COLLEGE OF BANKING AND FINANCIAL STUDIESDEPARTMENT OF UNDERG

COLLEGE OF BANKING AND FINANCIAL STUDIES
DEPARTMENT OF UNDERGRADUATE PROGRAMME
B.Sc. in Accounting, Auditing and Finance
Student Name & ST Number
Dunya Hamood Albreiki (ST09019)
Semester
8
September – December 2021Assignment Title
Practical implication in adherence to the Code of Ethics and
identification of fraud risk factors.
Module
UG 034 – Ethics and Conduct of Accounting Profession
Assessor:
Ms. Nandini Balaji/ Ms. Mariam Hassen
Internal Verifier
Mr. Mohammed Farzan
Table of content
Contents
Introduction 2

Part A 3
Using Professional skepticism 3
Fraud risk factors 5
Part B 6
Violations to ethical principles, and the nature of threats it
poses 6
Recommendations 9
Conclusion 10
Reference List 11
Introduction
The accountancy profession places a high priority on auditors'
independence as the core standard of morality. It is imperative
that accountants avoid conflicting interests and other
problematic business links when providing financial solutions.
An accountant's competence to give an unbiased assessment of
an organization's financial data may be harmed if they fail to
maintain their objectivity and independence. It is crucial for
auditors to be objective and independent in their work. Public
accounting companies and personal certified public accountants
(CPAs) are typically limited services they may provide to their
customers. General financial reporting, audits, taxes, and
management consultancy services are all included in auditing.
They may lose their neutrality and independence if they execute
more than one service for the same customer (Ariail, Smith and
Smith 2020). When a person audits their own work, they are

basically re-checking their own work. An accountant may be
able to conceal a company's unfavorable financial facts in this
case. We'll look at how the Code of Ethics is used in real life,
as well as how fraud risk indicators are identified in the context
of the Omancell case.
Part A Comment by Nandini Balaji: Dear the reqiurement for
part a has not been met. Youhave suggested risk factors and
have tried to connect to the scenario. However you are supposed
to identify the risk factors from the scenario, explain why they
are risk factors. Recommending to reconsider your answer.
There is scope for identification of additional risk factorsUsing
Professional skepticism
Professional skepticism is suitable to be applicable by Mr.
Omar, the financial controller of Omancell for the year ending
December 31, 2021, at different phases of the strategic audit
planning, and some such instances are provided below:
Comment by Nandini Balaji: Recommending to first
explain what is professional skepticism and its importance
While Mr. Omar is examining Omancell's trustworthiness, he
should also take into account any issues that may affect the
consultant's ability to operate with professional judgment,
including ethical risks to impartiality, before accepting the
partnership. It is important that Mr. Omar exercise caution
while conducting risk assessments throughout the audit
preliminary stages (Jenkins, Popova, and Sheldon 2020). Mr.
Omar, for instance, should not take senior management
justifications for the findings of analytical techniques at current
valuations, and therefore should collect corroborative proof for
the reasons presented.
For example, Mr. Omar should be prepared to criticize
Omancell's management, particularly when it comes to issues
requiring judgment, such as difficult or subjective concerns.

The trustworthiness and sufficiency of information must be
taken into account, especially in cases where fraud is a concern.
If Omancell management ignores Mr. Omar's effort to seek
documentation from a third party, this might affect
independence and objectivity throughout auditing (Jenkins,
Popova, and Sheldon 2020). He will have to decide how much
faith may be placed in evidence acquired from management,
such as an inquiry with the administration or a written
declaration from the administration. ISA 200 states that 'a
confidence that administration and those responsible w ith
accountability are trustworthy and have honesty does not free
Mr. Omar of the duty to retain professional judgment or enable
the auditors to be pleased with less than convincing audit
evidence when establishing adequate confidence. Comment by
Nandini Balaji: Omar is Omancell's management. He is the
financial controller. Please read and understand the scenario
appropriately and reconsider this entire portion
Mr. Omar must be on the lookout for inconsistent evidence
while analyzing audit evidence since this might undermine the
validity and acceptability of the evidence acquired. Given that
Omancell has been dealing with a lot of competition. As a result
of the Covid epidemic, people are now more likely to shop
online. As a result, several brick-and-mortar stores have gone
out of business. Considering the total adequacy of proof to
substantiate the independent review view should be another
consideration for Mr. Omar when formulating the auditor's
conclusion. By looking at the financial accounts as a whole and
determining if they are accurate (Jenkins, Popova, and Sheldon
2020). Professional skepticism could subsequently lower the
chance of discovery. In order to ensure those audit methods are
used effectively, as well as to minimize any risk of incorrect
conclusions being drawn by auditors based on their
findings.Fraud risk factors
Omancell's unique sector and activities necessitate a customized
vulnerability assessment. Risk assessments should be conducted
by management and managers in charge of every department to

determine the organization's exposure to hazard and risk
occurrences. The risk identification must be updated on a
frequent basis because of the unforeseen events in both the
internal strengths and weaknesses (Spalding, Albert, and Lawrie
2019). Any structure the business prefers for internal controls
over financial reporting can be used, such as a matrix or an in-
depth narrative. Anti-fraud measures should be put in place by
Omancell's Management board and all parties involved, based
on the expectation and influence every risk has on the business.
Asset theft, financial and non-financial disclosure, legal
requirements, and unlawful conduct should all be included in
fraud prevention and detection. Comment by Nandini
Balaji: recommending to first explain what is fraud.
Inappropriately Taking Assets
Cash, goods, and other firm assets are all vulnerable to theft
and should be scrutinized for signs of scraping, larceny, and
other fraudulent activity. Workers that misuse office supplies,
such as desktops, for their own profit are likewise involved in
asset misappropriation. Mr. Omar was able to check on the sale
and purchase contracts of the stores they had sold and earned a
profit on the same (Spalding, Albert, and Lawrie 2019). A new
inventory control system has also been implemented.
Comment by Nandini Balaji: How does the company
recording a gain on sale and leaseback lead to misappropriation
of assets by Omar? Comment by Nandini Balaji:
Recommending to elaborate how this can lead to a fraud risk
factor
All financial and non-financial information
Internal fraud can be revealed through discrepancies between
monetary and nonmonetary data. Exaggerating incomes,
earnings, and assets; and underestimating costs, losses, and
responsibilities are all examples of fraud in financial reporting
that may be perpetrated by management by overcoming internal
controls (Spalding, Albert, and Lawrie 2019). Non-financial

