Question Tag: Ethical Issues

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  • 20 Marks

AAA – May 2022 – L3 – Q4 – Ethical Issues in Auditing

Discuss correspondence with previous auditors, reasons for change in appointments, and client identification under AML regulations.

The idea to incorporate Peters & Shamsudeen Haulages Limited was mooted in London and it was incorporated on the return of Alhaji Shamsudeen to Nigeria. He met Peters during his stay in the UK. They had a good relationship which started in a coffee shop. As they met regularly in this shop, what to do on Alhaji Shamsudeen’s return to Nigeria became the subject of discussion. Based on their experiences, the idea of Peters & Shamsudeen Haulages Limited was birthed. Alhaji Shamsudeen subsequently returned to Nigeria, incorporated the company, obtained the appropriate expatriate quota, and Mr. Peters came in and started running the company.

On commencement, Sejumade Uzoma & Co was appointed the company’s external auditors. Whilst Mr. Peters was around, there was a good working relationship between the company and the audit firm.

After about nine years, Mr. Peters returned to the UK, leaving the company in the hands of Alhaji Shamsudeen. Subsequently, Sejumade Uzoma & Co started receiving complaints from Alhaji Shamsudeen and his key accounting staff. These complaints were rife even before the ninth month of the current year that Sejumade Uzoma & Co. decided not to continue with the engagement. The audit fee for the previous year had about thirty percent outstanding at this stage.

This was the position when Alhaji Shamsudeen approached your partner at Musa, Edewo & Co. (Chartered Accountants). Their discussion was fruitful for your firm, hence it was agreed by the partners that full professional procedures would be applied as normal. Part of the information available on interaction is that the year is almost ending, and there was uncertainty about the firm that will do the audit before the engagement of your firm. You have the responsibility of assisting your partner in ensuring that proper documentations would be done without any compromise.

Required:

a. According to professional requirements, discuss the issues your firm is expected to address in her correspondence with Sejumade Uzoma & Co. (10 Marks)

b. Evaluate the various circumstances that would lead to change in professional appointment. (5 Marks)

c. In consideration of the client, analyze the procedures necessary for proper client identification in accordance with anti-money laundering requirements. (5 Marks)

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  • 8 Marks

CR – May 2023 – L3 – Q1b – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss IFRS 9 rules on derecognition of financial assets, apply these rules to factoring, and analyze ethical implications of falsifying a land sale.

The directors of Omi PLC reviewed the group statement of financial position as of November 30, 2020. Concerned about meeting future loan agreements, they proposed the following actions to improve liquidity:

  1. Factoring of Receivables:
    • Factoring N400 million of receivables.
    • 80% cash is received immediately (N320 million), and the factoring company charges N32 million.
    • The balance will be paid 30 days later.
  2. Adjusting Financial Statements:
    • The executive director suggested falsifying financial statements to show that land located in Ikoyi was sold before year-end to improve liquidity.

Required:

  • Discuss the rules of IFRS 9 – Financial Instrument on derecognition of financial assets.
  • Apply these rules to factoring in part (1).
  • Discuss the ethical implications of falsifying the sale of land in part (2).

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  • 15 Marks

AAA – Nov 2012 – L3 – SB – Q1 – Ethical Issues in Auditing

This case examines ethical issues in auditing related to fraudulent practices in a company involved in human trafficking.

You have just been appointed the Auditor of Sheerahmog Manufacturing Company Limited, which manufactures 2.0 ml syringes specifically used by veterinary doctors. Recently, it was discovered that the 2.0 ml syringes are used on human beings due to the shortage of syringes for human use.

The Federal Government has decided to phase out the 2.0ml syringe in the next three years. In order to diversify into production of carbonated water, the Finance Director suggested that the company approach a bank for a complementary N1.26 billion required to finance the diversification program.

