Code of Ethics/MB/CAP II/AOC

Assurance
Assurance means ‘confidence’. In an assurance engagement, an ‘assurance firm’ is engaged by one party
to give an opinion on a piece of information that has been prepared by another party. The opinion is an
expression of assurance about the information that has been reviewed. It gives assurance to the party that
hired the assurance firm that the information can be relied on.
An assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the
degree of confidence of the intended users other than the responsible party about the outcome of the
evaluation or measurement of a subject matter against criteria.
Assurance can be provided by:
 audit: this may be external audit, internal audit or a combination of the two
 review.
A statutory audit is one form of assurance. Without assurance from the auditors, the shareholders may not
accept that the information provided by the financial statements is sufficiently accurate and reliable. The
statutory audit provides assurance as to the quality of the information.
Levels of assurance
The degree of assurance that can be provided about the reliability of the financial statements of a company
will depend on:
 the amount of work performed in carrying out the assurance process, and
 the results of that work.
The resulting assurance falls into one of two categories:
Reasonable Assurance – A high (but not absolute) level of assurance provided by the practitioner’s
conclusion expressed in a positive form. E.g. “In our opinion the accounts are true and fair”. The objective
of a statutory audit is to provide reasonable assurance.
Limited Assurance – A moderate level of assurance provided by the practitioner’s conclusion expressed
in a negative form. E.g. “Based on our review, nothing has come to our attention that causes us to believe
that the accompanying financial statements do not give a true and fair view”. The objective of a review
engagement is often to provide limited assurance.
Assurance provided by audit
An audit provides a high, but not absolute, level of assurance that the audited information is free from any
material misstatement. This is often referred to as reasonable assurance.
The reason why auditor is not expected to provide absolute assurance is that there are inherent limitations
of an audit, which result in most of the audit evidence on which the auditor draws conclusions and bases
the auditor’s opinion being persuasive rather than conclusive. The inherent limitations of an audit are
discussed later in this chapter.
Summary of Types of Engagement

Types of Engagement Evidence Sought Conclusion Given

Reasonable Assurance Sufficient & Appropriate Positive

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Limited Assurance Sufficient & Appropriate Negative

(Lower)

Elements of Assurance Engagement

An assurance engagement performed by a practitioner will consist of the following five elements:
 Three people or groups of people involved (Three Party Relationship)
– The practitioner (professional accountant): the individual providing professional services that will
review the subject matter and provide the assurance. E.g. the audit firm in a statutory audit
– The intended users: the person(s) or class of persons for whom the practitioner prepares the assurance
report. E.g. the shareholders in a statutory audit
– The responsible party: the person(s) responsible for the subject matter. E.g. the Directors are responsible
for preparing the financial statements to be audited
 A subject matter: This is the data such as the financial statements that have been prepared by the
responsible party for the practitioner to evaluate. Another example might be a cash flow forecast to be
reviewed by the practitioner.

 Suitable criteria: This can be thought of as ‘the rules’ against which the subject matter is evaluated
in order to reach an opinion. In a statutory audit this would be the applicable reporting framework (e.g.
NFRS and company law).

 Evidence: Information used by the practitioner in arriving at the conclusion on which their opinion
is based. This must be sufficient (enough) and appropriate (relevant).

 Assurance Report: The report (normally written) containing the practitioner’s opinion. This is
issued to the intended user following the collection of evidence.
Benefit of Assurance Engagement
A key feature of assurance services is that they are provided by independent professionals who therefore
give an objective, unbiased opinion. They give the following benefits to users:
 Enhances the credibility of the information being reported on
 Reduces the risk of management bias, error or even fraud in the information being reported on
 Draws the attention of the user to any deficiencies in the information being reported on
Worked Example

Himal Ltd, a large listed company, is considering taking over Target Limited, a small, family owned
company. Himal has asked Rimal and Co, chartered accountants, to carry out due diligence in relation to
this prospective purchase. They want them to review the financial statements of the last three years and
ensure that they were prepared under generally accepted accounting practice in the Nepal. They also want
them to review the budgets for the coming 12 months and ensure that they are reasonably and internally
consistent.
You can see the elements of the assurance service as these:

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 Practitioner: Rimal and Co

 Responsible party: Target Ltd management
 Users: Himal Ltd management
 Subject matter: Financial statements/budgets
 Criteria: Nepal GAAP/reasonable and internally consistent
Rimal and Co will plan and carry out work to obtain sufficient appropriate evidence to support their
assurance opinion, which will be given in a written report. The benefits of this service to Himal Ltd are
that:
 They are given assurance that the financial statements are in line with Nepal GAAP and therefore
are understandable and comparable with other companies they might be considering for takeover.
 They are given assurance that the budgets are reasonable and internally consistent and therefore
can be trusted as an indicator of the company’s future operating ability.
 They can therefore make an informed decision about whether to buy Target and for how much.

