Topic: Rules of professional conduct

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AAA – July 2023 – L3 – Q1b – Rules of professional conduct | Professional responsibility and liability | Reporting

Assess ethical and professional implications in scenarios involving audit team members and client requests.

You are the Audit Manager at Ndaa & Associates whose client portfolio includes ABC Credit Plc, a listed financial institution offering loans and credit facilities to both commercial and retail customers. You have received an email from the Audit Supervisor who is currently supervising interim testing on systems and controls in relation to the audit of ABC Credit Plc for the year ending 31 October 2022. The email gives the following details for your consideration:

  1. One of the audit team members, Obiba JK, has provisionally agreed to apply for a loan from ABC Credit Plc to finance the purchase of a domestic residence. The loan will be secured on a property, and the client’s business manager has promised Obiba JK that he will ensure that she gets ‘the very best deal which the bank can offer.’ (5 marks)
  2. The payroll manager at ABC Credit Plc has asked the audit supervisor if it would be possible for Ndaa & Associates to provide a member of staff on secondment to work in the payroll department. The payroll manager has struggled to recruit a new supervisor for the organisation’s main payroll system and wants to assign a qualified member of the audit firm’s staff for an initial period of six months. (5 marks)

Required:
Assess the ethical and professional implications of the issues raised in respect of the audit of ABC Credit Plc and recommend actions to be taken in each case by the audit firm.

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  • 10 Marks

AAA – Nov 2020 – L3 – Q1a – Rules of professional conduct | Professional responsibility and liability

Evaluate ethical issues in providing audit and advisory services, and assess auditor liability to a bank if the audit is negligently performed.

You are an audit manager with AA & Co. Chartered Accountants and Business Consultants. You have been assigned to the audit of Western Decors Ltd (WD), a long-established firm of event planning service in the city where your practice is located. The audit of the financial statements for the year ended 31 March 2019 is due to commence shortly. The audit firm is aware that the client has received a loan from the bank in April 2018 and that the bank will rely on the audited financial statements as part of the terms and conditions in the loan agreement.

The partner in charge of AA & Co. has just visited the client and made the following notes during his trip:

  • The firm has a number of individual and corporate clients outside Accra and has invested heavily in recording and broadcasting equipment to allow some events to be broadcasted over the internet. This facility is now available at all events conducted in WD’s premises and is proving to be very popular. To date, no specific extra charge has been levied for this service but the Chief Executive Officer (CEO) of WD has asked us to prepare a report for him advising on whether it would be practical to charge separately for it; and, if so, the level at which the charge should be set.
  • Unfortunately, WD’s main supplier of chairs went into liquidation during the year. The Partner said that they were fortunate to be able to find an alternative supplier with whom they entered into a three-year contract for the supply of chairs. At the time of signing the contract, WD considered the contract to be on very favourable terms. However, the supplier is based in Nigeria and the contract was denominated in Naira. Movements in the exchange rate now make the contract look far less attractive and the CEO has requested that we examine the contract to see if there is any way he can legally set it aside.

Required:

i) Critically evaluate any possible ethical issues arising from the client’s requests. (4 marks)

ii) Discuss whether the auditors may be liable to the bank in case the audit was negligently done. (6 marks)

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  • 10 Marks

AAA – May 2021 – L3 – Q1a – Rules of professional conduct | Professional responsibility and liability

Discuss the impact of independence issues on the public perception of a multinational accounting firm based on a real-life scenario involving a conflict of interest.

Fundamental principles require that a member of a professional accountancy body behave with integrity in all professional, business, and financial relationships and strive for objectivity in all professional and business judgments. Objectivity can only be assured if the member is and is seen to be independent. Conflicts of interest have an essential bearing on independence and the public’s perception of the accounting profession’s integrity, objectivity, and independence.

The following scenario is a press report on a multinational firm of accountants:

The regulatory body directed a partner in a firm that he must resign because he was in breach of the regulatory body’s independence rules. His brother-in-law was the Financial Controller of an audit client. He was informed that the alternative was for him to move his home and place of work at least 400 miles from the client’s office, even though he was not the reporting partner. This made his job untenable. The accounting firm saw the regulatory body as ‘taking its rules to absurd lengths’. Shortly after this comment, the multinational firm announced proposals to split the firm into the following areas: audit, tax and business advisory services; management consultancy; and investment advisory services.

Required:

In relation to integrity, objectivity and independence, discuss the impact the above events may have on the public perception of the multinational firm of accountants. (10 marks)

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  • 10 Marks

AAA – May 2016 – L3 – Q1b – Professional responsibility and liability | Rules of professional conduct

Identify and evaluate ethical threats in an audit engagement and recommend safeguards to mitigate these threats.

