Kế toán, kiểm toán - Chapter 3: Ethics, independence and corporate governance

ETHICS, INDEPENDENCE AND CORPORATE GOVERNANCECHAPTER 31Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettEthics is concerned with the requirements for the general well-being, prosperity, health and happiness of people. It requires knowledge of moral principles, and skills in applying them to problems and decisions.THE NATURE AND IMPORTANCE OF PROFESSIONAL ETHICS2Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettTeleological ethics — deal with consequences or outcomes of actionsgenerally, if benefits of proposed action outweigh costs, decision is morally correct.Deontological ethics — based on duties and rightsduties and rights set down in rules which must be followed.Virtue ethics — focus on personal qualities, such as integrity of the decision-maker.ETHICAL THEORY3Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettPURPOSE OF CODE OF ETHICSMakes explicit the values implicitly required.Indicates how members should act toward one another.Provides basis for sanctions.Code of Ethics — formal, systematic statement of rules and principles developed by community to promote its well-being and punish undermining behaviour. Therefore:4Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettJOINT CODE OF PROFESSIONAL CONDUCT (CPC) - IThe ICAA and CPA Australia have jointly issued a code of professional conduct (CPC).Failure to observe expected standards can result in disciplinary procedures and sanctions.Members are expected to comply with the spirit as well as the letter of the code.5Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettJOINT CODE OF PROFESSIONAL CONDUCT (CPC) - IIMandatory for all membersSix sectionsMost important sections for auditors are: B: Fundamental Principles F: Professional Statements6Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettCPC: SECTION B: FUNDAMENTAL PRINCIPLES1. public interest2. integrity3. objectivity4. independence5. confidentiality6. compliance with technical and professional standards7. professional competence and due care, and8. ethical behaviourEight fundamental principles contained in the codes of ethics:7Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettAPPLYING ETHICSSound ethical decision-making isdependent on:Knowledge of the basic principles on which moral values and rules are based; Competence in decision-making; andThe ability to choose appropriate policies and decision procedures in different situations.8Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettETHICAL DECISION MODELSThree main models:American Accounting Association ModelLaura Nash ModelMary Guy Model9Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettCORPORATE GOVERNANCEcorporate strategy;succession planning;integrity of internal control structure; andremuneration policy.System by which companies are directed and controlled. Concerned primarily with management and stewardship issues:10Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettPARTIES IN CORPORATE GOVERNANCEBoard of directorsManagementAuditors11Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettGROUPS ADVOCATING IMPROVED CORPORATE GOVERNANCEBusiness communityInvestorsAustralian Stock Exchange (ASX)Australian Securities and Investments Commission (ASIC)CPA Australia and ICAA12Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettAUDIT COMMITTEESSub-committee of board of directors which should consist mainly of non-executive directors.Auditor’s major dealings with the board of directors are normally through this sub-committee.Important component of corporate governance, with over 80% of listed companies in Australia having an audit committee.13Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettFUNCTIONS OF AUDIT COMMITTEESassist the board of directors;add to credibility and objectivity of financial reports;enhance auditor independence and effectiveness;consider appropriateness of accounting policies;consider policies for unethical or illegal activities;consider internal and management controls; andcommunication link between management, board and auditors.14Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettWHISTLEBLOWING IN AUSTRALIA s. 311 of the Corporations Act may impose a responsibility on auditors to inform the ASIC of any contraventions of the Act discovered in the normal course of their duties which cannot be remedied by comment in the audit report or by bringing the matter to the attention of directors. Arguably, this places an obligation on the auditor to whistleblow.15Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettWHISTLEBLOWING DEFINEDA person ‘who discloses information he (or she) reasonably believes evidences a violation of any law, rule, or regulation, or mismanagement, a gross waste of public funds, an abuse of authority, or a substantial or specific danger to public health or safety’ is a whistleblower. (United States Civil Service Reform Act of 1978).16Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettAUDITOR’S RESPONSIBILITIES REGARDING WHISTLEBLOWINGauditor does not have to actively look for contraventions of the Corporations Act.decision to blow the whistle not easy for auditor.AUS 210 also provides guidance.17Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINDEPENDENCEa very key characteristic of an audit or assurance service provider.for auditor to add credibility to financial report or other subject matter, needs to remain independent.one of the eight fundamental ethical requirements of CPC.test for independence is reasonable person test – would a reasonable person having access to all facts consider that the auditor was independent?18Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINDEPENDENCE — CORPORATIONS ACT 2001s. 324 (1) shall not consent to appointment as auditor if:level of indebtedness > $5,000officer, partner, employer or employee.s. 329, appointment until death, removal or resignation.Removal — requires resolution of the company at a general meeting of which special notice is given.Resignation — must have consent of the ASIC.19Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINDEPENDENCE — ETHICALREQUIREMENTS Emphasises both:perceived independence — how others will view the auditor; andactual independence — state of mind of the auditor. Can the auditor actually eliminate bias and personal interest from their decisions, and not succumb to any pressures or influences.20Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettRECENT DEVELOPMENTS IN AUDITOR INDEPENDENCERamsay Report (Aust) — issued October 2001.IFAC independence rules, adopted in Australia in CPC F1.Sarbanes-Oxley Act (USA) 2002.Joint Committee of Public Accounts and Auditors (Australia) 2002.Corporate Law Economic Reform Program (CLERP 9) (Australia) 2002.21Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettCPC F1: THREATS TO INDEPENDENCESelf-interest threats: auditor could benefit from a financial interest in the client.Self-review threats: auditor could have to re-evaluate their own work.Advocacy threats: auditor could promote the audit client’s point of view and compromise objectivity.Familiarity threats: auditor may become too sympathetic to the client’s interests.Intimidation threats: auditor may be deterred from acting objectively by actual or perceived threats from client.22Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettCPC F1 SAFEGUARDSSafeguards fall into three broad categories. For an auditorthese are:Safeguards created by the profession, legislation or regulation: education, professional standards, monitoring and disciplinary processes, and inspections and reviews.Safeguards within the audit client: competent employees, corporate governance structures.Safeguards within the audit firm: quality control, policies and procedures.The safeguards are aimed at reducing or resolving circumstances that pose threats.23Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettMAJOR IMPEDIMENTS TO AUDITOR INDEPENDENCEAuditor employment relationshipsFinancial and business relationshipsProvision of non-audit services, including:preparing financial reportstaxationinternal auditdesign of systemslegal servicescorporate finance24Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettSUGGESTIONS FOR IMPROVING AUDITOR INDEPENDENCEEstablishment of a Public Oversight Board, to reduce the perception of auditors setting standards for their own professionStrengthening the role of audit committeeRotation of auditorsAudit firm independence boardsClient policies, such as restricting other services provided by audit firm25Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettFEE DETERMINATIONAudit fees should be commensurate with service provided. Thus, should reflect time taken to audit, and knowledge, skills and expertise required.Auditor should not enter into fee arrangements that may compromise independence.Fees for a period should not be dependent on fees from provision of future audits or other services.26Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettOBTAINING CLIENTSAdvertising, publicity and solicitation are permitted provided they are not false, misleading, deceptive or otherwise reflect adversely on the profession.Competing for prospective clients through tenders is now quite common.Auditors should be careful of firms that are opinion shopping.27Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger Simnett