Although Ethical Standards for Auditors have been around for some years, there are still areas where auditors commonly struggle to consider and safeguard threats to their independence, as QAD reviewers Nick Reynolds and Henrietta Thompson outline.
Like all ICAEW members, auditors are expected to demonstrate the highest standards of professional conduct. It is not enough to believe you are behaving ethically, or even to behave ethically – you must also demonstrate this at every stage of the audit process.
Usually, most auditors are comfortable with the concepts outlined in Ethical Standard (ES) 1 Integrity, objectivity and independence, and the need for threats to be considered and for safeguards to be applied. However, during QAD monitoring visits reviewers find some areas where financial, business, employment and other relationships raise problems repeatedly.
Relationships between audit clients, partners, staff and their immediate and close family members can create significant ethical challenges. Although QAD doesn’t often find auditors whose partners or staff are themselves directors or shareholders in audit clients, this is not unheard of. More commonly, QAD encounters circumstances where relationships are not prohibited, but the threats need to be considered and safeguarded: for example, if partners or staff may have brothers or sisters who are audit clients. This is permitted, provided you can demonstrate that you have considered the threats and implemented safeguards, where necessary, to ensure that you are independent...
This is an extract from an article in the October 2014 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.
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