performance measurements, including the number of
infrastructures, the number of Comment by Nandini Balaji: This
is a recommendation dear. not a fraud risk factor. Evaluate if
the factor you are suggesting is there for omancell and provdie
appropriate evidedences
customers, and the number of personnel, must be examined by
Mr. Omar (depending on the company) .
Areas of Regulatory Enforcement
It is imperative for auditors to keep an eye on a corporation's
risk of theft and its framework to assist as external concerns
like the coronavirus outbreak become more complicated. World
events like the outbreak could contribute to a decline in
compliance activities, according to a new analysis by EY
(Spalding, Albert, and Lawrie 2019). Does the company's
compliance program only serve as a "check-the-box" exercise,
or does it go much beyond that? Mr. Omar should find out.
Acts Prohibited by Law
Fraud is criminal conduct at its core, and auditors must be
familiar with the features and symptoms of fraud at all times.
Also, the methods utilized to perpetrate fraud and the types of
fraud that are related to the audited activities are taken into
consideration. Helpful in assessing fraud risk is the Fraud Risk
Assessment (Spalding, Albert, and Lawrie 2019). Fraud
prevention and detection may be reasonably certain when
specialists are involved.
Part BViolations to ethical principles and the nature of threats it
poses
Observance of the criteria of an auditing code of ethics is
necessary to bind auditors all over the globe to fulfill their
engagement goals successfully, as well as to provide reasonable
assurance to those who utilize financial statements. Code of
ethics principles are also referred to as "basic ethical
principles," and auditors must ensure that all of these standards
are met. A few of the most important fundamentals are

truthfulness, objectivity, competence, caring, and respect for
others' privacy and dignity. However, auditors may encounter or
anticipate to encounter situations in which they are unable to
meet ethical standards while carrying out their duties as an
engagement auditor (Ishaque 2019). Such stumbling blocks are
known as threats to basic concepts. The following is a general
classification of dangers, which can take many various forms.
Comment by Nandini Balaji: Scope for additional threat
factors to be identified
Comment by Nandini Balaji: For all the threats youhave
mentioned recommending to suggest appropriate examples from
the scenario and also appropriate safegaurds
Self-Review Threat
If a monetary or other interest influences the professional
accountant's judgment or conduct, this is referred to as a "self-
interest danger." As a result of the global financial or other
objectives of close relatives, personality risks may be on the
rise. In this Omancell scenario, Omar is a CPA who has learned
about the importance of accounting in the public good during
his learning and professional technical program (Drogalas et al.
2017). An auditing supervisor in the organization has been
requested by Omar to be allocated to the assessment of
Omancell. Fathima has no better understanding of customer
audit expertise and has not been initially assigned to the
Omancell audit. Omar's niece Fathima has been revealed after
additional inquiry (Ishaque 2019). When a CPA evaluates
documentation during a certified appointment that is based on
her or her company's business non-attest work, a self-review
danger occurs. The most likely place for a self-review risk is
when an assurance company delivers solutions other than
certification to an ensuring customer that provides numerous
services. Comment by Nandini Balaji: How is fathima being
omar's niece self review threat dear?
Familiarity threat
As a result of the audit company and its workers getting overly

intimate with the customer and its workforce, and independence,
danger occurs. Professional skepticism is in jeopardy under
these conditions. Because it's common for a threat of familiarity
to occur in combination with a threat to one's own interests,
below are some instances about when this possibility could
develop (Johnson, Larson, and DeMersseman 2017). CPA on the
attest steering committee whose partner is the CEO of the
client's company. It was noted to Omar that Abdullah took the
opportunity to fix the system faults, worked multiple jobs over
the weekend, and refused to take time off until the program was
running properly. Under the sale-and-leaseback agreement, the
corporation has also sold a number of its stores. Comment by
Nandini Balaji: How is this a familiarity threat dear?
Advocacy Threat
A few times a year, auditors may function as a client's publicist
or advocate. The consumer advocate is used in these cases by
the auditor. When auditors advocate on behalf of a client, they
put themselves at risk of losing their impartiality. In the
majority of circumstances, a tiny impact may be overlooked.
However, if the consultant's evaluation or impartiality is
damaged as a result of such lobbying, there is an advocacy
hazard. Most audit companies do not restrict their services only
to auditing. They could also offer additional benefits like
accountancy, taxes, and consulting (Johnson, Larson, and
DeMersseman 2017). In rare situations, auditors could also
intervene on behalf of their clients to advocate, advocate, or
protect them. When picking sides with the client jeopardizes the
auditor's credibility, the advocacy danger is greatest.
Undue Influence Threat
Member subordination to an individual linked with the client or
any other relevant third party is threatened by an overwhelming
influence threat because of that individual's reputation or
competence, confrontational response, and efforts to compel and
exert inordinate implication on the membership (Johnson,
Larson and DeMersseman 2017). Omancell is exploring a post-
year-end share sale to fund a digital presence to stay up with

consumers' shifting preferences and also to extend into other
Middle Eastern nations, such as Bahrain. Because of this, Omar
has asked that an auditor's report be completed by February 1,
2022. (4 weeks earlier than usual). As a thank you for their
efforts, Omar has also promised to deliver the most recent
android phones from high-end businesses. Comment by
Nandini Balaji: please reconsider the type of threat
Intimidation threat
It occurs when the auditor is physically or mentally harassed to
prevent him from functioning objectively, whether explicitly or
implicitly. For example, an auditor may be threatened with not
being paid the audit fee or having future audits with the auditor
canceled if he finds it accurately. In Omar's opinion, Abdullah
was responsible for solving the system's problems by working
more hours and refraining from taking time off until the
program was running properly (Johnson, Larson, and
DeMersseman 2017). Under the sale-and-leaseback agreement,
the corporation has also sold a number of its stores. Physical
threats, such as injuring close relatives, and the use of
intimidation of the auditors, may be used. Comment by
Nandini Balaji: how is this intimidation threat?
Management Participation Threat
An employee may acquire managerial duties during an
engagement to deliver non-attest services, for example
(Agustina, Nurkholis, and Rusydi 2021). You cannot be your
company's chief financial officer (CFO). The management
policies of Omancell have been flouted in the past. A few
directors and managers have informed me that they are
dissatisfied with the substantial number of policies and
regulations since they are time-consuming to keep up with
(Lawson 2019). I also appreciate their reluctance to implement
controls since they perceive them as time-consuming and time-
consuming. Comment by Nandini Balaji: Is this threat or

