Audit Snapshot: Code of Ethics 2020 Edition

Summary

The video discusses ethical threats faced by professional accountants, particularly during audits. Key threats include self-interest, self-review, familiarity, advocacy, and intimidation. Each threat is illustrated with examples, such as accepting gifts from clients leading to multiple ethical risks. The speaker emphasizes the importance of the conceptual framework to identify, evaluate, and respond to these threats. A rotation policy is mentioned to mitigate familiarity threats, ensuring objectivity. The session concludes with an invitation for viewers to engage in multiple-choice questions to practice their understanding of the code of ethics.

Takeaways

• 😀 The Philippines adheres to the 2020 Edition of the IESBA Code of Ethics, despite a newer 2023 version being available.
• 📚 The Code of Ethics consists of four parts: compliance with the code, professional accountants in business, professional accountants in public practice, and international independence standards.
• 🔑 The Code emphasizes five fundamental ethical principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.
• ⚖️ The conceptual framework requires professional accountants to identify, evaluate, and address threats to their ethical principles, rather than providing a strict checklist.
• 📊 Part two of the Code covers professional accountants in business, focusing on the employer-employee relationship.
• 🏢 Part three addresses professional accountants in public practice, distinguishing their role in assurance engagements.
• 💼 Independence is crucial for assurance engagements, with varying requirements based on the type of engagement.
• 🔍 The five threats to ethical principles include self-interest, self-review, familiarity, advocacy, and intimidation threats.
• 💡 Examples of threats can overlap; a single situation may present multiple ethical challenges for the accountant.
• 🎓 Continuous professional development is vital for maintaining professional knowledge after attaining competence.

Q & A

What is a self-interest threat in accounting?

A self-interest threat occurs when an accountant's personal interests conflict with their professional duties, leading to potential bias in decision-making.

Can you provide examples of situations that might lead to a self-interest threat?

Examples include contingent fees, promises of future employment with a client, or accepting gifts that may influence professional judgment.

What is a self-review threat?

A self-review threat arises when an accountant evaluates their own previous work, which can compromise objectivity and lead to biased assessments.

How can familiarity threats affect an accountant's objectivity?

Familiarity threats occur when an accountant becomes overly sympathetic to a client's interests due to a close relationship, potentially impacting their impartiality in judgment.

What are the mandated rotation periods for auditors to mitigate familiarity threats?

The lead audit engagement partner must rotate every 7 years, and there is a 5-year cooling-off period before they can return to the same client.

What constitutes an advocacy threat in the accounting profession?

An advocacy threat occurs when an accountant promotes a client's position to the extent that their objectivity is compromised, such as acting as a broker for a client.

What is an intimidation threat and how might it manifest?

An intimidation threat happens when an accountant feels pressured to act unethically, such as threats of dismissal or being removed from an engagement.

Can a single scenario lead to multiple ethical threats?

Yes, a single situation can give rise to multiple threats. For example, accepting extravagant gifts can result in self-interest, familiarity, and intimidation threats.

Why is the application of the conceptual framework important for accountants?

The conceptual framework helps accountants identify, evaluate, and respond to potential ethical threats, ensuring adherence to professional standards.

How can practicing multiple-choice questions enhance understanding of ethical threats?

Engaging in multiple-choice questions allows accountants to apply theoretical knowledge to practical scenarios, reinforcing their understanding of ethical frameworks.