The Auditor and the Professional Ethics Notes
Introduction
Auditing is usually carried out by qualified accountant who must be
registered as accountants. Accountancy is a profession and as such must
be guided by code of ethics and rules of conduct. The rules of conduct
are usually found professional handbooks issued by member’s body and
issued to all registered members. This chapter will attempt at
explaining what a profession is, rules that guide professions among other matters.
Profession
Most dictionaries describe and define profession as a calling or
vocation involving some branch of learning. Accountancy involves a body
of knowledge. Accountants must tried in various areas .The idea of a
profession rests on the following premises
- A recognizable discrete body of knowledge
- An educational process
- A system of examinations
- A system of licensing practitioners
- A sense of responsibility to the society
- A code of ethics
- A set of technical standards
General Rules of Ethics
Professional accounts are required to observe proper standards of
professional conduct whether or not the standards required are written
in the rules or are unwritten. The professional accountants are
specifically required to refrain from misconduct which is difficult to
precisely but which includes any act or default which is likely to bring
discredit on himself, his professional body or the
profession generally
Several general observations are worth mentioning. These include among
others:
- Professional independence – this is vitally important. This is much
of the attitude or state of mind rather than a set of rules. - Integrity – Integrity is vital and is simply includes honesty,
uprightness, probity rectitude and moral soundness - Accountants must not only be people of integrity and independence;
they must also be seen to be so. Any interest such as owning shares
in a clients company which might diminish the accountant’s
objectivity must be avoided - When an accountant has difficult or is unsure of what course of
conduct to follow, he should consult his professional body or take
legal advice. If in doubt always seek advice
Independence
The rule of the thumb is that the accountant must approach his work with
integrity and objectivity. He must approach his in a spirit of
independence of mind.
Factors That Can Compromise The Auditor’s Independence
- Fees
It is undesirable that the auditor derives a huge proportion of his income from one single client. If
this happens the auditor is likely to be compromised by this client - Personal Relationships
It is desirable to avoid personal relationships with the client and
his staff. Conflict of interest is likely to arise in cases where
there exist such relationships - Beneficial Shareholdings
In general, partners, their spouses and minor children should avoid
owning shareholding the clients companies. Staff members who own
shareholding in companies should not be engaged in the audit of
these companies. - Loans to and from Clients
The auditor should avoid granting or receiving loans and other such
inducements from the companies for which they audit. - Acceptances of goods/services from Clients
Goods and service should only be accepted only to the extent that
they do not threaten the independence of the auditor. Acceptance of
undue hospitality may pose threats of independence. - Commissions
Many auditors receive commissions from financial institutions when
they act for the clients. It should be seen that any advice should
be in the best interest of the client and not vice versa. The client
should be informed in writing that commission will be received and
as far as possible on what terms.
Conflict of Interest
Conflict of interest is like to arise between the auditor and his
client. Specific example conflict of interest may include among others:
- Provision of other service to audit clients
- Preparation of accounting records
- Receivership, Liquidation and audits
Advertising
The rules of professional conduct prohibit auditors from advertising for
their services as a resort. If a company wishes to appoint an auditor,
it is usually the director who approaches one and requests him to place
a quotation for the provision of his services.
Publicity
In the past, auditors and accountants were required to be anonymous in
public matters. The rules are now less restrictive but there are still
some prohibitions. A general prohibition is on any publicity which would
bring the auditor, his professional body or the prohibition, into
dispute. Presumably, an auditor appearing on talk show and introducing
himself as an accountant is acceptable.
Examples
of acceptable publicity include:
- Advertizing for staff, partners or sub – contract work
- Advertizing on behalf of a client
- Publicizing the opening of a new branch or premises
- Publishing literature
- Entries in a business directory
Remuneration
The normal way or basis of charging for professional work is on the
basis of the time spent on the client premises or work.
It depends on the nature of the appointment.
- Those appointed by the Board of Directors, it is the responsibility
of the same Board to take care of their fees and other expenses. - Those appointed by the shareholders, it is the responsibility of the
shareholders to determine the fee. - Those appointed by the Registrar of Companies payment is fixed by the Registrar in consultation with the Directors.
- In case of a retiring officer payment will be done as in previous years.
- In case of extra work, they will get extra remuneration by the very
employer. - In case of illegal removal of the auditor, he is entitled to a
remuneration of one full year by the employer.
Insider Dealing
Insider dealing is illegal. It is also contrary to ethical rules.
Individuals who during their course of work come across unpublished
price sensitive data and information are prohibited to use such
information for undue advantage. Auditors may have access to information
that only them have. They are legally not allowed to use this
information at the detriment of the other members of the public.