fraud risk factor?
Recommendations
· Requirements for admittance into the professional in areas of
knowledge, expertise, and competence; would assist Omancell
in avoiding circumstances like the one in which Omar has
proposed that Fathima, an auditing supervisor in the
department, be transferred to the assessment of Omancell.
Fathima has no prior expertise auditing the retail industry and
has not before been allocated to the assessment of Omancell.
Fathima is Omar's niece, which is discovered after more
research.
· Improved corporate management rules; would assist Omancell
in avoiding problems such as non-compliance with management
regulations inside the firm.
· Expert or legislative surveillance and disciplinary processes
should be implemented by Omancell. The concept of appropriate
conduct requires all internal auditors to adhere to applicable
rules and regulations and to prohibit any activity that the
auditor understands or should understand may bring the
profession into disrepute.
· External inspection of a competent auditor's statements, taxes,
correspondence, or documents by a legally authorized third
party
Conclusion
In summary, this study explored the practical implications of
adhering to the Ethical principles and identifying fraud risk
factors in the context of the Omancell case scenario. It is
essential for accountants to maintain a level of objectivity and

independence. Auditors must avoid potential biases and other
ethical dilemmas while offering financial advice. Mr. Omar, the
financial administrator, is likely to use professional judgment at
different phases of the audits for Omancell for the fiscal year
ending December 31, 2021, beginning with the preliminary
stages and continuing throughout the assessment process. To
bind auditors all over the globe to successfully fulfill
engagement objectives while also offering users of its financial
statements with sufficient assurance and holding them
accountable for other elements of the professional, accountants
must follow the criteria of the ethical standards. Academic,
certification, and experience criteria for admittance into the
field are among the ideas. It would assist Omancell in avoiding
scenarios such as the one in which Omar asked that Fathima, an
auditing senior in the division, be appointed to the audits of
Omancell. Fathima has no prior experience with business
auditing.
Reference List
Agustina, F., Nurkholis & Rusydi, M.K. 2021, "Auditors'
professional skepticism and fraud detection," International
Journal of Research in Business and Social Science, vol. 10, no.
4, pp. 275-287.
Ariail, D.L., Smith, K.T. & L, M.S. 2020, "Do United States
accountants' personal values match the profession's values
(ethics code)?", Accounting, Auditing & Accountability
Journal, vol. 33, no. 5, pp. 1047-1075.
Drogalas, G., Pazarskis, M., Anagnostopoulou, E. &
Papachristou, A. 2017, "The effect of internal audit
effectiveness, auditor responsibility and training in fraud
detection," Accounting and Management Information
Systems, vol. 16, no. 4, pp. 434-454.
Ishaque, M. 2019, "Managing Conflict of Interests in

Professional Accounting Firms: A Research Synthesis:
JBE," Journal of Business Ethics, pp. 1-19.
Jenkins, J.G., Popova, V. & Sheldon, M.D. 2020, "Monitoring
the accounting profession under the AICPA code of professional
conduct: An analysis of state board of accountancy
participation," Journal of Accounting and Public Policy, vol. 39,
no. 3, pp. 1-19.
Johnson, N.L., Larson, F. & DeMersseman, A. 2017, "Who's
Taking the Accounting Class? Leveraging Professional
Skepticism While Teaching Accounting Online", Journal of
Business Case Studies (Online), vol. 13, no. 2, pp. 73-84.
Krishnan, G. & Peytcheva, M. 2019, "The Risk of Fraud in
Family Firms: Assessments of External Auditors: JBE," Journal
of Business Ethics, vol. 157, no. 1, pp. 261-278.
Lawson, R. 2019, "New Competencies for Management
Accountants: Certified Public Accountant," The CPA
Journal, vol. 89, no. 9, pp. 18-21.
Spalding, Albert D., Jr & Lawrie, G.R. 2019, "A Critical
Examination of the AICPA's New "Conceptual Framework"
Ethics Protocol: JBE," Journal of Business Ethics, vol. 155, no.
4, pp. 1135-1152.
UNDERGRADUATE DEGREE PROGRAMME
Semester - 8
MODULE TITLE: ETHICS AND CONDUCT OF
ACCOUNTING PROFESSION
Chapter 5: Fraud in Financial Statements and Auditor
Responsibilities

Learning Objectives
After studying Chapter 5, you should be able to:
Distinguish between audit requirement for errors, fraud and
illegal act.
Explain the component of the Fraud Triangle
Describe fraud risk assessment procedures
Explain the standards for audit reports
Discuss the characteristics of professional skepticism
5.1 Fraud in Financial Statement
The primary responsibility for the prevention and detection of
fraud rests with both those charges with governance of the
entity and management..
A strong emphasis should be placed on fraud prevention, which
may reduce opportunities for fraud to take place.
Fraud deterrence, which could persuade individuals not to
commit fraud because of the likelihood of detection and
punishment.
As mention in Chapter 3. this involves a commitment to
creating a culture of ethical behaviour, tone at the top, and
reinforced through governance structure.
Fraud deterrence involves conditions and procedures analysis to
keep fraud from taking place. Could include the use of detection
systems to spot fraud before it worsens. The cost of fraud
deterrence is a fraction of the cost of the fraud being prevented.
3
An auditor conduction an audit is responsible for obtaining
reasonable assurance that the financial statements as a whole

are free from material misstatements, whether caused by error
or fraud.
Due to inherent limitation of an audit, there always exist an
unavoidable risk.
The auditing profession recognized its obligation to look for
fraud by being alert to certain red flags,
assessing the control environment of the organization.
Passing judgment on internal controls
Considering the audit risk and materiality
When performing the audit
Nature and Cause of Misstatements;
Misstatements in the financial statements can result from errors
and fraud and may consist of any of the following;
An inaccuracy in gathering or processing data from which
financial statements are prepared.
A difference between the amount, classification or presentation
of a reported financial statement element, account, or item and
the way that it should have been reflected under Accounting
standards.
The omission of a financial statement element, account or item.
An incorrect accounting estimate due to oversight,
misrepresentation of facts and fraud.
Omission of disclosure requirements.
Accounting estimate is an approximation of the amount to be
debited or credited on items for which no precise means of
measurement are available. They are based on specialized
knowledge and judgment derived from experience and training.
Useful life of non-current assets
Impairment of non-current assets
Bad debts