How audit is an assurance engagement?

The key criteria of an assurance engagement can be seen in an audit as follows.
(1) Three party involvement
 The shareholders (users)
 The board of directors (the responsible party)
 The audit firm (the practitioner)
(2) Subject matter: The financial statements
(3) Relevant criteria: Law and accounting standards
(4) Evidence: The auditor is required by international standards on auditing (NSAs) to obtain sufficient and
appropriate evidence to support the audit opinion.
(5) Written report in a suitable form: As required by NSA 700 the audit report is a written report issued
in a prescribed form.

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Threat to Independence
Threats may be created by a broad range of relationships and circumstances. When a relationship or
circumstance creates a threat, such a threat could compromise, or could be perceived to compromise, a
professional accountant compliance with the fundamental principles.

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a) Self-interest threat - the threat that a financial or other interest will inappropriately influence the
professional accountant's judgment or behavior;
Examples of circumstances that create self-interest threats for a professional accountant in practice
include:
o A member of the assurance team having a direct financial interest in the assurance client.
o A firm having undue dependence on total fees from a client.
o A member of the assurance team having a significant close business relationship with an assurance
client.
o A firm being concerned about the possibility of losing a significant client.
o A member of the audit team entering into employment negotiations with the audit client.
o A firm entering into a contingent fee arrangement relating to an assurance engagement.
o A professional accountant discovering a significant error when evaluating the results of a previous
professional service performed by a member of the professional accountant's firm.

b) Self-review threat - the threat that a professional accountant will not appropriately evaluate the
results of a previous judgment made or activity or service performed by the professional accountant,
or by another individual within the professional accountant's firm or employing organization, on
which the accountant will rely when forming a judgment as part of providing a current service;
Examples of circumstances that create self-review threats for a professional accountant in practice
include:
o A firm issuing an assurance report on the effectiveness of the operation of financial systems after
designing or implementing the systems.
o A firm having prepared the original data used to generate records that are the subject matter of the
assurance engagement.
o A member of the assurance team being, or having recently been, a director or officer of the client.
o A member of the assurance team being, or having recently been, employed by the client in a position
to exert significant influence over the subject matter of the engagement.
o The firm performing a service for an assurance client that directly affects the subject matter
information of the assurance engagement.

c) Advocacy threat - the threat that a professional accountant will promote a client's or employer's
position to the point that the professional accountant's objectivity is compromised;
Examples of circumstances that create advocacy threats for a professional accountant in practice
include:
o The firm promoting shares in an audit client.
o A professional accountant acting as an advocate on behalf of an audit client in litigation or disputes
with third parties.

d) Familiarity threat - the threat that due to a long or close relationship with a client or employer, a
professional accountant will be too sympathetic to their interests or too accepting of their work;
and
o A member of the engagement team having a close or immediate family member who is a director
or officer of the client.

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o A member of the engagement team having a close or immediate family member who is an employee
of the client who is in a position to exert significant influence over the subject matter of the
engagement.
o A director or officer of the client or an employee in a position to exert significant influence over the
subject matter of the engagement having recently served as the engagement partner.
o A professional accountant accepting gifts or preferential treatment from a client, unless the value is
trivial or inconsequential.
o Senior personnel having a long association with the assurance client.

e) Intimidation threat - the threat that a professional accountant will be deterred from acting
objectively because of actual or perceived pressures, including attempts to exercise undue influence
over the professional accountant.
o A firm being threatened with dismissal from a client engagement.
o An audit client indicating that it will not award a planned non- assurance contract to the firm if the
firm continues to disagree with the client's accounting treatment for a particular transaction.
o A firm being threatened with litigation by the client.
o A firm being pressured to reduce inappropriately the extent of work performed in order to reduce
fees.
o A professional accountant feeling pressured to agree with the judgment of a client employee because
the employee has more expertise on the matter in question.
o A professional accountant being informed by a partner of the firm that a planned promotion will not
occur unless the accountant agrees with an audit client's inappropriate accounting treatment.

