1. AUDITOR INDEPENDENCE
 Why is it important?
 Rules - Companies Acts/Ethical Rules
 Problems
 Recommendations re improvement

2. INDEPENDENCE AND THE COMPANIES
ACTS
 S385 1985 - Shareholders appoint auditors
 S25 1989 - Prohibits an officer or servant
from becoming an auditor
 S389A 1985 - Right of access to all books
and records etc
 S391 1985 - Rights associated with attempts
at removal
 S392 1985 - Rights/duties associated with
resignation.

3. ACCA/IFAC FUNDAMENTAL
PRINCIPLES
 Integrity – straightforward & honest
 Objectivity –not be biased / influenced
 Professional competence and due care –
maintain competence and act diligently
 Confidentiality – not disclose info or use for
personal advantage
 Professional behaviour – comply with
laws/regs and avoid action that discredits the
profession

4. POTENTIAL THREATS

5. ACCA RULES OF PROFESSIONAL CONDUCT
INDEPENDENCE
 Independence and the audit
 Objectivity can only be assured if the member is,and
is seen to be independent.
 Threats to independence
 Undue dependence on an audit client
Total fee income from a client should not exceed 15%
of gross practice income (PIE - limit is 10%)
 Overdue fees
 Family and other personal relationships
 Beneficial interest in shares or other investments

6. ACCA RULES OF PROFESSIONAL CONDUCT
INDEPENDENCE (CONT’D)
 Beneficial interests in trusts
 Trustee investment
 Loans and guarantees to or from
 Goods and services / hospitality
 Provision of other services to audit clients
 Specialist valuations
 Threatened litigation

7. APB –ETHICAL STANDARDS
 ES1 integrity,objectivity&independence- firms
appoint ethics partner ;
 ES2 –financial,business,employment &
personal relationships – if lend staff must not
be involved in audit ; partner to client 2yr
cooling off period ;
 ES3 –long association with audit client –
engagement partner rotation for listed clients
after 5 yrs

8. APB –ETHICAL STANDARDS
 ES4 Fees,remuneration,gifts,hospitality- 10%
listed/15% others – applied more rigidly
 ES5 Non-audit services – no internal audit if
rely on int. audit / no IT if place reliance on
systems – no tax on contingency basis &
can’t appear before tribunal on behalf of client
 ES Provisions available for smaller entities –
Audits below threshold get relief from some
provisions of ES1-5 (Provisions available for
small entities)

9. CONFIDENTIALITY
Reporting Fraud/Illegal Acts
 Management - directors/audit committee
 Shareholders – if material – audit report
 Third Parties
a) Disclosure permitted – client’s permission;
in the public interest; to protect member’s
interests e.g. ACCA disciplinary action
b) Disclosure required – bylaw; treason etc;

10. CONFLICT OF INTEREST
Client v Auditor
 Other services - total fee income
 Fees/ commissions disclosed
Client v Client
 Can act for clients in same industry
 Should not advise clients re competitive
tenders
 Safeguards!

11. Independence - Safeguards

12. ACCEPTANCE OF NEW APPIONTMENT
BEFORE ACCEPTANCE
 Practical/ethical issues
 Agree fee/tender process
 References for the directors
 Consult existing auditors
AFTER ACCEPTANCE
 Ensure outgoing auditor removal/resignation
 Copy of resolution re appointment
 Letter of engagement

13. LETTER OF ENGAGEMENT
Objectives – clarify terms of engagement and
responsibilities of auditors and directors
Contents:
 Responsibilities of auditors & directors
 Scope of audit (refer to planning regarding
fraud)
 Other services
 Fees
 Agreement of terms

14. AUDITOR REPONSIBILITY FOR
REPORTING FRAUD
To members:
a) Refer to in audit report if:
 Alter T/F view
 Do not comply with Companies Act
 Proper A/c records kept
 All info & explanations received
b) In extreme circumstances could resign –
“statement of circumstances”

15. AUDITORS REPONSIBILITY FOR
REPORTING FRAUD
To Third Parties:
a) Freedom to Disclose
 Can override duty of confidence if in public
interest
 Inform non-exec directors first – ask to
disclose
 If unwilling report to appropriate authority
 May seek legal advice first

16. AUDITORS RESPONSIBILITY TO
REPORT FRAUD
To Third Parties
b) Obligation to disclose
 If ordered to by court
 Certain info must be given to liquidators/ receivers
 DTI inspectors
 Under various legislation e.g. Money Laundering
Regs / Pensions Act

17. IMPROVING AUDITOR INDEPENDENCE