CA INTER
AUDITING ETHICS
Question 23
The auditor shall plan and perform an audit with professional skepticism recognizing that
circumstances may exist that cause the financial statement to be materially misstated,
Discuss any four examples of professional skepticism.
Answer:
When to apply
QUESTION 6
AUDIT QUALITY:
PARTICULARS SQC-1 SA 220
SCOPE Deals with quality control
All engagements (including audit,
reviews, and other assurance and Specific to audit engagement
related services)
To a particular audit
To the entire firm
APPLICABILITY engagement
QUESTION 7
SQC 1 :QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS OF HISTORICAL
FINANCIAL INFO AND OTHER ASSURANCE AND RELATED SERVICE
1. LEADERSHIP
SQC 1 requires firms to establish policies and procedures designed to promote an
internal culture based on the recognition that quality is essential in performing
engagements.
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Such policies and procedures should require the firm’s CEO or the firm’s managing
partners to assume ultimate responsibility .
The example set by firm’s leadership encourages an inner culture that recognizes
high quality audit work..
Persons assigned operational responsibilities for the firm’s quality control system
should have sufficient and appropriate
experience,
ability and
the necessary authority to assume that responsibility
2. ETHICAL REQUIREMENTS:
The firm should establish policies and procedures designed to provide it with
reasonable assurance that the firm and its personnel comply with relevant ethical
requirements contained in the Code of ethics issued by ICAI.
The Code establishes the fundamental principles of professional ethics which
include
integrity,
objectivity,
professional competence and due care,
confidentiality and
professional behaviour.
Observance of “Independence” in all engagements is the basic requirement.
The firm should establish policies and procedures designed to provide it with
reasonable assurance that the firm, its personnel and experts maintain
independence where required by the Code.
Such policies and procedures should enable the firm to: -
(a) Communicate its independence requirements to its personnel
(b) Identify and evaluate circumstances and relationships that create threats
to independence, and
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to take appropriate action to eliminate those threats or
reduce them to an acceptable level by applying safeguards, or,
if considered appropriate, to withdraw from the engagement.
All breaches of independence should be promptly notified to firm for appropriate
action
At least annually, the firm should obtain written confirmation of compliance with
its policies and procedures on independence from all firm personnel required to be
independent.
3. Acceptance and Continuance of Client Relationships and Specific Engagements:
A firm before accepting an engagement should acquire vital information about the
client. Such an information should help firm to decide about:
Integrity of Client
Competence (including capabilities, time and resources) to perform engagement
Compliance with ethical requirements.
Note: With regard to the integrity of a client, matters that the firm considers include,
for example: (B2A MAAL)
B - Business reputation of the client’s principal owners, key management, related
parties and TCWG
B - The nature of the client’s operations, including its business practices.
A - Information concerning the attitude of the client’s principal owners, key
management and TCWG
M - Indications that the client might be involved in money laundering or other
criminal activities.
A - Whether the client is aggressively concerned with maintaining the firm’s fees
as low as possible.
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A - The reasons for the proposed appointment of the firm and non-reappointment
of the previous firm.
L - Indications of an inappropriate limitation in the scope of work.
Note 2: If there is any conflict of interest between the firm and client:
It should be properly resolved before accepting the engagement.
Where the firm obtains information that would have caused it to decline an
engagement it should include consideration of:
(a) The professional and legal responsibilities that apply to the circumstances,
including whether there is a requirement for the firm to report to the person
or persons who made the appointment or, in some cases, to regulatory
authorities; and
(b) The possibility of withdrawing from the engagement or from both the
engagement and the client relationship.
4. Human resources:
The firm should establish policies and procedures designed to provide it with
reasonable assurance that it has sufficient personnel with the capabilities,
competence, and commitment to ethical principles necessary to perform its
engagements in accordance with
professional standards and
regulatory and legal requirements and to
enable the firm or engagement partners to issue reports that are appropriate
in the circumstances.
Such policies and procedures should address relevant HR issues including
recruitment,
compensation,
training,
career development,
performance evaluation
professional development of firm’s personnel.
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4. Engagement Performance : (PAR2C2)
P - Unless otherwise specified by law or regulation, engagement documentation is
the property of the firm.
The firm may, at its discretion, make portions of, or extracts from, engagement
documentation available to clients, provided such disclosure does not undermine
the validity of the work performed.
A - The firm should establish policies and procedures for engagement teams to
complete the assembly of final engagement files on a timely basis.
The assembly of engagement files should be completed in not more than 60
days after date of auditor’s report
R1 - Significant judgments made in an engagement should be reviewed by an
engagement quality control reviewer for taking an objective view before the
report is issued.