Provision for obsolete and slow-moving stock
5
Misstatements in the Financial Statements could be due to fraud
or error.
There are also other unlawful activities like corruption, money
laundry and others.
Error
Fraud
Other Unlawful/Illegal activities.
Errors, Fraud, and Illegal Act.
Material errors, fraud and illegal acts represent situations where
the financial statements should be restated.
Error in Financial Statement
An error can occur due to unintentional misstatements or
omissions of amounts or disclosures in the financial statements.
Errors may involve mistakes in gathering or processing data,

unreasonable accounting estimates.
Auditors are responsible for detecting errors that have a
material effect on the financial statements and reporting their
findings to the audit committee.
Auditors should be sensitive to red flags that warn fraud is
possible.
The intentional act of fraud occur when an individual(s) in
management, those charged with governance, employees or third
parties, use deception in a way that results in a material
misstatement in the financial statements.
Most common form of fraud is, management fraud involves top
management’s deceptive manipulation of financial statements.
Illegal Acts
Illegal acts are violations of laws or governmental regulations.
Eg: a violation of the Foreign Corrupt Practices Act that
prohibits bribery constitutes and illegal act.
Illegal acts expose the company to both legal liability and
public disgrace.
Auditor’s responsibility is to detect and report misstatements
resulting from illegal acts that have direct and material effect
on the determination of financial statement amounts.
The auditor should assure him/herself that the audit committee
is informed as soon as practicable and prior to the issuance of
the auditor’s report with respect to illegal acts that come to the
auditor’s attention.
ILLEGAL
ACT

The Sarbanes – Oxley Act 2002 ( SOX )
Why was the Act passed?
Financial scandals at Enron, WorldCom, and others
Desire to restore investor confidence and increase the
transparency of the financial statements of publicly traded
companies
Desire to protect investors by improving the accuracy and
reliability of corporate disclosures
The Sarbanes – Oxley Act 2002 ( SOX )
The Sarbanes – Oxley Act was designed primarily to regulate
corporate conduct in an attempt to:
promote ethical behaviour and
Prevent fraudulent financial reporting.
The legislation applies to companies’
Board of Directors
Audit committee
Chief Executive Officer
Chief Financial Officer
Other management personnel who have influence over the
accuracy and adequacy of external financial reporting.
ALTHOUGH, SARBANES-OXLEY IS NOT THE LAW IN
OMAN, IT IS APPARENT THAT ENRON AND THE
REQUIREMENTS OF SARBANES-OXLEY WERE
CONSIDERED WHEN THE CAPITAL MARKET AUTHORITY
(CMA) ISSUED OMAN’S FIRST CODE OF CORPORATE
GOVERNANCE IN NOVEMBER 2002 (CIRCULAR 11/2002).

Sarbanes – Oxley Act
Includes reforms in corporate governance and accounting
profession intended to:
Improve corporate financial reporting and internal control
Strengthen audit committees
Change the relationship between auditor and client
Improve auditor independence
Provide additional auditor assurance
Provide oversight and regulation for auditors of publicly traded
companies.
Types of Internal Frauds
Internal Frauds
Asset Misappropriation
Fraudulent Statement
Cash
Non cash
Financial
Conflict of interest

Bribery and extortion
Corruption
Fraudulent Financial Reporting
This is usually in the form of falsification of financial
statements in order to obtain some form of improper
benefit.
Management intentionally makes false entries to make the
company looks more profitable (cook the books of accounts)
Deceives investors and creditors
Fraudulent financial reporting
Manipulation/falsification/alteration of accounting records.
Omission of events, transactions or significant information i n
the financial statements.
Intentional misapplication of accounting principles
Misappropriation of Assets
This involves the theft or misuse of an organisation’s assets.
Asset misappropriation fraud happens when people who are
entrusted to manage the assets of an organisation steal the
assets. Asset misappropriation fraud involves third parties or
employees in an organisation who abuse their position to steal
from it through fraudulent activity. It can also be known as
insider fraud.
This type of fraud can be committed by company directors, or
its employees, or anyone else entrusted to hold and manage the
assets and interests of an organisation.

Misappropriation of assets
Embezzling receipts
Stealing company assets/inventory
Causing an entity to pay for goods not received
Using assets for personal use
Examples include theft of plant, inventory or cash, false
invoicing, accounts receivable fraud, and payroll fraud
Bribery and corruption
Corruption can be defined as deviation from honest behavior.
This includes activities such as the use of bribes or acceptance
of ‘kickbacks’, improper use of confidential information,
conflicts of interest and collusive tendering.
Various forms of corruption include the following:
BRIBERY: offering/givi ng/receiving/soliciting of any item of
value to influence the actions of an official or other person in
charge of a public or legal duty.it may not be money/tangible
gift. It can be a privilege. It need not be paid and can be just
promised.
ABUSE OF A SYSTEM: using a system for improper purpose
BID RIGGING: Promising a contract in advance to one party,
although other parties have been invited to bid for the contract.
CARTEL: a secret agreement by supposedly competing
producers to fix prices, quantity or market share.
INFLUENCE PEDDLING: Using personal influence in
government or connections with persons in authority to obtain
favors or preferential treatment for another, usually in return for
payment
Opportunities
Attitudes/ rationalisations

Incentive/ pressure
The fraud triangle factors are used to understand the reason for
a person’s decision to commit fraud. It consists of three
components which, together, lead to fraudulent behaviour
These factors are generally present when misstatements due to
fraud occur.
Pressure/Incentive
This is the motivational factor that pushes the person to commit
fraud.
Opportunities
These are the circumstances that enable fraud to be perpetuated.
Attitude/Rationalisation
This is the justification that is given for committing the fraud.
5.2 FRAUD TRIANGLE
Pressure
In simple terms, motivation is typically based on either greed or
need. Stoy Hayward’s (BDO) most recent FraudTrack survey
found that greed continues to be the main cause of fraud,
resulting in 63% of cases in 2007 where a cause was cited.
Financial pressure is the most common type of pressure to
commit fraud.
The Element of Pressure
Financial pressures
Vices
Work-related pressures

