Institute of Financial Accountants (IFA) Qualifications Audit, Assurance and Professional Ethics Flashcards

24 sample cards from the Audit, Assurance and Professional Ethics deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What are Key Audit Matters (KAM) and which engagements require them?

   Those matters that, in the auditor's professional judgement, were of most significance in the audit of the current period's financial statements. Required for audits of listed entities and where otherwise agreed/required.

2. What is the difference between an 'Emphasis of Matter' and an 'Other Matter' paragraph?

   Emphasis of Matter draws attention to a matter appropriately presented/disclosed in the financial statements that is fundamental to users' understanding (opinion unmodified). Other Matter refers to a matter not presented/disclosed in the financial statements but relevant to users' understanding of the audit or auditor's responsibilities.

3. What must the auditor communicate to those charged with governance (ISA 260)?

   The auditor's responsibilities, the planned scope and timing of the audit, significant findings (including significant difficulties, deficiencies in internal control, qualitative aspects of accounting practices), and auditor independence (for listed entities).

4. What is the difference between communicating with those charged with governance and reporting deficiencies to management (ISA 265)?

   Significant deficiencies in internal control must be communicated in writing to those charged with governance on a timely basis; other (lesser) deficiencies of sufficient importance may be communicated to management, often via a management letter.

5. List the five fundamental principles of professional ethics (IESBA/ICAEW/IFA Code).

   Integrity, Objectivity, Professional competence and due care, Confidentiality, and Professional behaviour.

6. Define the fundamental principle of integrity.

   To be straightforward and honest in all professional and business relationships; it implies fair dealing and truthfulness.

7. Define the fundamental principle of objectivity.

   Not to compromise professional or business judgements because of bias, conflict of interest or undue influence of others.

8. What does professional competence and due care require?

   Attaining and maintaining professional knowledge and skill at the level required to ensure competent professional service based on current developments, and acting diligently and in accordance with applicable technical and professional standards.

9. When may a professional accountant disclose confidential client information?

   When disclosure is permitted by law and authorised by the client, required by law (e.g. evidence in legal proceedings, money laundering reports), or there is a professional duty/right to disclose where not prohibited by law (e.g. to comply with quality reviews or defend in litigation).

10. Name the five categories of threat to compliance with the fundamental principles.

    Self-interest threat, self-review threat, advocacy threat, familiarity threat, and intimidation threat.

11. Define a self-review threat and give an example.

    The threat that an accountant will not appropriately evaluate the results of a previous judgement or service they (or their firm) performed. Example: auditing financial statements that include figures the firm prepared (e.g. providing accounting/bookkeeping services then auditing them).

12. Define an advocacy threat and give an example.

    The threat that an accountant will promote a client's position to the point that objectivity is compromised. Example: acting as an advocate for an audit client in litigation or promoting its shares in a securities offering.

13. Define a familiarity threat and give an example.

    The threat that, due to a long or close relationship, an accountant will be too sympathetic to a client's interests or too accepting of their work. Example: a long association of senior personnel with the audit client, or a close family member in a key role at the client.

14. Define an intimidation threat and give an example.

    The threat that an accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence. Example: threat of dismissal or litigation, or pressure to reduce fees inappropriately.

15. What are the two broad categories of safeguard against ethical threats?

    Safeguards created by the profession, legislation or regulation (e.g. CPD requirements, professional standards, external monitoring), and safeguards within the firm and engagement (e.g. policies, second partner review, rotation, independent EQR).

16. What is independence in the context of assurance engagements, and its two aspects?

    Independence is freedom from conditions that threaten objectivity. Independence of mind (the state allowing an opinion without compromise) and independence in appearance (avoidance of facts/circumstances so significant a reasonable third party would conclude integrity/objectivity is compromised).

17. How long can a key audit partner act for a listed/PIE audit client before rotation, and why?

    Generally a maximum of 7 years, after which a 'cooling-off' period applies (e.g. 5 years for the engagement partner under the FRC/IESBA rules), to mitigate the familiarity and self-interest threats.

18. Why are contingent fees prohibited for audit and assurance engagements?

    A contingent fee (where the fee depends on the outcome) creates a significant self-interest threat to objectivity and independence that no safeguard could reduce to an acceptable level.

19. What is the risk when fees from one audit client are a large proportion of a firm's total fees?

    A self-interest and intimidation threat from fee dependency. For listed/PIE clients, where total fees exceed certain thresholds (e.g. 15% of the firm's total fees for two consecutive years), disclosure to those charged with governance and an independent (pre- or post-issuance) review are required.

20. Why must an auditor not own shares in an audit client?

    A direct financial interest creates a self-interest threat to independence so significant that no safeguard can reduce it to an acceptable level; the interest must be disposed of or the engagement declined.

21. What is the conceptual framework approach to resolving ethical issues?

    Identify threats to compliance with the fundamental principles, evaluate their significance, and apply safeguards to eliminate them or reduce them to an acceptable level; if this is not possible, decline or discontinue the engagement/service.

22. What steps should an accountant take to resolve an ethical conflict?

    Consider the relevant facts, ethical issues, fundamental principles and established internal procedures; consult on a confidential basis with those charged with governance or the professional body; and if unresolved, consider obtaining legal advice and, where appropriate, withdrawing from the engagement or employment.

23. What is the auditor's obligation under money laundering regulations regarding suspicious activity?

    To report knowledge or suspicion of money laundering to the firm's Money Laundering Reporting Officer (MLRO) or relevant authority, and to avoid 'tipping off' the client. This overrides the duty of confidentiality.

24. What is professional scepticism and why is it required throughout the audit?

    An attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence; it counters bias and the risk of management override and over-reliance on representations.

What this deck covers

Audit, Assurance and Professional Ethics flashcards FAQ