c) Mr. Odorkor Asare is a partner of Fobes Chartered Accountants, an auditing firm. Mr. Asare was informed by the other partners to take a “compulsory leave” because he was in breach of the firm’s independence rules as his wife was the Finance Director of Millenium Insurance (an audit client). He was to resume after completion of the audit. Mr. Asare was disturbed by this notice even though he was not the reporting partner.
Required:
Discuss the stance taken by the other partners of the firm and its effect on the objectivity of Fobes Chartered Accountants. (3 marks)
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A family relationship between an auditor and the client can substantially affect the objectivity of the audit, so auditors are advised not to build close personal relationships with audit clients and should not audit a company where family are employed in a capacity which is sensitive to the accounts, for example finance department, although this is not prohibited by law.
In this stance, the partner was not the reporting partner for the audit client in which the wife was the Finance Director. According to generally accepted ethical practice then, the firm appeared to be independent of the audit client, if the related partner did not have anything to do with the audit.
d) A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest a professional accountant should observe and comply with the ethical requirements of the IFAC’s Code of Ethics. All accounting professionals are responsible for acting in the public interest, and for promoting professional ethics.
Required:
Comment on the implications of compliance or non-complianceof the ethical code of conducts by professional accountants. (6 marks)
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Code of Ethics
- Every professional accountant has a moral obligation to comply with the ethical code of conduct of the accountancy profession. Professional ethics is an inherent part of the profession.
- Professional accountants are required to adhere to a set of fundamental principles in the course of their professional duty. These principles are confidentiality, objectivity, professional behaviour, integrity and professional competence and due care. The main aim of professional ethics is to serve as a moral guideline for professional accountants. (2 marks)
Compliance
- Compliance with this set of ethical guidelines implies that the accountant is able to decide on the most appropriate course of action, which will be in line with the professional body’s stance on ethics.
- The presence of a code of ethics is a form of declaration by the professional body to the public that it is committed to ensuring the highest level of professionalism amongst its members. (2 marks)
Non-Compliance
- Non-compliance with these principles give room to a lack of confidence in the financial reporting process.
- Non-compliance can also imply that the actions of professional accountants can be judged to be deceptive, unethical and unfair. It violates the trust relationship of the stewardship function. (2 marks)