The extent of the review depends on the
complexity of the engagement and
the risk that the report might not be appropriate in the circumstances.
The review does not reduce the responsibilities of the engagement
partner.
Engagement quality control review is mandatory for all audits of
financial statements of listed entities.
There might be difference of opinion within engagement team, with
those consulted and between engagement partner and engagement
quality control reviewer.
The report should only be issued after resolution of such differences. The
matter should be resolved by following established procedures of firm like
by consulting with another practitioner or firm, or a professional or
regulatory body.
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R2 - Engagement documentation has to be retained for a period of time no shorter
than seven years from the date of the auditor’s report, or, if later, the date
of the group auditor’s report.
C1 - Consultation should take place in difficult or contentious matters. Consultation
includes discussion, at the appropriate professional level, with individuals
within or outside the firm who have specialized expertise
C - Policies and procedures should be designed to maintain the confidentiality,
safe custody, integrity, accessibility and retrievability of engagement
documentation.
5. Monitoring:
The firm should ensure that policies and procedures relating to the system of
quality control are relevant, adequate, operating effectively and complied with in
practice.
Such policies and procedures should include an ongoing consideration and evaluation
of the firm’s system of quality control, including a periodic inspection of a selection
of completed engagements
QUESTION 8
SA 220:
1. LEADERSHIP RESPONSIBILITIES FOR QUALITY WITHIN THE FIRM:
The engagement partner shall take responsibility for the overall quality on each
audit engagement to which that partner is assigned.
(a) He shall deliver the following messages to the audit team clearly :
Performing work that complies with professional standards and
regulatory and legal requirements
Complying with the firm’s quality control policies and procedures as
applicable
Issuing auditor’s reports that are appropriate in the circumstances;
and
The engagement team’s ability to raise concerns without fear of reprisals
(b) The fact that quality is essential in performing audit engagements.
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2. RELEVANT ETHICAL REQUIREMENTS:
The responsibilities of an engagement partner in relation to ethical requirements in an
audit engagement are as under
Identifying a threat to Reporting by engagement partner to
independence regarding the audit the relevant persons within the firm
engagement that safeguards may to determine appropriate action,
not be able to eliminate or reduce which may include eliminating the
to an acceptable level. activity or interest that creates
the threat, or withdrawing from
the audit engagement, where
withdrawal is legally permitted.
3. ACCEPTANCE AND CONTINUANCE OF CLIENT RELATIONSHIPS AND AUDIT
ENGAGEMENTS:
Information such as the following assists the engagement partner in determining
whether the conclusions reached regarding the acceptance and continuance of client
relationships and audit engagements are appropriate: (C2SI)
C - Whether the engagement team is competent to perform the audit engagement
and has the necessary capabilities, including time and resources
C - Whether the firm and the engagement team can comply with relevant ethical
requirements
S - Significant matters that have arisen during the current or previous audit
engagement, and their implications for continuing the relationship
I - The integrity of the principal owners, key management and those charged
with governance of the entity
4. ASSIGNMENT OF ENGAGEMENT TEAMS :
It should be ensured by engagement partner that the engagement team and any auditor’s
experts who are not part of the engagement team, collectively have the appropriate
competence and capabilities to perform the engagement in accordance with
professional standards and
regulatory and legal requirements
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5. ENGAGEMENT PERFORMANCE:
Engagement partner is also responsible for ensuring undertaking appropriate
consultation on difficult or contentious matters by engagement team not only
within the team but also with others at appropriate level within or outside the
firm.
For audits of FS of listed entities, and those other audit engagements, if any, for
which the firm has determined that an EQCR is required, the engagement partner
shall:
(a) Determine that an engagement quality control reviewer has been appointed.
(b) Discuss significant matters arising during the audit engagement, including
those identified during the engagement quality control review, with the
engagement quality control reviewer.
(c) Not date the auditor’s report until the completion of the engagement quality
control review.
If differences of opinion arise within the engagement team, with those consulted
or, where applicable, between the engagement partner and the engagement quality
control reviewer, the engagement team shall follow the firm’s policies and procedures
for dealing with and resolving differences of opinion.
6. MONITORING:
The engagement partner should document following matters pertaining to an audit
engagement:
(a) Issues identified with respect to compliance with relevant ethical requirements
and how they were resolved.
(b) Conclusions on compliance with independence requirements that
(c) Conclusions reached regarding the acceptance and continuance of client
relationships and audit engagements.
(d) The nature and scope of, and conclusions resulting from, consultations
undertaken during the course of the audit engagement.
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