Other pressures
5.2 Fraud Triangle
The Element of Pressure
Financial Pressures
Vice Pressures
Work-related Pressures
Greed
Living beyond one’s means
High bills or personal debt
Poor credit
Personal financial losses
Unexpected financial needs1.Gambling
2.Drugs
3.Alcohol
4.Expensive extramarital relationships
Motivated by these factors:
Getting little recognition
Feeling job dissatisfaction
Fear of losing one’s job
Being overlooked for a promotion
Feeling underpaid

Opportunity
In terms of opportunity, fraud is more likely in companies
where there is a weak internal control system, poor security
over company property, little fear of exposure and likelihood of
detection, or unclear policies with regard to acceptable
behavior.
Six major factors that increase opportunity:
Lack of controls
Inability to judge performance quality
Fail to discipline fraudsters
Lack of access to information
Ignorance, apathy and incapacity
Lack of audit trail
Rationalization
Many people obey the law because they believe in it and/or
they are afraid of being shamed or rejected by people they care
about if they are caught.
However, some people may be able to rationalize fraudulent
actions as:
Necessary – especially when done for the business
Harmless – because the victim is large enough to absorb the
impact
Justiﬁed – because ‘the victim deserved it’ or ‘because I was
mistreated.’
Incentive/PressureOpportunitiesRationalizations/Attitude
Financial stability/profitability is threatenedSignificant related
party transactionsRelationship between management and
current/predecessor auditor is strainedPressure on management
to meet the expectations of third partyComplex

transactions/significant estimatesPractice by management of
committing to aggressive/unrealistic forecastsPersonal
financial situation of management threatened by the entity’s
financial performance.Domination of management by single
person/small groupKnown history of violations of security
laws/other laws and regulationsExcessive pressure on
management or operating personnel to meet the expectations of
third parties.Complex or unstable organizational
structureIneffective communication/enforcement of entity’s
values or ethical standards by the managementPersonal financial
obligationsInternal control components are deficientLow morale
among senior managementAdverse relationships between the
entity and employees with access to cash or other assets
susceptible to theft.Inventory/assets are small in size and high
in valueBehavior indicating displeasure/dissatisfaction with the
entityCash intensive businessChanges in behavior or
lifestyleEasily convertible assets (computer chips, diamonds,
bearer bonds)Failing to correct known control deficiency.
Overriding existing controls
Fraud Triangle
5.3 Fraud Consideration and Risk Management
Fraud consideration in an audit require that the auditor should
evaluate the risk of fraud, including the effectiveness of internal
controls, and communicate with those charged with governance
responsibilities about fraud.
Fraud may be harder to detect than error, because with a fraud
the fraudster is actively trying to hide what they have done.

Whose responsibility is it to prevent fraud?
Management and those charged with governance are primarily
responsible for preventing and detecting fraud.
How can they do so?
Establish strong control environment and establish a culture of
honesty and ethical behavior.
Emphasis within the company on fraud prevention and set up
fraud hotlines, reporting procedure and protection. Adopt a zero
tolerant policy toward fraud.
Emphasize good corporate governance
Discussion with the engagement team.
The audit team can discuss the following factors:
How fraud can be done?
How to maintain professional skepticism throughout the audit?
Types of circumstances that might indicate fraud.
How unpredictability can be incorporated into audit?
Any allegations of fraud that have come to the auditors notice
The risk of management override of controls.
What audit procedures to be carried out to answer any
suspicions of fraud?
2. Fraud Risk Assessment
Fraud risk assessment depends in large part on maintaining

professional skepticism when evaluating the reliability of audit
evidence obtained and assessing whether a material
misstatement due to fraud exists.
The broad goal of fraud risk assessment;
make inquiries of management and others within the
organization to obtain their views about the risks of fraud and
how they are addressed. This can include employees, TCWG,
internal audit department.
Consider any unusual or unexpected relationships that have
been identified in performing analytical procedures
Consider whether one or more fraud risk factors exist.
Consider other information that may be helpful in identifying
risks of material misstatement due to fraud.
3. Internal Control
The system of internal controls and whether it operates as
intended, enables the auditors to gain confidence about the
internal processing of transaction.
Auditors should ensure that there is effective internal controls
on place.
As part of evaluating the control environment, the auditor
should assess whether
Management’s philosophy and operating style promote effective
internal control over financial reporting
Sound integrity and ethical values, particularly of top
management, are developed and understood.
The board or audit committee understands and exercises
oversight responsibility over financial reporting.
5.5 Professional Skepticism

Professional Skepticism plays a fundamentally important role in
the audit by facilitating professional judgement, particularly
regarding decision about:
The nature, timing and extend of audit procedures to performed
to reduce the risk of material misstatement to an appropriate
level
Whether sufficient, competent, and relevant evidence has been
obtained and whether additional evidence needs to be gathered
to support risk analysis
The evaluation of management’s judgement and estimates used
in recording transactions and financial statement presentation
Consideration of fraud in the audit
The conclusion reached based on the audit evidence obtained.
Reference
Steven , M. M., & Roselyn, E. M. (2017). Ethical Obligation
and Decision Making in Accounting (4 ed.). New York:
McGraw- Hill Education.
UNDERGRADUATE DEGREE PROGRAMME
Semester - 8
MODULE TITLE: ETHICS AND CONDUCT OF
ACCOUNTING PROFESSION
Chapter 4: Ethics and Professional Judgement in Accounting
Learning Objectives

After studying Chapter 4, you should be able to:
Explain how professional judgement and skepticism influence
ethical decision making
Discuss how the public interest may be affected by commercial
activities of CPAs
Understand the importance of Code of Ethics.
Explain the fundamental ethical principles
Explain the threats and safeguards approach to independence
4.1 What is Professional Judgement In Accounting
Judgement is the process of reaching a decision or drawing a
conclusion where there are several possible alternative
solutions.
Judgement occur in a setting of uncertainty, risk and often
conflict of interest.
Professional judgement is influenced by personal behaviour
traits (attitudes and ethical values) as well as one’s knowledge
of accounting and auditing issues in question
Professional judgement, which is the bedrock of the accounting
and auditing profession, it is referenced through out the
professional judgement.
Professional Judgement
Ability to diagnose
Ability to solve
Knowledge
Skills
+
=
Professional Judgement

