The Institute of Certified Public Accountants in Ireland
Ethical Dilemmas for Auditors
Dilemma One – Non-Audit Services
Dilemma Two – Fee Levels
Dilemma Three – Ethics Partner
Dilemma Four – Long Association with the Audit Client
Dilemma Five – Commencement in Practice
Dilemma Six – Financial Interest in a Client
Dilemma Seven – Business relations with audit clients
Dilemma Eight - Policies and Procedures
Appendix 1 – Accounting services - dos and don’ts
Appendix 2 – Accounting services - examples of threats and safeguards 14 Appendix 3 – Non-audit services – sample audit work paper Appendix 4 – Sample audit planning letter 16 26
Appendix 5 – Long association with audit client, sample audit work paper 29
Dilemma One – Non-Audit Services
I provide a complete suite of services to my small corporate clients such as accounting services, tax work and ad hoc projects that they may request me to do. I have heard that there may be a problem with this? What should I do?
Whether or not you can provide these services will depend on the type of client that you have and the type of service that you are providing. You will need to be careful that you review all services to clients to ensure that a threat to your firm’s independence does not exist. The threats that may be created are “self review” and “management” threats. Where non-audit services are provided to your clients your consideration of your independence should be documented on your audit file. Accounting services Unlisted clients You may provide certain accounting services to the client provided safeguards are applied. The accounting services that you can provide should not involve initiating transactions or making management decisions and should be of a mechanical nature. The safeguards should be as follows; Accounting services are provided by staff not involved in the audit Accounting services are reviewed by a partner who is not part of the audit team The audit is reviewed by another partner The audit engagement partner should ensure that those charged with governance of the client are appropriately informed (e.g. audit planning letter). Small companies (per PASE) If you cannot apply the above safeguards, then the following alternatives are available; 1. If your client can avail of the PASE, safeguards need not be applied provided; The client has informed management The firm extends the cyclical inspection of completed engagements that is performed for quality control purposes (firm’s annual compliance review). 2. Where the client does not have “informed management” then you will need to avail of additional exemptions provided for in the PASE.
Where you do this you will need to ensure that The issue is disclosed in the financial statements (audit report and notes) and You discuss objectivity and independence issues related to the provision of nonaudit services with those charged with governance (this can be done in the audit planning letter, see appendices). Taxation Services The range of activities encompassed by the term “tax services” is very wide and it is important that the services provided to clients are assessed on a client by client basis. Where the auditor provides a compliance and advisory services to the client there may be appropriate safeguards that the auditor can implement to ensure that there are no threats to independence. These safeguards include the following; • • • •
The tax services are provided by partners and staff who have no involvement in the audit of financial statements; The tax services are reviewed by an independent tax partner, or other senior tax employee; External independent advice is obtained on the tax work Tax computations prepared by the audit team are reviewed by a partner or senior staff member with appropriate expertise who is not a member of the audit...