IFAC’s code of ethics
Business risk refers to anything that threatens the ability of a business to achieve its financial target. Examples of business risks include competition from other companies which makes the company lose potential opportunities, lack of experienced personnel and lack of adequate technology to market its products.
The main objective of external audit is to allow the auditor perform the audit on financial statement objectively and independently and then issue an opinion as to whether: The company financial statement of the business prepared by the management present the true and fair view of the company and whether the financial statements of the company are prepared in accordance to the set financial reporting standard. To achieve these objectives the external auditor should adhere to international financial reporting standards as well as the internal control systems of the company.
Non-n=statutory audit report refers to any audit done by a company but not legally required. The benefits of non-statutory audit include;
Flexibility in report
This type of audit is not limited to reporting of financial performance, instead, it covers all business operations. The non-statutory audit can help the management identify different challenges affecting the business hence enabling them to make prudent decisions. The non-statutory present a detailed report on company operation considering it is not limited to financial reporting.
Verification
The non-statutory audit helps the company verify its financial statement and other data before complete a deal. Verified information can, therefore, be used as the basis of negotiation.
Limitations
The cost involved in the audit is very high. Engagement of the non-statutory audit increases the cost involved in business operations.
Non-statutory audit results in the disruption of staff during the audit. Employees are required to support the external auditor through the provision of supporting documents as well as answering questions.
Confidentiality form one of the most important codes of ethic required by the accountant as well as the auditor. Accountants have a professional obligation to protect the financial information of the company by avoiding unauthorized disclosure. Arnold breaches this code of ethics by disclosing company information to one of his relatives (third party) without the knowledge engagement partner.
IFAC’s code of ethics
Integrity
IFAC Code of ethics requires a professional accountant to be honest and straightforward in all business and professional relationships. Arnold should always observe integrity when performing all his duties in the company.
Objectivity
A professional accountant should not allow undue influence, conflict of interest or bias when making the business judgment. The accountant should observe objectivity when making all business or professional judgment.
Professionalism
As an accountant, Arnold is required to comply with the relevant regulations and laws to avoid actions that may discredit the accounting profession. A professional accountant should avoid engaging in activities, occupations or businesses that might impair the objectivity, integrity or the good reputation of the accounting profession.
Due care and professional competence
A professional accountant has the responsibility of maintaining professional skills and understanding at all levers to make sure an employer or business client receives professional services based on dynamic development in techniques, practices, and legislation. A professional accountant is supposed to be diligent by acting in accordance with applicable professional and technical standards through the provision of professional services.
Categories of safeguards to ethical threats
To minimize ethical threat in accounting professional the safeguards categories include;
- Safeguards established by the regulation, legislation, and profession
- Safeguards in the work environment.
Threats to the independence of auditors
- Self-interest threats
- Self-review threats
- Advocacy threats,
- Familiarity threats
CPD refers to continuing professional development. CPD describes the learning activities accountancy professionals and accountants engage in to enhance and develop their potentials. CPD ensures that accountants enhance and maintain the understanding and skill they require to provide professional services to their clients, customers, and stakeholders. CPD ensures the accountant has the relevant and up to date knowledge and skills.
The matters to consider before accepting the engagement as auditors for Hugh Plc
Before accepting the engagement, an auditor should evaluate whether acceptance of the relationship would allow any risk to compliance with basic principles and standards. Potential threats to professional behavior and integrity may exist during the engagement. This means before engaging Hudg PLC the audit firm is required to investigate the business activities of the client to determine the presence of integrity questions associated with the client which would create unacceptable risk.
Identification of two (2) reasons why is it important to understand your client Hugh Plc
- Investigation of the company activities is done so that to know your client’s due diligence procedures.
- Understanding the client will help comply with anti-money laundering regulations.
Auditor’s responsibility with regards to the detection of fraud
- Auditors are not responsible for error detection, however, they are responsible for ensuring their client has sound internal control and control environment that would detect and prevent fraud. Auditor responsibility in relation to fraud is explained by ISA 240. The role of the auditor involves
- Identification and assessment of the risk of material misstatement as a result of fraud.
- The auditor has the responsibility of assessing and identifying the material misstatement of the company’s financial statement caused by fraud.
- Give appropriate responses to fraud suspected or identified during the audit.
- To obtain appropriate and sufficient audit evidence in relation to material misstatement risk due to fraud.
Duties of the directors of Hugh Plc in relation to governance
- Provide continuity for the company
- Support and review the performance of the executive
- Appoint the Chief executive office
Rights of an auditor
The rights of an auditor include:
- Right to access the company financial records
- Right to receive financial record explanation from the staffs of the company
- The right to receive general meets notice.
- The right to claim remuneration.