Dibidibi & Co., an audit and assurance firm, has been engaged as auditors for BCG Bank Ltd, a public limited liability company, for some time now. BCG Bank has sixty branches throughout the country and branches in Togo, Burkina Faso, and Cote d’Ivoire. The Bank is one of the banks in the country which can boast of large landed properties. Dibidibi & Co. receives about 20% of its income from this particular client. Before last year’s audit, the bank engaged the audit firm to value its Land and Buildings in all its branches and headquarters. This work was executed by the audit firm and a report has been issued to management. The report has been incorporated in this year’s financial statements to be audited soon. Dibidibi & Co. sees BCG Bank Ltd. as a very important client whose works are always executed with dispatch.

i) Identify and evaluate the significance of any threats to the Code of Ethics for Professional Accountants raised in the case. (4 marks)

ii) Recommend safeguards to eliminate the threats (mentioned in (i) above) or reduce them to an acceptable level. (6 marks)

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  • 10 Marks

AAA – Nov 2019 – L3 – Q1a – Rules of professional conduct, Professional responsibility and liability

Discusses the importance of integrity in professional relationships and evaluates the ethical and professional behavior issues in audit practice.

a) Asumasi Opoku has recently been appointed as a partner of Offei-Ansah & Co, a firm of Chartered Accountants. He has been a close friend of the Engagement Partner (EP), the firm’s managing partner for many years. Asumasi was previously the training manager in the firm and he has now been asked to act as training partner. This is the first time Offei-Ansah & Co have designated a particular partner as having responsibility for training.

One of the audit trainees, Ellen Danso, noted that she was disturbed by something that had happened on an audit of a company called Bremang Ltd, a medium-sized family-run business and longstanding client of Offei-Ansah & Co.

Ellen was auditing purchases of non-current assets when she noticed a transaction that she thought might be suspicious. There was a charge of GH¢125,000 (an individually material amount) for a Power Plant for an address in a rural area (no electricity) with no obvious link to the company. When she asked Bremang’s financial controller about the matter, she was told it referred to the installation of such a plant in a house owned by the Chief Executive Officer (CEO). This was to facilitate excellent communications and interaction with the CEO especially during the last quarter of the year when he liked to reside there with his family. She further explained that part of the cost was attributed to having to pay for a personal broadband connection since the house was in an isolated area where normal broadband connections were unavailable.

The financial controller appeared surprised and even irritated by the queries about the matter and said that auditors had not previously been concerned about the company being charged for non-current assets and operational expenses at properties owned by the CEO.

The engagement partner on the assignment happened to be the managing partner. Ellen told him what she had found and the Engagement Partner simply said that the charge could probably be ignored. He did, however, say that he would include a reference to the matter in the written representations letter required by ISA 580: Written Representations adding with a smile that “paper never refused ink”. About two months later, Ellen looked at the completed files and the letter of representation in which there was no reference to the matter.

When Asumasi Opoku heard about Ellen’s concerns, he realised that there was an ethical issue. At the very least the transaction should have been disclosed as a related party transaction under IAS 24: Related Party Disclosures but the situation was made more complicated by the fact that the Engagement Partner was (for all practical purposes) still Asumasi’s boss in Offei-Ansah & Co.

Required:

i) Explain TWO (2) reasons why integrity in professional relationships such as those described in the above scenario is vital. (2 marks)

ii) Evaluate FOUR (4) ethical and professional behavior issues relating to the stance of the Engagement Partner. (8 marks)

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  • 10 Marks

AAA – Nov 2016 – L3 – Q1a – Rules of professional conduct | Professional responsibility and liability

Discuss ethical and professional issues raised concerning auditors holding shares, fund management by a company with ties to the audit firm, and an audit team member’s spouse inheriting shares in an audit client.

a) i) Sampson Quaye & Co. has been auditors for Stawac plantations Ltd (a company engaged in rubber production) for the past 10 years. Sampson Quaye & Co owns 1% of the shares in Stawac Plantation Ltd., since it is required by the policy of Stawac Plantation Ltd. for their auditors to do so.

ii) United Funds Ltd. are the fund managers of Sampson Quaye & Co.’s Provident Fund Scheme. United Funds Ltd. owns shares in Standard Group, a company listed on the Ghana Stock Exchange with many subsidiaries. Sampson Quaye & Co has been invited by Akroma Ltd., a Subsidiary of Standard Group to tender for its audit.

iii) Nenebi is the audit senior of Sampson Quaye & Co. responsible for the audit of Minimade Ltd. a company listed on the Ghana Stock Exchange. Two weeks into the audit of the accounts of Minimade Ltd for the year ended 31 December 2014, Narteykie, the wife of Nenebi, inherited 2000 equity shares owned by her late father in Minimade Ltd.

