Chapter 3: Rules of professional conduct
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In the case of hospitality, was the hospitality accepted during normal working
hours? If so, this would raise questions about the professional conduct of the
auditors. The auditors should be carrying out their professional duties in normal
working time – this is what the audit client pays them to do. It might also raise
questions about the adequacy of supervision of the audit: with proper
supervision, audit team members should not have been allowed to accept
hospitality during working hours. This would raise a broader question about
quality control in the audit firm.
Did the individuals receiving gifts or hospitality check first with a senior person
whether this would be acceptable? If not, there may be a disciplinary matter to
deal with.
Actual and threatened litigation
Threatened or actual litigation between the client and the firm may cause threats to
independence. Safeguards can be applied, but the only appropriate response,
particularly in the case of actual litigation, may be resignation from the engagement.
Provision of other services (non-audit work)
The independence of an audit firm may be threatened when the firm carries out a
large amount of non-audit work for a company that is also its audit client.
The non-audit work may provide a large amount of income that makes the audit
firm economically dependent on the company.
In addition, employees of the audit firm who carry out the audit may be
required to audit the work that has been done for the company by colleagues in
the audit firm. It might be difficult for them to find faults with the work that has
been done by other employees of the firm.
Accountancy work should therefore not be undertaken for a listed company client,
except in an emergency or where the work is of a routine clerical nature.
The provision of any other services is not prohibited, but the auditor must ensure
that he does not perform management functions and does not make management
decisions for the client company.
Where an audit practice does carry out accountancy work for an audit client:
the client must accept responsibility for the accounting records
the audit practice should not assume any management role
appropriate audit tests should still be carried out by the practice (on the
accounting work done for the client by other employees of the practice).
Temporary staff assignments
An audit client may ask an audit firm to ‘lend’ it one or more of its staff to work in
the audit client’s accounts department on a temporary basis. This creates several
ethical threats.
Self review threat. There is a risk that the individual, having worked for the
audit client for a time, will be assigned to the audit team on returning to the