Professional ethics & quality Control Standards

1. Professional ethics & quality Control Standards
1
Artless Shakhawat. Student of DBA, IIUC
Ethics is derived from the Greek word “ethos” meaning character, another meaning is
morality. In broad sense its indicated rules, culture, norms, behavior, custom etc. to
performed or to live in a nation or organization. Ethical behavior of an organization
depends upon the culture of that organization.
General ethics: it can be defined as a set of moral principle or value.
Professional ethics: it extends beyond moral principal. It includes standards of behavior
for a professional person that are designed for both practical and idealistic purpose.
The five fundamental principles
1) Integrity
A professional accountantshouldbe straightforwardandhonestinall professional andbusiness
relationships.
2) Objectivity
A professional accountantshouldnotallow bias,conflictof interestorundue influenceof othersto
override professional orbusinessjudgments.
3) Professional competenceand due care
A professional accountanthasa continuingdutytomaintainprofessionalknowledge andskillatthe
level requiredtoensure thataclientor employerreceivescompetentprofessionalservicesbasedon
currentdevelopmentsinpractice,legislationandtechniques. A professional accountant shouldact
diligentlyandinaccordance withapplicable technical andprofessional standards.
4) Confidentiality
A professional accountantshouldrespectthe confidentialityof informationacquiredasa resultof
professionalandbusinessrelationshipsandshouldnotdisclose anysuchinformationtothirdparties
withoutproperandspecificauthorityunlessthere isalegal orprofessional rightordutyto disclose.
Confidential informationacquiredasa resultof professionalandbusinessrelationshipsshouldnot
be usedfor the personal advantage of the professional accountantorthirdparties.
5) Professional behavior
A professional accountantshouldcomplywithrelevantlawsandregulationsandshouldavoidany
actionthat discreditsthe profession.
Importance of ethics
 Buildingupthe economicwell-beingforstakeholder.
 Work incapacitiesof internal-external auditors, financial experts,tax advisorand
managementaccounts.
 Commonobjectivesare toperformtheirdutiesandresponsibility&attainthe highestlevel
of performance.
 Have to establishcreditability,professionalism,qualityof service andconfidence.
 Followupthe principalsandguidelineof ethicsforprofessionalaccounts.
Auditorindependence referstothe independenceof the internal auditororof the external auditor
frompartiesthat mayhave a financial interestinthe businessbeingaudited. Independence
requiresintegrityandanobjective approachtothe auditprocess. The conceptrequiresthe auditor
to carry out hisor her workfreelyandinan objective manner.

2. Professional ethics & quality Control Standards
2
Artless Shakhawat. Student of DBA, IIUC
Types of independence
There are three mainwaysinwhichthe auditor’sindependence canmanifestitself
Programmingindependence
Investigative independence
Reportingindependence
Programmingindependenceessentiallyprotectsthe auditor’sabilitytoselectthe mostappropriate
strategywhenconductinganaudit. Auditorsmustbe free to approacha piece of workinwhatever
mannertheyconsiderbest. The strategy/proposedmethodswhichthe auditorsintendto
implementcannotbe inhibitedinanyway.
While programmingindependence protectsauditors’ abilitytoselectappropriatestrategies,
investigativeindependenceprotectsthe auditor’sabilitytoimplementthe strategiesinwhatever
mannertheyconsidernecessary. Basically,auditorsmusthave unlimitedaccesstoall company
information.
Reporting independenceprotectsthe auditors’ abilitytochoose toreveal tothe publicany
informationtheybelieveshouldbe disclosed.
Threats to AuditorIndependence
The audit professionhasrecognizedthe followingthreatstoauditorindependence,manyof which
are linkedtothe provisionof non-auditservices:
 Self-interestthreat: Where an auditorisfinanciallydependenton the auditclientorwhere
an auditoror someone closelyassociatedwithhimhasa financial orotherinterestinthe
auditclient. The auditoralsodependsonthe managementof the companytosecure itsre-
appointmentasauditor.
 Familiaritythreat: The relationshipbetweenthe auditorandclientislong-standingor
otherwise issofamiliarthatthe auditorbecomesinvolvedinadvisingthe clientoractingina
managementrole.
 Self-review threat: A judgmentisrequiredof the auditorwhichdemandsthatprevious
workof the firm (whetherauditornon-audit) be challengedorre-evaluated.
 The trust threat: The auditorbecomestootrustingof directorsandmanagement,thereby
preventingapropertestingof managementinformationandrepresentations.
 The intimidationthreat: The auditoris intimidatedbyactual orpotential pressuresfrom
the clientor otherparty.
 The advocacythreat: The auditorbecomesinvolvedinactivelypromotingordefendingthe
client’sinterests.
Safeguards fall into three broad categories (foraudit independence)
 Created by the profession,legislation orregulation
 Within the auditclient
 Within the auditfirm’sown systemsand procedure