4.1.1. KPMG Professional Judgment Framework
The KPMG framework identified five components of
professional judgment that revolve around one’s mindset.
The components are;
Clarify issues and objectives
Consider alternatives
Gather and evaluate information
Reach conclusion
Articulate and document rationale.
Auditor should approach matters objectively and independently,
with inquiring and incisive minds.
Professional Skepticism is required to avoid judgment traps and
tendencies that leads to bias.
4.1.2. Professional Skepticism
In addition to possessing the requisite skills, the auditing
standards stipulate that auditors must maintain professional
skepticism, arguably one of the auditor’s most important
responsibilities.
Professional skepticism is an attitude that includes a
questioning mind and a critical assessment of audit evidence.
The auditor uses the knowledge, skill, and ability called for by
the profession of public accounting to diligently perform, in
good faith and with integrity, the gathering and objective
evaluation of evidence
An audit of financial statements in accordance with generally
accepted auditing standards should be planned and performed

with an attitude of professional skepticism.
In exercising professional skepticism, the auditor should not be
satisfied with less than persuasive evidence because of a belief
that management is honest.
4.2. Discuss How the Public Interest may be Affected by
Commercial Activities of CPAs.
Professional judgement is what makes an accountant a
professional and it underlies the fundamental obligation to
protect public interest.
The auditor fulfills what Justice Burger calls “ a public
watchdog function.”
Following the disclosure of numerous accounting scandal the
public lost trust in the accounting profession. And professional
bodies turned their attention to examining how to rebuild the
public trust and confidence in financial reporting.
4.2. Discuss How the Public Interest may be Affected by
Commercial Activities of CPAs.
Widely agreed that the purpose, nature, and responsibility of
business are to maximize profit or shareholder value.
An accounting firm main function is to attesting to the truth and
correctness of financial statements.
But to the extent that, an accounting firm is treated as a
business, and it falls under the profit maximizing rubric
The movement in accounting from auditing and attesting
functions to management consulting changed it from a
profession
dedicated to public services
to a business committed to maximizing partner or shareholder
wealth.
4.3 Global Code of Ethics

A code of ethics is a set of rules outlining the social norms and
rules and responsibilities of, or proper practices for, an
individual, party or organization.
Accountants have a responsibility to present the most truthful
and accurate financial pictures of an organization.
As auditors, they have a responsibility to evaluate other
accountants ’ pictures and attest to their truthfulness and
accuracy.
The accounting profession has developed multiple codes of
ethics that set the standards for accountants ’ behaviour,
standards that require more than simply adhering to the letter of
the law.
4.3.1. Importance of Codes of Ethics
Business Ethics mention the six ways that codes of conduct can
be valuable:
A code can motivate through using peer pressure, by holding up
a generally recognized set of behavioural expectations that must
be considered in decision making.
A code can provide more stable permanent guides to right or
wrong than do human personalities or continual ad hoc
decisions.
Codes can provide guidance, especially in ambiguous situations.
Codes not only can guide the behaviour of employees, they can
also control the autocratic power of employers.
Codes can help specify the social responsibilities of business
itself.
Codes are clearly in the interest of business itself, for if
businesses do not police themselves ethically, others will do it
for them.
4.3.2 International Standards on Code of Ethics for Professional
Accountants
International Federation of Accountants (IFAC)

Code of Ethics for Professional Accountants,
updated in 2009 by the
International Ethics Standards Board for Accountants (IESBA)
IESBA develops ethical standards and guidance for professional
accountants.
The IESBA encourages member bodies to adopt high standards
of ethics for their members and promotes good ethical practices
globally.
4.3.3. International Federation of
Accountants (IFAC)
The International Federation of Accountants (IAFC) is the
worldwide organization for the accountancy profession.
Founded in 1977, its mission is to serve the public interest by
continuing to strengthen the worldwide accountancy profession
and contributing to the development of strong international
economies
IFAC is comprised of over 175 members and associated in more
than 130 countries and jurisdictions, representing almost 3
million accountants in public practice, education, government
service, industry and commerce.
In order to reinforce professional accountants’ adherence to the
values mentioned above IESBA issued the Code of Ethics for
Professional Accountants.
4.3.4. Code of Ethics for Professional
Accountants
IESBA Code of Ethics for Professional Accountants establishes
ethical requirements for professional accountants.
A member body of IFAC or firm shall not apply less stringent
standards than those stated in this code.
Some of the member body of IFAC
American Institute of Certified Public Accountants (AICPA) -

USA
Institute of Management Accountants (IMA) - USA
Association of Accounting Technicians (AAT) - UK
Association of Chartered Certified Accountants (ACCA) - UK
Chartered Institute of Management Accountants (CIMA) – UK
Professional Accountancy Organization in Oman is Omani
Association of Accountant, currently not a member of IAFC.
4.4. Fundamental Principles
The Professional accountant shall comply with the following
fundamental principles
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behaviour
Integrity
To be straight forward and honest in all professional and
business relationships
Objectivity
To not allow bias, conflict of interest or undue influence
of others to override professional or business judgments
Professional Competence and Due Care
To maintain professional knowledge and skill at the level

required to ensure competent professional services based on
current developments in practice, legislation and techniques
To act diligently in accordance with applicable technical and
professional standards
Confidentiality
To refrain from disclosing confidential information acquired as
a result of professional and business relationships without
proper and specific authority to disclose unless there is a legal
or professional right or duty to disclose
To refrain from using confidential information acquired as a
result of professional and business relationships for personal
advantage or the advantage of third parties
Professional behavior
Obligation to comply with relevant laws and regulations and
avoid any action that discredits the profession
4.5. Conceptual Framework Approach – Threats and Safeguards
4.5. Conceptual Framework Approach – Threats and Safeguards

Threats are created by circumstances and relationships that
could compromise an accountant’s ability to comply with the
fundamental principles.
Safeguards are actions or other measures that may
eliminate threats or reduce them to an acceptable level
The steps of Risk based approach
Identifying and evaluating threats to independence
Determining whether safeguards already eliminate or
sufficiently mitigate the identified risk
Determine whether independence is impaired
4.5.1 Threats to Independence
To appear to be independent, the CPA should avoid
circumstances that might cause an informed third party to
reasonably conclude that the integrity, objectivity or
professional skepticism of a firm or member of the audit
engagement team has been compromised
Threats to independence
Self-Review Threat

Advocacy Threat
Adverse Interest Threat
Familiarity Threat
Financial Self-Interest Threat
Self Interest Threat
A self-interest threat is the threat that a financial or other
interest will inappropriately influence the professional
accountant's judgement or behavior.
Self-interest threats may arise as a result of the financial or
other interests of members or of immediate or close family and
are summarized in the diagram below.
Self Review Threat
A Self-review threat occur when a CPA reviews evidence during
an attest engagement that is based on her own or her firm’s non-
attest work. The key area in which there is likely to be a self-
review threat is where an assurance firm provides services other
than assurance services to an assurance client (providing
multiple services).

