanding between the auditor and how the terms are going to be management.

16. 3.1. Preconditions Agreeable financial reporting framework.
Management’s knowledge and understanding of their responsibilities on: (a) Preparing financial statements, (b) Internal controls, (c) providing access to all necessary information required by the auditor.

17. 3. 2. Engagement letter
The auditor shall agree the terms of the engagement with management or those charged with governance.
This shall be provided in form of an engagement letter.
The letter help to avoid misunderstandings regarding the audit assignment.

18. Key contents of an EL The objective and scope of the audit
The auditor's responsibilities
Management's responsibilities
Identified financial reporting framework for the preparation of the financial statements
The expected form and content of any reports to be issued by the auditor and a statement that there may be circumstances in which a report may differ from its expected form and content

19. Additional Matters
Elaboration of scope of audit (ref – ISAs, ethical matter)
Form of communication
Limitations (Acknowledging that unavoidable risk that some material misstatements may not be detected)
Arrangements regarding planning and performance
Written representation requirements from management
Fees and billing
Involvement of other auditors, experts, internal auditors and staff.
Auditors’ liability
Any obligation to provide working papers to others parties.

20. 3.2. Changes to terms
There instances where terms of engagement may change.
The auditor shall not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so.
E.G. Where the auditor could not obtain sufficient appropriate audit evidence for receivables and is then asked to change the engagement from an audit to a review so as to avoid a modification of the auditor's opinion.

21. Guidance
Where changes to the terms of engagement have been agreed and effected, the auditor should cease to apply the original terms of engagement.

22. Thank for your attention
End
Thank for your attention