Topic: Professional Ethics and Code of Conduct for Auditors (IESBA Code)

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  • 20 Marks

AA – Nov 2023 – L2 – Q3 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Evaluate ethical threats due to auditor relationships and actions, and recommend mitigations for compliance.

The following scenarios may threaten compliance with fundamental principles in auditing:

i. The audit supervisor is married to the daughter of the Managing Director of the client company;

ii. The audit firm’s Senior Partner holds shares in the client company;

iii. The assurance firm also provides valuation services, internal audit services, and taxation services to an assurance client;

iv. The assurance firm earns more than 50% of its annual revenue from one assurance client; and

v. The firm obtained motor vehicle financing from a client bank for its staff.

Required:

a. Explain why compliance with fundamental principles in auditing may be threatened in each of the above FIVE circumstances. (10 Marks)

b. Explain FIVE ethical requirements that would reduce or mitigate the threats to compliance with the fundamental principles in the above FIVE circumstances. (10 Marks)

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  • 30 Marks

AA – Nov 2023 – L2 – Q1 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Analyze ethical considerations for an auditor accepting a client, including MD's remarks on audit expectations and conflict-of-interest procedures.

Nigeria Water Resources Limited (NWR) is a limited liability company floated by the
Federal Government to control water related activities and resources. Its operations
cover surface and under water activities. The company is about three years old. As is the practice with entities having government interest, NWR wanted to change the company‟s auditors. It therefore, invited tenders for the audit assignment through a national newspaper. In order to score an advantage over other bidders, the firm of John Ibrahim and Co. (Chartered Accountants) decided to quote a seemingly unrealistic fee level in order to get the job. The Managing Director (MD) of the company did not see anything wrong with the low professional fee level since it will save costs for the company, especially that despite the clean audit report of the previous years, fraud and financial misdemeanour went undetected. The MD believed the annual statutory audit is just to “fulfil all righteousness”. John Ibrahim and Co. has been rated high since this firm
has as its client, another company in the same line of trade.

If the firm, John Ibrahim & Co., wins the bid to audit Nigeria Water Resources Limited (NWR):

a. Explain the ethical matters the firm should consider before client acceptance, at the point of engagement acceptance, and after accepting the appointment. (12 Marks)

b. Assess the remarks of the MD of NWR from the point of the expectation of the public as regards audit assignments. (8 Marks)

c. Explain the procedures the audit firm should undertake to avoid conflict of interests that could affect the judgment of the firm since John Ibrahim & Co. audits another client that is in direct competition with NWR. (6 Marks)

d. Explain the guidelines of the Institute’s Code with respect to advertisement by members. (4 Marks)

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  • 20 Marks

AA – Nov 2023 – L2 – Q3 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Evaluate ethical threats due to auditor relationships and actions, and recommend mitigations for compliance.

The following scenarios may threaten compliance with fundamental principles in auditing:

i. The audit supervisor is married to the daughter of the Managing Director of the client company;

ii. The audit firm’s Senior Partner holds shares in the client company;

iii. The assurance firm also provides valuation services, internal audit services, and taxation services to an assurance client;

iv. The assurance firm earns more than 50% of its annual revenue from one assurance client; and

v. The firm obtained motor vehicle financing from a client bank for its staff.

Required:

a. Explain why compliance with fundamental principles in auditing may be threatened in each of the above FIVE circumstances. (10 Marks)

b. Explain FIVE ethical requirements that would reduce or mitigate the threats to compliance with the fundamental principles in the above FIVE circumstances. (10 Marks)

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  • 30 Marks

AA – Nov 2023 – L2 – Q1 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Analyze ethical considerations for an auditor accepting a client, including MD's remarks on audit expectations and conflict-of-interest procedures.

Nigeria Water Resources Limited (NWR) is a limited liability company floated by the
Federal Government to control water related activities and resources. Its operations
cover surface and under water activities. The company is about three years old. As is the practice with entities having government interest, NWR wanted to change the company‟s auditors. It therefore, invited tenders for the audit assignment through a national newspaper. In order to score an advantage over other bidders, the firm of John Ibrahim and Co. (Chartered Accountants) decided to quote a seemingly unrealistic fee level in order to get the job. The Managing Director (MD) of the company did not see anything wrong with the low professional fee level since it will save costs for the company, especially that despite the clean audit report of the previous years, fraud and financial misdemeanour went undetected. The MD believed the annual statutory audit is just to “fulfil all righteousness”. John Ibrahim and Co. has been rated high since this firm
has as its client, another company in the same line of trade.

If the firm, John Ibrahim & Co., wins the bid to audit Nigeria Water Resources Limited (NWR):

a. Explain the ethical matters the firm should consider before client acceptance, at the point of engagement acceptance, and after accepting the appointment. (12 Marks)

b. Assess the remarks of the MD of NWR from the point of the expectation of the public as regards audit assignments. (8 Marks)

c. Explain the procedures the audit firm should undertake to avoid conflict of interests that could affect the judgment of the firm since John Ibrahim & Co. audits another client that is in direct competition with NWR. (6 Marks)

d. Explain the guidelines of the Institute’s Code with respect to advertisement by members. (4 Marks)

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