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COMMON ETHICAL ISSUES

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AGENDA
Access to clients (beneficial owners) and
control of audits
Serious issues on audit independence;
Serving as director or officer of audit clients
Undue financial dependence on audit clients
Network firms and audit independence
Other common independence issues
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Access to clients (beneficial owners) and

control of audits
Common with international business company audit clients referred by
lawyers or corporate service providers
No contact with beneficial owners or manager of the business of audited
entity to:

Obtain an understanding of business and associated risks for audit

planning and to communicate under ISA 260

Understand the rationale behind existence of business and transactions

Deal with evidential matters including on analytical reviews and
subsequent events and going concern reviews

Communicate internal control deficiencies under ISA 265

Obtain management representation letter and approval of financial
statements
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Access to clients (beneficial owners) and

control of audits (Continued)
RESULTS IN FIRM NOT IN A POSITION TO
PROPERLY CONTROL THE AUDITS IN SERIOUS
BREACH OF ISA 220

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Serious issues on audit independence

Serving as director or officer of audit client
Breach of s43(3) of Law 42(I)/2009 - None of the following individuals can
be appointed as statutory auditor:

Officer, shareholder or an employee of the audit client

Parent, Spouse, brother, sister or child of an officer
Partner or employee of an officer of the audited entity
Breach of IFAC Code of Ethics (S290.146, s290.148 and s290.127 to
s290.132)
Partners and employees
Immediate family relations of partners
Close family relations of partners
Other close personal relatives
Common with international business company audit clients
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Serious issues on audit independence

Undue financial dependence

Significant proportion of firms income for one client or group of

connected clients

Significant proportion of firms income from clients referred from a single

source
Common where all or significant proportion of the firms income from
international business company audit clients referred to the firm by one
lawyer or company services provider
No safeguards workable if dependence high
Breach of s220 of IFAC Code of Ethics

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Network firms and audit independence

Common with international business audit clients where fiduciary
services provided by another entity
Paragraph 28 (2) of Law 42(I)/2009 states that a statutory auditor
or a statutory audit firm shall not carry out a statutory audit if there
is any direct or indirect financial or business or employment or
other relationship between the statutory auditor, the statutory audit
firm or network and the audited entity
Paragraph 290.3 of the IFAC Code of Ethics states the term
Firm in section 290 includes network firm, except where
otherwise stated

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entities, there may be facts and

circumstances that would suggest that
they are associated in such a way that a
network exists (s290.14 of IFAC Code of
Ethics)
The judgment as to whether the larger
structure is a network shall be made in
light of whether a reasonable and
informed third party would be likely to
conclude, weighing all the specific
facts and circumstances, that the
entities are associated in such a way that
a network exists (s290.15 of IFAC Code of
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Ethics)

Network firms and audit independence

Common characteristics identified of networks:

Common ownership (or immediate and close family relationships)

Ownership of fiduciary services provider hidden behind firms employees
or relations or friends of practitioner / partners

Virtually all clients of fiduciary services provider are audit clients of the
firm Fiduciary services provider appears as extension of the audit firm
or as a separate department of the audit firm.

The firms website promotes the services of the fiduciary services

provider as its own or as offered through associates or collaborators or
vice versa.

Promotional activity (presentations and material) carried out jointly

offering respective services - one stop shop.

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Network firms and audit independence

Common characteristics identified of networks:

Invoices for services are issued by either the audit firm or fiduciary
services provider.

Invoices show the same contact details for both entities.

Joint statement of account to clients showing the transactions and
balances relating to both entities.

A current account between the two entities and financial transfers

made between them for mutual financial support.

The practitioner acts a signatory or has viewing rights on the bank

accounts of the fiduciary services provider

Both entities share resources (e.g. staff, server etc.)

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Other common independence issues:

Acting as signatory on bank accounts of audit clients
Book-keeping and accounts preparation services provided to audit
clients

Long association of senior personnel with audit clients

Key partner rotation on audits of public interest clients

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