Chapter 4 – Professional Judgement and ethics
Framework
Indentify and define the issue
We have to be clear about what we want to solve. It is helful to consider different perspectives. Asking
why.
Gather the facts and information
Be alert of disconfirming information.
Perform analysis and evaluate alternatives
Identify and evaluate all alterntavies.
Reach and document conclusions
Take a stand back point of view, document your thought process.
Auditors mindset and judgement tendencies
Integrity, objectivity, and skepticism represent auditing. Professional skepticism is a questioning mind,
question contradictorty evidence, reliability of documents. Be objective. Skepticism depends on the risks
of the situation.
Questioning mind
Suspension of judgement- do not jump to conclusions
Search for knowledge
Interpersonal understanding
Autonomy
Self esteem
Judgement traps, need to be skeptical of audit evidence.
Confirmation bias
Placing more weight on information that is consistent with your initial beliefs.
Overconfidence bias
Overestimate your ability to perform tasks.
Anchoring
Auditor is anchored by initial number.
Avialability
Basically estimate or forecast an event based on how easily they can recall something.
Ethics
Inherent conflict of interest in the auditor-client relatiosip. The beneficieries are those that use financial
statements.
Ethics are a set of moral principles or values, these values guide us in how we act.
Guiding principles
Professional behavior
o Conduct yourself in a manner that maintains the good reputation of the profrsssion
Integrity and due care – be straightforware, honest in relationships.
Professional competence
o Maintain high level of competence
Confidentiality
o Do not disclose information
Objectivity
Framework
Obrain relevant facts and identify the issues
Identify the ethical issues
Identify who is affected and how
Consider and evaluate courses of action
Implement
Ethical blind spots
It is often difficult to turn an ethical decision into action. We are susceptible to ethical blind spots. These
are unconscious judgmental tendencasies that can hinder ethical decision making process. Can inhibit
your ability to even identify an ethical dilemma.a
Independence
Auditors are to be independent. Pas must be free of influence, interest, or relationship that impairs
professional judgement. So many people are relying on fs because of our objectivity. Independence has
two dimension. Independence in fact is when you maintain an unbiased attitude throughout the audit.
In appearance. Basically maintain an unbiased viewpoint in the eyes of others.
The process involves four steps
Identify threats
o Self interest threat – when the member could revive a benefit because of a financial
interest in the client, or in the financial results.
o Self review thret – Auditing of your own work.
o Advocacy threay – when the firm or member promotes the client position
o Familiarity threat – it is hard to behave with skepticism because you know the client well
o Indimidation threat – client intimidates you.
Evaluate the significance of the threats and determine if safeguards can be eliminated
o Determine if there are any safe guards that will eliminate or reduce the threat to an
acceptable level
o Three types of safeguards
Professional, legislative or regulatory
Prohibitions are the primary means to prevent independence threats
from succeeded
If you have direct or indirect financial interest you cant do anything
If the fees represent more than 15 percent of revenut you can do an au
Client
Audit committee is a subcommittee that serves as an independent
avenue for both external and internal auditors.
Firms
Employee training programs, peer reviews, client acceptance
Determine if there are specific prohibitions about the type of engagement
For each insignificant threat, document the rationale
o For each engagement independence of the firm is to be evaluated. The document
should include the threat, a description of the safeguard to eliminate or reduce the
threat, and how that safeguard reduces it to an acceptable level.
Confidentiality
Required to maintain confidentiality. Not entitled to legal protection. If disclosed their relationship with
management will be compromised.
Integrity and due care – act with integrity and due care, be reputable and fair. Be competent. An auditor
should not audit a client if you do not have the required knowledge.
You are required to report those who breach rules.
Contingent fees are prohibited
You are required to speak with the prior auditor. Rules require incumbent to repond to those questions.