In spite of their proposal and cashflow to Bank of Akowonjo Plc, which was described as being fantastic, their loan application was not granted. As a result, the company is likely to go into liquidation with its numerous staff disengaged, if viable alternative is not provided to raise the required fund.

In carrying out the analysis of the sources of funds at the end of the year under review, you found that the company made much money from human trafficking to enable it accomplish the proposed plan of diversification.

At the next meeting with management of the company, you brought your findings to their knowledge and threatened to disclose it as an extraordinary item in the income schedule. Management frowned at it and were considering reviewing your appointment including fee which is currently 52% of your annual income.

Required:
a. Identify the ethical issues involved as they relate to the auditor. (2 Marks)
b. What are the THREE elements of fraudulent practices presented in this case? (6 Marks)
c. What are the safeguards for the ethical issues identified? (4 Marks)
d. List the issues that should be brought to the attention of the company by the auditors as regards the disclosure of the illegal act. (3 Marks)
(Total 15 Marks)

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  • 15 Marks

CR – May 2024 – L3 – SC – Q7 – Presentation of Financial Statements (IAS 1)

Discuss allocation impacts of purchase price for land and warehouse on earnings and identify ethical issues in CFO’s approach.

Signal PLC purchased land and warehouse for N90,000,000. The warehouse is expected to last for 20 years and to have a salvage value equal to 10% of its cost. The Chief Finance Officer (CFO) and the Chief Accountant (CA) discussed the allocation of the purchase price between the land and the warehouse. The CFO believes that the largest amount possible should be assigned to the land because that will improve reported net income in the future. Depreciation expense will be lower because land is not depreciated. He suggested allocation of one third of the cost to the land. The CA argues that the smallest amount possible, about one-fifth of the purchase price, should be allocated to the land, thereby saving income taxes, since the depreciation will be greater if lesser amount is allocated to land.

Required:

(a) Evaluate how the different allocations of one-third and one-fifth to land will affect reported earnings and determine how the purchase cost should be allocated. (8 Marks)

(b) Identify and discuss inherent ethical issues in the CFO’s submission in the above scenario. (7 Marks)

Total Marks: 15

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  • 8 Marks

FR – Nov 2023 – L2 – Q6a – Ethical Issues in Financial Reporting

Identify and discuss techniques for manipulating financial statements under ethical compliance.

The management of an entity experiencing a decline in profits or poor cash flows may use various forms of creative accounting techniques to manipulate the views shown by the financial statements while complying with all applicable accounting standards and regulations.

Required:
Identify and discuss FOUR techniques of creative accounting. (8 Marks)

 

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  • 30 Marks

MGE – Nov 2014 – L2 – Q1 – Corporate Governance

Ethical and governance issues in appointing auditors with familial ties to company management.

ROC Company Plc. manufactures aluminium (stainless) household equipment. Its plant is located by Alobe river, which is the source of water for the community. The company currently has the largest share of the market on the West African Coast and plans to expand its operations to East African and South African markets.

At the 26th Annual General Meeting (AGM), shareholders approved the appointment of Adeola & Partners as External Auditors to the company. The Managing Partner of Adeola & Partners, Sir Segun Adeola, is a nephew of the Managing Director of ROC Company Plc. The appointment of Adeola & Partners as External Auditors to ROC Company was facilitated by the Managing Director, who did not disclose his relationship with Sir Segun Adeola to the company’s board.

At a recent board meeting, the Managing Director of ROC expressed concern that so much resources were expended towards satisfying the interest of the community at the expense of the company’s shareholders. According to him, shareholders are the primary stakeholders of the company, and their interest should be given the highest priority. He further opined that although other stakeholders are important to the company but only to the extent that ROC needs them. Consequently, the board resolved that henceforth, the company should not spend more than 0.5% of its Profit After Tax (PAT) on other stakeholders.