3. Professional ethics & quality Control Standards
3
Artless Shakhawat. Student of DBA, IIUC
1. Created by the profession, legislation or regulation
- Educational,trainingand experiencerequirements for entry into the profession
- Continuingeducation requirements
- Professional standardsand monitoringand disciplinary processes;
- External review of an auditfirm’s quality control system;
- Legislation governingthe independence requirements of the auditfirm.
2. Within the audit client
- identification of threats to independence
- Prohibition of individualswho are not members of the engagement
- Arrangements to ensure physical and virtual separation of staff involved in
conflictingtransactions
3. Within the audit firm’s own systems and procedure
- Involvingan additional accountantto review the work done or otherwise adviseas
necessary.
- consultinga third party,such as a committee of independent directors, a
professional body or another professional accountant;
- Rotation of senior personnel;
- Disclosingto the auditcommittee the nature of services provided and extent of fees
charged and discussingwith itindependence issues;
- Policies and procedures to ensure members of the auditteam do not make, or
assumeresponsibility for,management decisions for the auditclient
What is an Ethical Dilemmain Auditing?
Auditorsare responsible forensuringthata companyisoperatingethically. Theydo thisby
analyzingdatafor accuracy and compliance topolicy. Theirworkis importantbecause there are
significantpenaltiesassociatedwithalackof organizational control,includingfines,lossof business
and evenprosecution. As withanyprofessionresponsibleforintegrity,there are incentivestoturn
a blindeye toinfractionsforpersonal andprofessional gain.
Failureto MaintainIndependence
Auditors are expected to maintain independence from the entity that they are auditing. That is,they should
not have any allegiancethatmay make their objectivity come under suspicion. Therefore, they should not
receive gifts or any other perks.
Misuseof Materials
Auditors will haveaccess to a lotof company materials,includingcomputer time, fax machines and other
business materials. Therefore, they should not misappropriatehow they use these materials and should not
use them for personal gain.
AvoidClientAdvocacy andPitfalls
Auditors may be asked to go beyond the task of auditingby their clients . They may be asked to providesome
consultinginformation and advocateon behalf of a client. This is frowned upon becausethis maneuver
provides scrutiny dueto conflictof interest.
Lack of Full Disclosureof Information
Auditors are expected to fully disclosetheir findings to both the company they are auditingand their own
employing body. This is to ensure that companies arereceivingappropriatetreatment. This also will
denounce auditor subjectivity in the work.
AvoidFamiliarity
If an auditorhasbeenwitha firmfora longperiodof time,thenhisobjectivitycancome into
question. It ismandatoryfor companiestorotate leadauditorsaftera periodof 5 years

4. Professional ethics & quality Control Standards
4
Artless Shakhawat. Student of DBA, IIUC
An auditor's duties andrights
An auditorhasvariousdutiesinconnectionwith:
1. the preparation of an auditor'sreport,and
2. the signature of an auditor'sreport
The rights of a company'sauditorinclude:
1. a rightof accessat all timesto the company’sbooks,accountsandvouchers (inwhatever
formtheyare held)
2. a rightto require certainpersonstoprovide himwithsuchinformationorexplanationsas
he thinksnecessaryforthe performance of hisdutiesasauditor
3. a rightreceivesall communicationsthatare requiredtobe suppliedtoamemberof the
companyinrelationtoa writtenresolutionunderthe relevantstatutoryprovisions
4. a rightto receive all noticesof,andothercommunicationsrelatingto,anygeneral meeting
that a memberof the companyis entitledtoreceive
5. a rightto attendany general meetingof the company,and
6. a rightto be heardat anygeneral meetingthathe attendsonanypart of the businessof the
meetingthatconcernshimas an auditor
IFAC Guideline of ethics for professional accountants
The mission of the International Federation of Accountants (IFAC), as set out in its
Constitution, the IFAC Board has established the Ethics Standards Board for Accountants to develop and issue,
under its own authority, high quality ethical standards and otherpronouncements for professionalaccountants
for use around the world.
This Code of Ethics for Professional Accountants establishes ethicalrequirements
for professionalaccountants.
This code has three parts:
PART A: GENERAL APPLICATION OF THE CODE
100 Introduction and Fundamental Principles
110 Integrity
120 Objectivity
130 Professional Competence and Due Care
140 Confidentiality
150 Professional Behavior
PART B: PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE
200 Introduction
210 Professional Appointment
220 Conflicts of Interest
230 Second Opinions
240 Fees and Other Types of Remuneration
250 Marketing Professional Services
260 Gifts and Hospitality
270 Custody of Client Assets
280 Objectivity–All Services
290 Independence–Assurance Engagements ETHICS
PART C: PROFESSIONAL ACCOUNTANTS IN BUSINESS
300 Introduction
310 Potential Conflicts
320 Preparation and Reporting of Information
330 Acting with Sufficient Expertise
340 Financial Interests
350 Inducements