Eg: Preparing source documents used to generate the client’s
financial statements
Advocacy Threat
An advocacy threat occurs when a CPA promotes an attest
client’s interests or position in such a way that objectivity may
be, or may be perceived to be, compromised.
Eg: Promoting the client’s securities as part of an initial
public offering
Eg. when a firm offered legal services to a client and, say,
defended them in a legal case or
provided evidence on their behalf as an expert witness.
Eg. If the firm carried out corporate finance work for the
client, for example, if the audit firm was
involved in advice on debt reconstruction and negotiated with
the bank on the client’s behalf.
.
Familiarity Threat
A familiarity threat arises where independence is jeopardised by
the audit firm and its staff becoming over familiar with the
client and its staff. There is a substantial risk of loss of
professional scepticism in such circumstances.
We have already discussed some examples of when this risk
arises, because very often a familiarity threat arises in
conjunction with a self-interest threat.
Eg: A CPA on the attest engagement team whose spouse is the
client’s CEO.

Intimidation Threat
An intimidation threat arises when members of the assurance
team have reason to be intimidated by client staff.
Examples of intimidation threatsA threat of dismissal from a
client engagement, if it continues to disagree with the
client/plans to modify the auditor's reportA threat of not giving
a firm a contract for non-assurance workA threat of litigation by
the clientPressure to reduce the amount of work done in order to
reduce feesPressure to agree with the client because the client
has more experience on the matterA partner within the firm
telling a member of the audit team that they will not be
promoted if they disagree with the client
An undue influence threat results from an attempt by the
management of an attest client or other interested parties to
coerce the CPA or excessive influence over the CPA
Eg: A threat to replace the CPA or CPA firm because of a
disagreement with the client over the application of an
accounting principle.
Financial Statement Threat
The threat that a financial or other interest will inappropriately
influence the professional accountant’s judgement or behavior.
Examples: Having a loan from the client, from an officer
or director of the client.
A management participation threat occurs when a CPA takes on
the role of client management or otherwise performs

management functions on behalf of an attest client.
Adverse Interest Threat
An adverse interest threat occurs when a CPA takes actions that
are in opposition to an attest client’s interests or positions.
Eg: Commencing or the expressed intention to commence,
litigation by either the client or the CPA against the other.
https://www.coursera.org/lecture/auditing-part1-conceptual-
foundations/threats-to-independence-3Lldj
4.5.2. Safeguards
Two categories:
Safeguards
Created by the profession, legislation or regulation
In the work environment
4.5.2 Safeguards created by the
profession, legislation or regulation
Educational, training and experience. requirements for entry
into the profession.
Continuing professional development requirements.

Corporate governance regulations.
Professional standards.
Professional or regulatory monitoring and disciplinary
procedures.
External review by a legally empowered third party of the
reports, returns, communications or information produced by a
professional accountant.
Examples of Safeguards in Work Environment
Reference
Steven , M. M., & Roselyn, E. M. (2017). Ethical Obligation
and Decision Making in Accounting (4 ed.). New York:
McGraw- Hill Education.
ACCA BPP P7 Study Text.
DEPARTMENT OF UNDERGRADUATE PROGRAMME
ASSIGNMENT BRIEF/Individual or Group
Weightage: 30%
Student Name & ST Number
Semester
8

September – December 2021Assignment Title
Practical implication in adherence to the Code of Ethics and
identification of fraud risk factors.
Module
UG 034 – Ethics and Conduct of Accounting Profession
Assessor:
Ms. Nandini Balaji/ Ms. Mariam Hassen
Start Date:
Internal Verifier
Mr. Mohammed Farzan
Due Date:
Required Work, Format and Grading
You must submit the following by the assignment due date:
1. Completed answers to each task, making sure that you fully
address each of the outcome criteria.
· Answer all questions separately.
· Assignments without TURNITIN report will not be accepted.
Resources:
You need to demonstrate a confident application of the theories
to the assignment task. The theoretical underpinning of your
observations and deliberations should also demonstrate a good
understanding of the subject by the way that your analysis is
structured.

You can access the Internet to research about the topic. You
should demonstrate good academic practice by the appropriate
use of academic texts and journals that are properly referenced.
Guidelines and further information about assignment:
Assignment must be submitted with the “Turnitin” report. If the
report generated indicates a similarity index percentage of 20%
or more, a review of your assignment is necessary to ensure the
same is reduced to less than 20%.
Student declaration:
I certify that the work contained in this assignment was
researched and prepared by me:
Signature: ___________________________
Date: ___________________
Submission time and date
You should submit the assignment by the time and date
mentioned otherwise a ‘NA’ will be awarded. Fill in the form
cover and staple it with your assignment. Make sure that all the
relevant details are complete. Assignments must be submitted
by the due date. You may include diagrams, figures etc without
word penalty.
Plagiarism Writing
1. Plagiarism occurs if you use somebody else’s work in an
assignment or exam answer, but fail to state where you got the
material from. You need to be also very careful about the
amount of words you are using from somebody else’s work.
2. It can happen in any type of assessment where you are given
the questions or tasks in advance.
3. If another student uses your work in his/her answer(s), both
you and he/she will be punished when caught.