At the peak of the company’s production cycle, one of its underground waste tanks ruptured, and a large quantity of chemical waste leaked into Alobe river. This led to the destruction of aquatic life and contamination of neighbouring farmlands. This catastrophic event devastated the community as many farmers and fishermen lost their sources of livelihood. The community’s major source of drinking water was also contaminated.

The leadership of Alobe River Community Association approached the management of ROC Company Plc. and requested them to pay huge sums as compensation to the affected people and also to construct ten bore holes for the community. The management, however, informed the community leaders that based on the resolution of their board, expenditure on the issue would be limited to only 0.5% of profit after tax at the end of the year, which was projected to be far less than the amount of compensation demanded by the community. As a result, all discussions with the leadership of the community broke down.

The youths of the community responded with a sit-in protest, leading to a blockade of the company’s gate and disruption of its operations. The board of the company is now seeking immediate and amicable resolution of this problem.

While this was going on, the company suffered a major fire outbreak in its second factory, destroying its main furnace, machines and a large quantity of its finished goods. Some of the workers were severely burnt while attempting to put out the fire at the factory’s major warehouse. This event culminated in production shutdown at the second factory and temporary disengagement of several skilled workers as well as some casual staff. Fortunately, the company is covered by comprehensive fire and workers compensation insurance policies with Nagode Risk and Life Assurance Plc.

Required:
a. As a Strategic Risk Consultant of ROC Company Plc. you are to evaluate the adequacy of the risk management processes, including its information and communication systems. (8 Marks)

b. Evaluate the company’s residual risks in contrast to the management’s risk appetite. (7 Marks)

c. Using the stakeholders theory, evaluate the Managing Director’s position. Are there other stakeholders important to the company? (9 Marks)

d. Identify and discuss the ethical issues involved in the scenario described above. (6 Marks)

Answer:

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  • 30 Marks

AA – Nov 2014 – L2 – Q1 – Risk Assessment and Internal Control

Analyze audit risks and ethical considerations for a new audit engagement with a telecommunication firm.

You are the Principal Partner in charge of a four-partner firm of Chartered Accountants. Your firm has been invited to tender for the audit of Poles Apart Limited for the year ended 31 December 2013.

Poles Apart Limited was established two years ago and provides mobile phone service for individuals and businesses. The system established by the company comprises:

  1. Small portable mobile phones, which allow subscribers to contact or be contacted by any other telephone.
  2. The mobile phones can be used within the range of a local relay station that receives and sends calls to the mobile phone.
  3. The local relay stations are linked to a central computer that connects the calls to other users, often through a computer telephone network.
  4. Currently, the local relay stations cover one large city with a population of about 1,000,000. In the next year, the system will expand to all cities in Nigeria with populations over 250,000. By 2017, it will cover all motorways and cities with populations over 100,000, which will involve substantial capital expenditure and require additional borrowings.
  5. The cost of the relay stations and central computer is capitalized and amortized over six years.
  6. The mobile phones are manufactured by other companies and sold through retailers. Poles Apart Limited pays ₦2,000 to the retailer for each phone sold, which is capitalized and amortized over four years.
  7. Subscribers are invoiced monthly with a fixed line rental and a variable call charge. Charges for calls from other operators are also calculated by the company’s main computer.
  8. All shares are owned by three wealthy individuals who serve as non-executive directors. They receive a fixed allowance and do not plan further investment in the company.
  9. Establishing the network of relay stations and subscribers will result in losses for at least three years, with current borrowings at about 20% of shareholders’ funds. It is expected that the company will be highly geared by 2016.
  10. As the company will not be immediately profitable, executive directors receive a basic salary and a bonus based on the number of subscribers.
  11. The owners plan to float the company on the local Stock Exchange in 2016. The flotation will involve issuing new shares to the public and the three non-executive directors selling some of their shares.
  12. Poles Apart Limited has several large competitors, each with comprehensive coverage of over 90% of the population.