Required: Comment on the ethical and other professional issues raised by the above matters. (10 marks)

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  • 10 Marks

AAA – Nov 2017 – L3 – Q2a – Rules of Professional Conduct, Professional Responsibility and Liability

Discuss ethical issues and recommended actions related to long-term audit engagements and conflicts of interest in two separate cases.

You are the Ethics partner of the firm Minnow Associates and the following issues have been brought to your attention for a number of clients for the audit for the year ended 29 February 2016. Each case is separate:

i) Forest Hotel Limited
This has been an audit client of your firm for over fifteen years. The partners and audit teams have been rotated every four to five years. A review of the audit file shows that the company acquired a number of flat screen televisions for a refurbished section of the hotel. These flat screen televisions were imported from China in the names of the children of the directors to avoid paying import duties. The audit engagement partner did not make any comment on this, though an audit note from the Audit Manager had requested direction from the engagement partner on what needed to be done on the issue.

Further investigation revealed that the Procurement Advisory Section of your firm had handled the importation and clearing of the TVs for the client.

ii) Kwahu Microfinance Limited (KML)
Kwahu Microfinance is a first-time audit client. The audit was acquired through a bidding process supervised by Bank of Ghana (BOG) as the previous auditors had not performed to the satisfaction of the regulator.

The Engagement partner has reported that the time and cost budgets have all been substantially exceeded due to unforeseen difficulties associated with getting reliable information for agreeing the opening balances. The current year’s information and its audit, however, did not seem to pose any problems.

However, a business controlled by the husband of the Audit Manager has been found to have taken a huge loan from KML just before the start of the bidding process for the audit. The engagement partner reported that this loan has been written off by the company in the year without any payments being made. The Audit Manager says she is unaware of the loan write-off because she’s not a director of her husband’s company. She was, however, aware of the loan when she was asked to become the manager on the audit. The Financial Manager of Kwahu Microfinance Limited believes that this is not an audit matter.

Required:
For each issue above, discuss the ethical issues raised and recommend the relevant actions to be taken by your firm.

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  • 10 Marks

AAA – Mar 2024 – L3 – Q1a – Rules of professional conduct, Professional responsibility and liability, The audit approach

Evaluation of ethical threats impacting audit independence and advice on mitigating actions.

You are an audit manager of Afari & Partners and have been assigned to the audit of Jericho Plant Company Ltd (Jericho Plant), which has been an audit client for 6 years and specialises in manufacturing fertilizers in Ghana.

The company was introduced to the firm by Mr. Lartey 6 years ago when he was a Commissioner at the Ghana Revenue Authority (GRA). Mr. Lartey is not a member of the Institute of Chartered Accountants, Ghana. However, since his retirement from GRA, last year, he joined the firm as a tax partner to provide tax consultancy services. He has good relations with the client as his daughter is married to the son of the CEO for Jericho Plant.

Mr. Andani, who has been the audit engagement partner for Jericho Plant for the past 6 years, has recently been rotated off the audit engagement. The current audit partner, Mr. Nti, has suggested that in order to maintain a close relationship with Jericho Plant, Mr. Lartey should undertake the role of an engagement quality reviewer this year. In addition, Jericho Plant has requested that Mr. Andani assist them by attending their audit committee meetings, as a non-executive director has recently left the company.

Jericho Plant has also asked Mr. Lartey and the other partners at Afari & Partners to help them in recruiting a new non-executive director.

Fees paid by Jericho Plant form 35% of the firm’s total fee income (both audit and non-audit fees) and the partners have anticipated that the fees for this year would be greater than last year. Since joining as a tax partner, Mr. Lartey has been aggressive in generating revenue for the tax department and does not keep records of his work. He argues that the most important issue is for the firm to generate revenue, which he does. Some of the clients have complained about the cash collected by Mr. Lartey as part of his consultancy services.

The audit manager for Jericho Plant last year has just announced that he is leaving Afari & Partners to join Jericho Plant as the financial controller.

Required:

Using the information above

i) Evaluate FOUR (4) ethical threats which may affect the independence of Afari & Partners. (6 marks)

ii) For each threat, advise on how it might be mitigated to an acceptable level. (4 marks)

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  • 10 Marks

AAA – May 2020 – L3 – Q1a -Rules of professional conduct, Professional responsibility and liability

Discuss five ethical issues arising for auditors when performing an audit engagement.