Example:
Your assurance firm is auditor of Happy Goods. The audit manager has just become engaged to the
managing director’s daughter, who he met through a mutual friend. The managing director (MD)
owns 51% of the shares in Happy Goods.
Required
List the threats to independence which might arise as a result of the above, explaining clearly why
these are threats.
Answer
An intimidation threat might arise because the MD could exert influence over the audit manager via any
influence he might have over his daughter. Alternatively, as the relationship between the audit manager
and his future father-in-law develops direct intimation might be possible.
A familiarity threat might arise, again, as the relationship between the audit manager and the MD
develops. The audit manager may become less critical of the reporting or operational practices at this client.
A self-interest threat might arise because the MD owns a majority shareholding in Happy Goods and his
daughter (who may well inherit the shares at some point in the future) therefore has a vested interest in the
performance of the organisation – as will her husband (i.e. this threat is probably greater once the marriage
has taken place.)

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SAFEGUARD TO INDEPENDENCE
Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level.
The following are the guiding principles in this regard: -
1. For the public to have confidence in the quality of audit, it is essential that auditors should always be and
appear to be independent of the entities that they are auditing.
2. In the case of audit, the key fundamental principles are integrity, objectivity and professional skepticism,
which necessarily require the auditor to be independent.
3. Before taking on any work, an auditor must conscientiously (in a thorough and responsible way).
consider whether it involves threats to his independence.
4. When such threats exist, the auditor should either desist (stop doing)from the task or put in place
safeguards that eliminate them.
5. If the auditor is unable to fully implement credible and adequate safeguards, then he must not accept the
work

Other Safeguards
o Policies and procedures to implement and monitor quality control of engagements.
o Documented internal policies and procedures requiring compliance with the fundamental
principles.
o Policies and procedures that will enable the identification of interests or relationships between the
firm or members of engagement teams and clients.
o Policies and procedures to monitor and, if necessary, manage the reliance on revenue received
from a single client.
o Using different partners and engagement teams with separate reporting lines for the
o provision of non-assurance services to an assurance client.
o Policies and procedures to prohibit individuals who are not members of an engagement team from
inappropriately influencing the outcome of the engagement.
o Timely communication of a firm's policies and procedures, including any changes to them, to all
partners and professional staff, and appropriate training and education on such policies and
procedures.
o Designating a member of senior management to be responsible for overseeing the adequate
functioning of the firm's quality control system.
o Advising partners and professional staff of assurance clients and related entities from which
independence is required.
o A disciplinary mechanism to promote compliance with policies and procedures.
o Published policies and procedures to encourage and empower staff to communicate to senior levels
within the firm any issue relating to compliance with the fundamental principles that concerns them.
o Having a chartered accountant who was not a member of the assurance team review the assurance
work performed or otherwise advise as necessary.
o Consulting an independent third party, such as a committee of independent directors, a professional
regulatory body or another chartered accountant.
o Discussing ethical issues with those charged with governance of the client.

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o Disclosing to those charged with governance of the client the nature of services provided and extent
of fees charged.
o Rotating senior assurance team personnel.

ABSTRACT FROM HANDBOOK OF THE CODE OF ETHICS FOR PROFESSIONAL

ACCOUNTANTS- 2018
The hand book is divided into 3 parts :
PART 1 – COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL
FRAMEWORK
PART 2 – PROFESSIONAL ACCOUNTANTS IN BUSINESS.
PART 3 – PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE
PART 4 - INTERNATIONAL INDEPENDENCE STANDARDS
4A INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS
4B INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND
REVIEW ENGAGEMENTS

PART 1
The professional accountant shall comply with following fundamental principles.
a.Integrity
b. Objectivity
c. Professional Competence and Due care
d. Confidentiality
e. Professional Behavior

PART 3 – PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE

In this Part, the term “professional accountant” refers to individual professional accountants in public
practice and their firms.
Section 310 CONFLICTS OF INTEREST
A conflict of interest creates threats to compliance with the principle of objectivity and might create threats
to compliance with the other fundamental principles. Such threats might be created when:
(a) A professional accountant provides a professional service related to a particular matter for two or more
clients whose interests with respect to that matter are in conflict; or

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(b) The interests of a professional accountant with respect to a particular matter and the interests of the
client for whom the accountant provides a professional service related to that matter are in conflict.
A professional accountant shall not allow a conflict of interest to compromise professional or business
judgment.
Examples of circumstances that might create a conflict of interest include:
o Providing services to a seller and a buyer in relation to the same transaction
o Preparing valuations of assets for two parties who are in an adversarial position with respect to the
assets.
o Advising a client to invest in a business in which, for example, the spouse of the professional
accountant has a financial interest.
o Advising a client on buying a product or service while having a royalty or commission agreement
with a potential seller of that product or service.