Required:

a. Consider the risks associated with the audit of Poles Apart Limited. (12 Marks)

b. Describe the ethical matters you should consider in deciding whether your audit firm should accept the audit engagement. This should include considering whether your firm has the technical and logistical ability to carry out the audit. (12 Marks)

c. Advise on whether you should accept or decline the audit assignment, giving your principal reasons for coming to this decision. (6 Marks)

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  • 15 Marks

AA – Nov 2015 – L2 – Q7 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Discussing ethical considerations in providing non-audit services to an audit client and fundamental principles of professional ethics.

Ade, Bala, Chris and Co. are the auditors to Victory Ventures Limited, a chemical manufacturing company. The firm has been carrying out statutory audits for this client for several years. Recently, the company asked the firm to carry out tax planning and compliance advisory services and also perform financial reporting valuation services for the company.

Required:
a. Discuss ethical issues the firm will need to take into consideration in accepting to carry out the new assignments for the client. (5 Marks)
b. Describe the FIVE fundamental ethical principles according to ICAN Professional Code of Conduct and Guide for Members and IFAC Code of Ethics. (5 Marks)
c. Describe the differences between rules-based and principles-based approaches to professional ethics. (5 Marks)

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  • 5 Marks

AA – Nov 2016 – L2 – Q2d – Ethical Issues in Auditing

This question explains the technique of "low-balling" used by audit firms when tendering for audit engagements and its potential ethical implications.

Explain briefly the technique used by an audit firm known as “low-balling” when it tenders for audit work.

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  • 15 Marks

AA – May 2022 – L2 – SC – Q6 – Auditor’s Liability

Discuss three types of threats auditors face and the safeguards to mitigate those threats.

In the course of carrying out their assignments, the auditors are usually faced with threats created by a broad range of circumstances.

a. Explain THREE types of threats usually faced by auditors. (6 Marks)
b. Explain the circumstances that may give rise to the threats in (a) above. (6 Marks)
c. Highlight THREE major categories of safeguards which may mitigate or reduce threats to auditors. (3 Marks)

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  • 20 Marks

AAA – May 2022 – L3 – Q4 – Ethical Issues in Auditing

Discuss correspondence with previous auditors, reasons for change in appointments, and client identification under AML regulations.

The idea to incorporate Peters & Shamsudeen Haulages Limited was mooted in London and it was incorporated on the return of Alhaji Shamsudeen to Nigeria. He met Peters during his stay in the UK. They had a good relationship which started in a coffee shop. As they met regularly in this shop, what to do on Alhaji Shamsudeen’s return to Nigeria became the subject of discussion. Based on their experiences, the idea of Peters & Shamsudeen Haulages Limited was birthed. Alhaji Shamsudeen subsequently returned to Nigeria, incorporated the company, obtained the appropriate expatriate quota, and Mr. Peters came in and started running the company.

On commencement, Sejumade Uzoma & Co was appointed the company’s external auditors. Whilst Mr. Peters was around, there was a good working relationship between the company and the audit firm.

After about nine years, Mr. Peters returned to the UK, leaving the company in the hands of Alhaji Shamsudeen. Subsequently, Sejumade Uzoma & Co started receiving complaints from Alhaji Shamsudeen and his key accounting staff. These complaints were rife even before the ninth month of the current year that Sejumade Uzoma & Co. decided not to continue with the engagement. The audit fee for the previous year had about thirty percent outstanding at this stage.

This was the position when Alhaji Shamsudeen approached your partner at Musa, Edewo & Co. (Chartered Accountants). Their discussion was fruitful for your firm, hence it was agreed by the partners that full professional procedures would be applied as normal. Part of the information available on interaction is that the year is almost ending, and there was uncertainty about the firm that will do the audit before the engagement of your firm. You have the responsibility of assisting your partner in ensuring that proper documentations would be done without any compromise.

