The IFAC international Ethics Standards Board for Accountant (IESBA) Code of Ethics for Professional Accountants set out the five fundamental principles of professional ethics and provides a conceptual framework for applying those principles. Professional Accountants must apply this conceptual framework to identify threats to compliance with the principles, evaluate their significance and apply appropriate safeguards to eliminate or reduce them so that compliance is not compromised.
Required:
Identify FIVE major threats identified in the code of ethics giving examples of each. (5 marks)
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Compliance with these fundamental principles may potentially be threatened by broad range of circumstances. Many threats fall into the following categories:
- Self-interest threats
This may occur as result of the financial or other interest of a professional accountant or of an immediate or close family member. Examples of circumstances that may create self-interest include:
Financial interest in a client or jointly holding a financial interest with a client
Undue dependence on total fees from a client
Having a close business relationship with a client
Concern about the possibility of losing a client
Potential employment with the client
Loan to or from an assurance client or any of its directors. - Self-review threats
This may occur when a previous judgment needs to be re-evaluated by the accountant originally responsible for that judgment. Example of circumstances that may create self-review threats include, but not limited to:
The discovery of a significant error during a re-evaluation of the work of the professional accountant
Reporting on the operation of financial systems after being involved in their design or implementation.
Having prepared the original data used to generate records that are the subject matter of the engagement
A member of the assurance team being or having recently been, employed by the client in a position to exert direct and significant influence over the subject matter of the engagement.
A member of the assurance team being, or having recently been, a director or officer of that client
Performing a service for a client that directly affects the subject matter of the assurance engagement. - Advocacy threats
This may occur when an accountant promotes a position or opinion to the point that subsequent objectivity may be compromised. Examples of circumstances that may create advocacy threats include, but not limited to:
Promoting shares in a listed entity when that entity is a financial statement audit client.
Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties. - Familiarity threats
This may occur when, because of a close relationship, a professional accountant becomes too sympatric to the interests of others. Examples of circumstances that may create familiarity threats include, but not limited to:
A member of the engagement team having a close or immediate family relationship with a director or officer of the client
A member of the engagement team having a close or immediate family relationship with an employee of the client who is in position to exert direct and significant influence over the subject matter of the engagement.
A former partner of the firm being a director or officer of the client or an employee in a position to exert direct and significant influence over the subject matter of the engagement.
Accepting gift or preferential treatment from a client, unless the value is clearly insignificant.
Long associate of senior personnel with the assurance client. - Intimidation threats
This may occur when a professional accountant may be deterred from acting objectively by threats, actual or perceived. Examples of circumstances that may create intimidating threats include, but not limited to:
Being threatened with dismissal or replacement in relation to a client engagement
Being threatened with litigation
Being pressured to reduce inappropriately the extent of work performed in order to reduce fees.