Auditors should not allow their judgment to be
swayed by the receipt of a commission, fee or other reward from a third party
as a result of advising a client to pursue one course rather than another. If a
commission is to be received the accountant should either give it to the client
or, with the client’s express or implied
swayed by the receipt of a commission, fee or other reward from a third party
as a result of advising a client to pursue one course rather than another. If a
commission is to be received the accountant should either give it to the client
or, with the client’s express or implied
consent, retain it. If it is to be
calculated, should be disclosed to the client. The client must assent to its
retention.
Audit firms should review their relationship with
every client on an annual basis to determine if it is proper to accept or
continue an audit engagement, bearing in mind actual or apparent threats to
audit objectivity.
every client on an annual basis to determine if it is proper to accept or
continue an audit engagement, bearing in mind actual or apparent threats to
audit objectivity.
Warnings are included in the ethical guides of the
professional bodies of the risks to objectivity in performing non audit
services, but these all fall a long way short of prohibition. The real question
is whether an audit firm can offer a totally dispassionate opinion if it and/or
an associated firm are supplying services like:
professional bodies of the risks to objectivity in performing non audit
services, but these all fall a long way short of prohibition. The real question
is whether an audit firm can offer a totally dispassionate opinion if it and/or
an associated firm are supplying services like:
·
bookkeeping;
bookkeeping;
·
preparing
the annual accounts;
preparing
the annual accounts;
·
taxation;
taxation;
·
advice on
company secretarial matters;
advice on
company secretarial matters;
·
management
consultancy;
management
consultancy;
·
obtaining
staff;
obtaining
staff;
·
selecting
computer systems;
selecting
computer systems;
·
litigation
support;
litigation
support;
·
Corporate
financial advice e.g. on capital raising or takeovers.
Corporate
financial advice e.g. on capital raising or takeovers.
Generally the rules require a separation of the
staff providing advisory services from those carrying out the audit. There
should be a system of what have become known as ‘Chinese walls’ within the accounting
firm to ensure that information disclosed in an advisory capacity is not
revealed to audit staff and vice versa.
staff providing advisory services from those carrying out the audit. There
should be a system of what have become known as ‘Chinese walls’ within the accounting
firm to ensure that information disclosed in an advisory capacity is not
revealed to audit staff and vice versa.
This may seem perverse, but it retains the independence
of each set of staff to carry out their defined roles as if they were from separate
firms and not merely different departments of the same firm.
of each set of staff to carry out their defined roles as if they were from separate
firms and not merely different departments of the same firm.
This does pose difficulties to very small firms,
but they have to find a way of abiding by these principles and retaining their
objectivity and independence. In most cases small firms carry out little or no
statutory audit work because of the size limits on firms which no longer have a
statutory audit.
but they have to find a way of abiding by these principles and retaining their
objectivity and independence. In most cases small firms carry out little or no
statutory audit work because of the size limits on firms which no longer have a
statutory audit.
It is understood that the nature of preparing
complex accounts must necessarily require that some services (e.g. finalizing
the financial statements) should be performed by the auditors. However, any
such assistance should be solely of a technical or mechanical nature and any
advice given must be of an informative nature only.
complex accounts must necessarily require that some services (e.g. finalizing
the financial statements) should be performed by the auditors. However, any
such assistance should be solely of a technical or mechanical nature and any
advice given must be of an informative nature only.
The auditor can advise on issues but must not tke
part in making any management decisions. The overriding rule is that the
auditor should not be involved in decision-making and, where there is a threat
to independence, the risk has to be reduced to an acceptable level.
part in making any management decisions. The overriding rule is that the
auditor should not be involved in decision-making and, where there is a threat
to independence, the risk has to be reduced to an acceptable level.