Required:

a. According to professional requirements, discuss the issues your firm is expected to address in her correspondence with Sejumade Uzoma & Co. (10 Marks)

b. Evaluate the various circumstances that would lead to change in professional appointment. (5 Marks)

c. In consideration of the client, analyze the procedures necessary for proper client identification in accordance with anti-money laundering requirements. (5 Marks)

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  • 8 Marks

CR – May 2023 – L3 – Q1b – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss IFRS 9 rules on derecognition of financial assets, apply these rules to factoring, and analyze ethical implications of falsifying a land sale.

The directors of Omi PLC reviewed the group statement of financial position as of November 30, 2020. Concerned about meeting future loan agreements, they proposed the following actions to improve liquidity:

  1. Factoring of Receivables:
    • Factoring N400 million of receivables.
    • 80% cash is received immediately (N320 million), and the factoring company charges N32 million.
    • The balance will be paid 30 days later.
  2. Adjusting Financial Statements:
    • The executive director suggested falsifying financial statements to show that land located in Ikoyi was sold before year-end to improve liquidity.

Required:

  • Discuss the rules of IFRS 9 – Financial Instrument on derecognition of financial assets.
  • Apply these rules to factoring in part (1).
  • Discuss the ethical implications of falsifying the sale of land in part (2).

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  • 15 Marks

AAA – Nov 2012 – L3 – SB – Q1 – Ethical Issues in Auditing

This case examines ethical issues in auditing related to fraudulent practices in a company involved in human trafficking.

You have just been appointed the Auditor of Sheerahmog Manufacturing Company Limited, which manufactures 2.0 ml syringes specifically used by veterinary doctors. Recently, it was discovered that the 2.0 ml syringes are used on human beings due to the shortage of syringes for human use.

The Federal Government has decided to phase out the 2.0ml syringe in the next three years. In order to diversify into production of carbonated water, the Finance Director suggested that the company approach a bank for a complementary N1.26 billion required to finance the diversification program.

In spite of their proposal and cashflow to Bank of Akowonjo Plc, which was described as being fantastic, their loan application was not granted. As a result, the company is likely to go into liquidation with its numerous staff disengaged, if viable alternative is not provided to raise the required fund.

In carrying out the analysis of the sources of funds at the end of the year under review, you found that the company made much money from human trafficking to enable it accomplish the proposed plan of diversification.

At the next meeting with management of the company, you brought your findings to their knowledge and threatened to disclose it as an extraordinary item in the income schedule. Management frowned at it and were considering reviewing your appointment including fee which is currently 52% of your annual income.

Required:
a. Identify the ethical issues involved as they relate to the auditor. (2 Marks)
b. What are the THREE elements of fraudulent practices presented in this case? (6 Marks)
c. What are the safeguards for the ethical issues identified? (4 Marks)
d. List the issues that should be brought to the attention of the company by the auditors as regards the disclosure of the illegal act. (3 Marks)
(Total 15 Marks)

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  • 15 Marks

CR – May 2024 – L3 – SC – Q7 – Presentation of Financial Statements (IAS 1)

Discuss allocation impacts of purchase price for land and warehouse on earnings and identify ethical issues in CFO’s approach.

Signal PLC purchased land and warehouse for N90,000,000. The warehouse is expected to last for 20 years and to have a salvage value equal to 10% of its cost. The Chief Finance Officer (CFO) and the Chief Accountant (CA) discussed the allocation of the purchase price between the land and the warehouse. The CFO believes that the largest amount possible should be assigned to the land because that will improve reported net income in the future. Depreciation expense will be lower because land is not depreciated. He suggested allocation of one third of the cost to the land. The CA argues that the smallest amount possible, about one-fifth of the purchase price, should be allocated to the land, thereby saving income taxes, since the depreciation will be greater if lesser amount is allocated to land.