Before accepting a new client relationship, engagement, or business relationship, a professional accountant
shall take reasonable steps to identify circumstances that might create a conflict of interest.
Examples of actions that might be safeguards to address threats created by a conflict of interest include:
● Having separate engagement teams who are provided with clear policies and procedures on maintaining
confidentiality.
● Having an appropriate reviewer, who is not involved in providing the service or otherwise affected by
the conflict, review the work performed to assess whether the key judgments and conclusions are
appropriate.

Section 320 PROFESSIONAL APPOINTMENT

Acceptance of a new client relationship or changes in an existing engagement might create a threat to
compliance with one or more of the fundamental principles.
The professional accountant should accept the engagement to provide only those service that he is
competent to perform.
A self-interest threat to compliance with the principle of professional competence and due care is created
if the engagement team does not possess, or cannot acquire, the competencies to perform the professional
services.
Examples of actions that might be safeguards to address a self-interest threat include:
o Assigning sufficient engagement personnel with the necessary competencies.
o Agreeing on a realistic time frame for the performance of the engagement.
o Using experts where necessary.
A professional accountant shall determine whether there are any reasons for not accepting an engagement
when the accountant:

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(a) Is asked by a potential client to replace another accountant;

(b) Considers tendering for an engagement held by another accountant; or
(c) Considers undertaking work that is complementary or additional to that of another accountant.
If a professional accountant is asked to undertake work that is complementary or additional to the work of
an existing or predecessor accountant, a self-interest threat to compliance with the principle of professional
competence and due care might be created, for example, as a result of incomplete information.
Examples of actions that might be safeguards to address such a self-interest threat include:
o Asking the existing or predecessor accountant to provide any known information of which, in the
existing or predecessor accountant’s opinion, the proposed accountant needs to be aware before
deciding whether to accept the engagement. For example, inquiry might reveal previously
undisclosed pertinent facts and might indicate disagreements with the existing or predecessor
accountant that might influence the decision to accept the appointment.
o Obtaining information from other sources such as through inquiries of third parties or background
investigations regarding senior management or those charged with governance of the client.
If it is not possible to reduce threats to an acceptable level , the professional accountant in public practice
shall not accept the engagement.

Section 321 SECOND OPINIONS

Providing a second opinion to an entity that is not an existing client might create a self-interest or other
threat to compliance with one or more of the fundamental principles.
A professional accountant might be asked to provide a second opinion on the application of accounting,
auditing, reporting or other standards or principles to
(a) specific circumstances, or
(b) transactions by or on behalf of a company or an entity that is not an existing client.
A threat, for example, a self-interest threat to compliance with the principle of professional competence
and due care, might be created if the second opinion is not based on the same facts that the existing or
predecessor accountant had, or is based on inadequate evidence.
Examples of actions that might be safeguards to address such a self-interest threat include:
o With the client’s permission, obtaining information from the existing or predecessor accountant.
o Describing the limitations surrounding any opinion in communications with the client.
o Providing the existing or predecessor accountant with a copy of the opinion.
When Permission to Communicate is Not Provided
If an entity seeking a second opinion from a professional accountant will not permit the accountant to
communicate with the existing or predecessor accountant, the accountant shall determine whether the
accountant may provide the second opinion sought.

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Section 330 FEES AND OTHER TYPE OF RENUMERATION

The level and nature of fee and other remuneration arrangements might create a self-interest threat to
compliance with one or more of the fundamental principles.
A professional accountant might quote whatever fee is considered appropriate. Quoting a fee lower than
another accountant is not in itself unethical.
However, the level of fees quoted creates a self-interest threat to compliance with the principle of
professional competence and due care if the fee quoted is so low that it might be difficult to perform the
engagement in accordance with applicable technical and professional standards.