4. Punishments for committing plagiarism can be very severe.
Details
Plagiarism is a form of cheating in which students use the work
of others and present it as their own. It may include all or any
one of the following –
1. Copy extensively from the work of others (from sources
such as books, magazines, journal, web-sites etc) and submit the
work as your own.
2. Copy another students’ work and submit it for assessment
under your own name.
3. Allow another student to copy your work and then submit it
for assessment under their own name.
What happens if you get caught?
The examining body of CBFS may punish offending students in
any manner that they deem fit. Typical punishments may range
from reduction in grades, making students re-sit modules and
even failing students on a module or an entire award. The
college considers this form of cheating as a serious offence.
Therefore be forewarned!
Scenario
You are the audit manager of Ahmed and Saif Chartered
Accountants. You are at the planning stage of the audit for
Omancell for the year ended 31 December 2021. Omancell is a
high-end retailer of latest flagship model mobile phones. Given
below are the notes that you have made following a meeting

with Mr. Omar, the financial controller:
Omancell has been facing tough competition in the market. The
Covid pandemic has worsened it, as customers now prefer
online retailers. This has resulted in physical retailers going out
of business.
A new management structure has been implemented. There are
new divisional managers appointed with the shop managers
reporting to them. There are approximately 10 shops under each
divisional manager. The divisional managers have been given
challenging financial targets, with substantial incentives linked
to these targets, with the aim of motivating them to achieve it.
In the previous board meeting it has been decided to cut the
bonus amount paid to the shop staff for the festive season.
In response to the recommendations made in the previous year’s
Report to Management, Omancell has brought a couple of new
changes. Firstly, the company has also sold several of the shops
they owned under the sale and leaseback arrangements and have
made a gain on the same. They have also put a new inventory
management system into place. In the initial months after
implementation, there were difficulties in the operation of the
system. However, a detailed report has been submitted to the
Board in their previous meeting, by Abdullah, the chief
accountant, confirming that the issues were fixed and now the
system is producing reliable information for Omancell’s use.
Omar commented that Abdullah took the initiative to sort the
issues with the system, especially working long hours including
weekends and refusing to take leave until the system was
functioning well. The company has also sold several of the
shops they owned under the sale and leaseback arrangements.
In the course of your work you also come across instances of
non-adherence to management policies. When talking to a
couple of divisional managers about this you understand that the
divisional managers are unhappy with the large number of
policies in place as it is time consuming to keep up. You also
understand that they reluctant to have controls in place as they
feel it is cumbersome and involves lot of paperwork.

Omancell is considering to raise new capital by share issue post
year end, to finance an online presence to keep up with
customers’ changing preference and also to expand into other
Middle East countries. Hence, Omar has requested that the
signed audit report be provided by 1st February 2022 (4 weeks
earlier than usual). Omar has also offered to provide the latest
flagship phones of high-end companies as a gift for their hard
work.
Omar has completed CPA and, in his studies, and continuous
professional development sessions heard about the need for
accounts to act in public interest. Omar has requested that
Fathima, an audit senior in your department be assigned to the
audit of Omancell. Fathima does not have experience in audits
of retail sector and has not been previously assigned to the audit
of Omancell. On further investigation, you understand that
Fathima is Omar’s niece.
During the year the company has established a pension plan for
the employees. Omar has asked you to speak to the engagement
partner about providing valuation services for the same.
a. Using Professional skepticism, identify and explain the fraud
risk factors that your audit team has to keep an eye out for
during your audit of Omancell. (15 marks)
b. Identify and evaluate the violations to ethical principles,
including the nature of threats it poses. Also recommend
suitable actions Omancell can take to mitigate these threats.
(10 Marks)
Word Limit of 2500 word (10% + or -)
(Total 25
Marks)
Guidelines
The written report must include a;
· Title Page
· Table of Content

· Introduction
· Content
· Part A
· Part B
· Conclusion
· Reference List (Harvard Style)
(5
Marks)
Assignment Rubrics - Level 8
Marks/Grades
Criterion
90-100
A
85-89
A-
74-84
B
56-73
C
55-55
D
0-49
F
Knowledge
20%
Shows well-coordinated understanding of subject
Sound understanding of subject matter
Major facts are understood
Shows understanding of basic issues/theory
Minimal understanding of basic issues/topic
No understanding of the topic/subject area
Analysis 50%
Touches upon all relevant issues/theory. Concise analysis
Detailed coverage of basic concepts/theory. Reasonable
coverage of subtle issues/theory

Reasoned argument and sequencing
Shows evidence of understanding of concepts. Coverage of
obvious ideas.
Fails to identify subtle issues/theory. Captures obvious ideas.
No or minimal understanding of the key theories/topic
Research 10%
Excellent referencing and reading in all areas
Use of up-to-date resources. Well informed and generally
accurate information provided.
Appropriate referencing
Adequate referencing and reading.
Weak reading and referencing
Poor referencing. Shows lack of reading/references out of date
Relevance 10%
All material used is of relevance
Material used is relevant
Discussion shows relationship to theory
Some material repetitive
Some repetitive matter. Irrelevant
No relevance to subject matter
Conclusion 10%
Excellent conclusion. Brings together all concepts and adds an
original perspective
Intelligent conclusion. Good application of knowledge
Methods incorporate modifications used
Conclusion in place but key points missing. Reasonable
application of knowledge
Weak conclusion and content. Satisfactory application of
ideas/theory
Poor conclusion. Poor knowledge application.
Presentation – Rubrics
Marks/Grades
Criterion
90-100

A
85-89
A-
74-84
B
56-73
C
55-55
D
0-49
F
Delivery
25%
Shows well-coordinated delivery with confidence
Sound coordinated delivery with confidence
Some evidence of coordinated delivery with confidence
Basic coordinated delivery with average confidence
Minimal coordinated delivery with limited confidence
No evidence of coordinated delivery with low confidence
Methods
25%
Creative quality of PPT slides
Sound quality of PPT slides
Some evidence of quality of PPT slides
Shows basic quality of PPT slides
Minimal evidence of quality of PPT slides
No evidence of quality of PPT slides
Structure
25%
Shows well-coordinated logical structure & flow
Sound logical structure & flow
Evidence of logical structure & flow
Shows basic logical structure & flow
Minimal logical structure & flow
No evidence of logical structure & flow
Content

25%
Shows well-coordinated evidence of coherent, insightful &
explicitly relevant answer to the question
Sound evidence of coherent, insightful & explicitly relevant
answer to the question
Some evidence of coherent, insightful & explicitly relevant
Shows basic coherent, insightful & explicitly relevant answer to
the question
Minimal evidence of coherent, insightful & explicitly relevant
No evidence of coherent, insightful & explicitly relevant answer
to the question

COLLEGE OF BANKING AND FINANCIAL STUDIESDEPARTMENT OF UNDERG

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