You are an audit manager at Abdulai Afriyie & Co., a firm of Chartered Accountants. You are currently preparing the audit of Adoma Mining & Jewelleries Ltd for the year ended 28 February 2019. Adoma Mining & Jewelleries Ltd is a small Mining and Minerals Company which offers an extensive range of services that covers exploration, jewellery production, industrial applications, decommissioning and closure. You reviewed the previous years’ files for this client and noted the following:

i) The previous financial statements were prepared by the Consulting Division of Abdulai Afriyie & Co. and there is nothing in any of the files to suggest any particular difficulty with the assignment.

ii) In the course of the review of the files, it was observed there is a note explaining that on the completion of the assignment, each member of the consulting team with whom the client had come into contact, was given a gift of “presentation box” of the client’s Jewelleries. These presentation boxes contain samples of each of the different jewelleries produced by the client. These boxes are not available for sale but are sometimes given as gifts (for example, at Christmas) to loyal customers and others such as school principals who are seen to bring business to the client. Since this was a non-assurance assignment, the gifts were automatically and gratefully accepted.

iii) In early January 2019, the company received correspondence from the Ghana Revenue Authority (GRA) claiming that the company has failed to pay certain mineral royalties which are usually charged on the jewellery manufactured. Normally, these levies are automatically deducted when miners or mining companies sell minerals to dealers. In this case, all of the minerals extracted were used to make jewels and ornaments by the company itself; and so the company never considered the possibility that such royalties might apply to it. The Chief Executive Officer (CEO) of Adoma Mining & Jewelleries Ltd tells you that he has done some research into the issue. It is his view that an argument can be made that the royalties do not apply in this case. However, should they apply, the amounts outstanding could be material since a number of years of non-payment might be involved. The CEO is aware that Abdulai Afriyie & Co. has a lot of Jewelleries based clients and has asked if Abdulai Afriyie & Co. would handle this matter as a separate assignment in addition to the audit.

Required:
Discuss FIVE (5) ethical issues that may arise for Abdulai Afriyie & Co. in relation to the audit of Adoma Mining & Jewelleries Ltd. (10 marks)

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  • 5 Marks

AAA – May 2019 – L3 – Q2b Practice Management, Rules of Professional Conduct

Recommend safeguards necessary to eliminate or reduce threats associated with accepting new engagements.

A Chartered Accountant in practice should agree to provide only those services that they are competent to perform. Before accepting a specific client engagement, they should consider whether acceptance would create any threats to compliance with the fundamental principles. A Chartered Accountant in practice should evaluate the significance of identified threats associated with an engagement; if they are other than clearly insignificant, safeguards should be applied as necessary to eliminate them or reduce them to an acceptable level.

Required:

Recommend FIVE (5) safeguards necessary to eliminate or reduce threats associated with accepting new engagements.

(5 marks)

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  • 10 Marks

AAA – May 2018 – L3 – Q2a – Rules of professional conduct, Professional responsibility and liability

Comment on the ethical and professional issues in two cases related to audit client engagements.

Dzinpa & Associate, a firm of Chartered Accountants, in which you are a partner, has the following issues emerged in relation to two of its clients:

i) Good Life Insurance Company Limited is a major client and is listed on the Ghana Stock Exchange. The audit of this client has just started with an audit team of six members, of which Sally is the most junior. Sally has invested in a personal pension plan in a company whose investment portfolio is in all the listed companies on the Ghana Stock Exchange.

ii) You are the head of a team carrying out due diligence on Dumsor Ltd., a limited liability company which your client, Solar Electricals, is considering taking over. David, your second in command on the team, has confided in you that in the course of his work he has met the daughter of the Finance Director of Dumsor Ltd., and he intends to invite her on a date.

Required:
Comment on the ethical and other professional issues raised in the above matters.
(Note: Your answer should outline the threat arising, the significance of the threat, any factors you have taken into account, and if relevant, any safeguards you could apply to eliminate or mitigate the threat.) (10 marks)

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  • 4 Marks

AAA – April 2022 – L3 – Q1a – Rules of professional conduct

Evaluate four factors that determine the significance of a breach of the IESBA Code of Ethics.

When a firm concludes that a breach has occurred, the firm shall terminate, suspend or eliminate the interest of the relationship that caused the breach and address the consequences of the breach.

Required: Evaluate FOUR (4) factors that determine the significance of a breach of the IESBA code of ethics. (4 marks)

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