Required:

(a) Evaluate how the different allocations of one-third and one-fifth to land will affect reported earnings and determine how the purchase cost should be allocated. (8 Marks)

(b) Identify and discuss inherent ethical issues in the CFO’s submission in the above scenario. (7 Marks)

Total Marks: 15

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  • 8 Marks

FR – Nov 2023 – L2 – Q6a – Ethical Issues in Financial Reporting

Identify and discuss techniques for manipulating financial statements under ethical compliance.

The management of an entity experiencing a decline in profits or poor cash flows may use various forms of creative accounting techniques to manipulate the views shown by the financial statements while complying with all applicable accounting standards and regulations.

Required:
Identify and discuss FOUR techniques of creative accounting. (8 Marks)

 

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  • 30 Marks

MGE – Nov 2014 – L2 – Q1 – Corporate Governance

Ethical and governance issues in appointing auditors with familial ties to company management.

ROC Company Plc. manufactures aluminium (stainless) household equipment. Its plant is located by Alobe river, which is the source of water for the community. The company currently has the largest share of the market on the West African Coast and plans to expand its operations to East African and South African markets.

At the 26th Annual General Meeting (AGM), shareholders approved the appointment of Adeola & Partners as External Auditors to the company. The Managing Partner of Adeola & Partners, Sir Segun Adeola, is a nephew of the Managing Director of ROC Company Plc. The appointment of Adeola & Partners as External Auditors to ROC Company was facilitated by the Managing Director, who did not disclose his relationship with Sir Segun Adeola to the company’s board.

At a recent board meeting, the Managing Director of ROC expressed concern that so much resources were expended towards satisfying the interest of the community at the expense of the company’s shareholders. According to him, shareholders are the primary stakeholders of the company, and their interest should be given the highest priority. He further opined that although other stakeholders are important to the company but only to the extent that ROC needs them. Consequently, the board resolved that henceforth, the company should not spend more than 0.5% of its Profit After Tax (PAT) on other stakeholders.

At the peak of the company’s production cycle, one of its underground waste tanks ruptured, and a large quantity of chemical waste leaked into Alobe river. This led to the destruction of aquatic life and contamination of neighbouring farmlands. This catastrophic event devastated the community as many farmers and fishermen lost their sources of livelihood. The community’s major source of drinking water was also contaminated.

The leadership of Alobe River Community Association approached the management of ROC Company Plc. and requested them to pay huge sums as compensation to the affected people and also to construct ten bore holes for the community. The management, however, informed the community leaders that based on the resolution of their board, expenditure on the issue would be limited to only 0.5% of profit after tax at the end of the year, which was projected to be far less than the amount of compensation demanded by the community. As a result, all discussions with the leadership of the community broke down.

The youths of the community responded with a sit-in protest, leading to a blockade of the company’s gate and disruption of its operations. The board of the company is now seeking immediate and amicable resolution of this problem.

While this was going on, the company suffered a major fire outbreak in its second factory, destroying its main furnace, machines and a large quantity of its finished goods. Some of the workers were severely burnt while attempting to put out the fire at the factory’s major warehouse. This event culminated in production shutdown at the second factory and temporary disengagement of several skilled workers as well as some casual staff. Fortunately, the company is covered by comprehensive fire and workers compensation insurance policies with Nagode Risk and Life Assurance Plc.

Required:
a. As a Strategic Risk Consultant of ROC Company Plc. you are to evaluate the adequacy of the risk management processes, including its information and communication systems. (8 Marks)

b. Evaluate the company’s residual risks in contrast to the management’s risk appetite. (7 Marks)

c. Using the stakeholders theory, evaluate the Managing Director’s position. Are there other stakeholders important to the company? (9 Marks)

d. Identify and discuss the ethical issues involved in the scenario described above. (6 Marks)

Answer:

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  • 30 Marks

AA – Nov 2014 – L2 – Q1 – Risk Assessment and Internal Control

Analyze audit risks and ethical considerations for a new audit engagement with a telecommunication firm.

You are the Principal Partner in charge of a four-partner firm of Chartered Accountants. Your firm has been invited to tender for the audit of Poles Apart Limited for the year ended 31 December 2013.

Poles Apart Limited was established two years ago and provides mobile phone service for individuals and businesses. The system established by the company comprises:

  1. Small portable mobile phones, which allow subscribers to contact or be contacted by any other telephone.
  2. The mobile phones can be used within the range of a local relay station that receives and sends calls to the mobile phone.
  3. The local relay stations are linked to a central computer that connects the calls to other users, often through a computer telephone network.
  4. Currently, the local relay stations cover one large city with a population of about 1,000,000. In the next year, the system will expand to all cities in Nigeria with populations over 250,000. By 2017, it will cover all motorways and cities with populations over 100,000, which will involve substantial capital expenditure and require additional borrowings.
  5. The cost of the relay stations and central computer is capitalized and amortized over six years.
  6. The mobile phones are manufactured by other companies and sold through retailers. Poles Apart Limited pays ₦2,000 to the retailer for each phone sold, which is capitalized and amortized over four years.
  7. Subscribers are invoiced monthly with a fixed line rental and a variable call charge. Charges for calls from other operators are also calculated by the company’s main computer.
  8. All shares are owned by three wealthy individuals who serve as non-executive directors. They receive a fixed allowance and do not plan further investment in the company.
  9. Establishing the network of relay stations and subscribers will result in losses for at least three years, with current borrowings at about 20% of shareholders’ funds. It is expected that the company will be highly geared by 2016.
  10. As the company will not be immediately profitable, executive directors receive a basic salary and a bonus based on the number of subscribers.
  11. The owners plan to float the company on the local Stock Exchange in 2016. The flotation will involve issuing new shares to the public and the three non-executive directors selling some of their shares.
  12. Poles Apart Limited has several large competitors, each with comprehensive coverage of over 90% of the population.

Required:

a. Consider the risks associated with the audit of Poles Apart Limited. (12 Marks)

b. Describe the ethical matters you should consider in deciding whether your audit firm should accept the audit engagement. This should include considering whether your firm has the technical and logistical ability to carry out the audit. (12 Marks)

c. Advise on whether you should accept or decline the audit assignment, giving your principal reasons for coming to this decision. (6 Marks)

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  • 15 Marks

AA – Nov 2015 – L2 – Q7 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Discussing ethical considerations in providing non-audit services to an audit client and fundamental principles of professional ethics.

Ade, Bala, Chris and Co. are the auditors to Victory Ventures Limited, a chemical manufacturing company. The firm has been carrying out statutory audits for this client for several years. Recently, the company asked the firm to carry out tax planning and compliance advisory services and also perform financial reporting valuation services for the company.

Required:
a. Discuss ethical issues the firm will need to take into consideration in accepting to carry out the new assignments for the client. (5 Marks)
b. Describe the FIVE fundamental ethical principles according to ICAN Professional Code of Conduct and Guide for Members and IFAC Code of Ethics. (5 Marks)
c. Describe the differences between rules-based and principles-based approaches to professional ethics. (5 Marks)

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  • 5 Marks

AA – Nov 2016 – L2 – Q2d – Ethical Issues in Auditing

This question explains the technique of "low-balling" used by audit firms when tendering for audit engagements and its potential ethical implications.

Explain briefly the technique used by an audit firm known as “low-balling” when it tenders for audit work.

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  • 15 Marks

AA – May 2022 – L2 – SC – Q6 – Auditor’s Liability

Discuss three types of threats auditors face and the safeguards to mitigate those threats.

In the course of carrying out their assignments, the auditors are usually faced with threats created by a broad range of circumstances.

a. Explain THREE types of threats usually faced by auditors. (6 Marks)
b. Explain the circumstances that may give rise to the threats in (a) above. (6 Marks)
c. Highlight THREE major categories of safeguards which may mitigate or reduce threats to auditors. (3 Marks)

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