Professional Accountant in public practice shall not :

Pay referral fee for another professional accountant
Receive referral fee for referring a client to another professional accountant.
Receive commission from a third party (for example, a software vendor) in connection with the sale of
goods or services to a client .
Examples of actions that might be safeguards to address such a self-interest threat include:
Obtaining an advance agreement from the client for commission arrangements in connection with the sale
by another party of goods or services to the client might address a self-interest threat.
Disclosing to clients any referral fees or commission arrangements paid to, or received from, another
professional accountant or third party for recommending services or products might address a self-interest
threat.

Section 340 INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY

Offering or accepting inducements might create a self-interest, familiarity or intimidation threat to
compliance with the fundamental principles, particularly the principles of integrity, objectivity and
professional behavior.
A professional accountant shall not offer, or encourage others to offer, any inducement that is made, or
which the accountant considers a reasonable and informed third party would be likely to conclude is made,
with the intent to improperly influence the behavior of the recipient or of another individual.
A professional accountant shall not accept, or encourage others to accept, any inducement that the
accountant concludes is made, or considers a reasonable and informed third party would be likely to
conclude is made, with the intent to improperly influence the behavior of the recipient or of another
individual.
An inducement is considered as improperly influencing an individual’s behavior if it causes the individual
to act in an unethical manner.
The determination of whether there is actual or perceived intent to improperly influence behavior requires
the exercise of professional judgment. Relevant factors to consider might include:

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o The nature, frequency, value and cumulative effect of the inducement.

o Timing of when the inducement is offered relative to any action or decision that it might influence.
o Whether the inducement is a customary or cultural practice in the circumstances, for example,
offering a gift on the occasion of a religious holiday or wedding.
o The degree of transparency with which the inducement is offered.
Examples of actions that might be safeguards to address such threats include:
o Informing senior management of the firm or those charged with governance of the client regarding
the offer.
o Amending or terminating the business relationship with the client.
o Reimbursing the cost of the inducement, such as hospitality, received.
o As soon as possible, returning the inducement, such as a gift, after it was initially accepted.
o Declining or not offering the inducement.
o Donating the inducement to charity after receipt and appropriately disclosing the donation, for
example, to a member of senior management of the firm or the individual who offered the
inducement.

Section 350 CUSTODY OF CLIENT ASSETS

Holding client assets creates a self-interest or other threat to compliance with the principles of professional
behavior and objectivity.
The Professional Accountants shall assume custody of clients’ assets or monies in accordance with
provisions of laws and regulations of the local jurisdiction and also in conformity with the conditions
mentioned in the engagement assignment.
While assuming custody of clients’ assets or monies, the Professional Accountants shall:
o make enquiries about the sources of such assets; and
o verify whether all legal and regulatory requirements are appropriately complied with.
After taking the custody of clients’ assets or monies the professional Accountant shall ensure that:
o all provisions of laws and regulations are appropriately complied with;
o clients’ assets are kept separately and not mixed with personal or firm’s assets;
o such assets of the clients will be used as intended by the client or in accordance with the terms and
conditions of the engagement assignments; and
o books of accounts are appropriately maintained at all times for the safe custody of client’s assets
along with any incomes or gains, dividends etc. accrued or received thereof.

Section 350 RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS

A self-interest or intimidation threat to compliance with the principles of integrity and professional
behavior is created when a professional accountant becomes aware of noncompliance or suspected non-

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compliance with laws and regulations.

We have studied this in NSA 250. So in exam if question comes regarding non compliance you can include
NSA 250 and Code of Ethics 350 in your answer.

PART 4 - INTERNATIONAL INDEPENDENCE STANDARDS

4A INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS

SECTION 410 FEES

When the total fees generated from an audit client by the firm expressing the audit opinion represent a large
proportion of the total fees of that firm, the dependence on that client and concern about losing the client
create a self-interest or intimidation threat.
Where an audit client is a public interest entity and, for two consecutive years, the total fees from the
client and its related entities represent more than 15% of the total fees received by the firm expressing the
opinion on the financial statements of the client, the firm shall:
(a) Disclose to those charged with governance of the audit client the fact that the total of such fees
represents more than 15% of the total fees received by the firm; and

(b) Discuss whether either of the following actions might be a safeguard to address the threat created
by the total fees received by the firm from the client, and if so, apply it:

(i) Prior to the audit opinion being issued on the second year’s financial statements, a
professional accountant, who is not a member of the firm expressing the opinion on the
financial statements, performs an engagement quality control review of that engagement;
or a professional body performs a review of that engagement that is equivalent to an
engagement quality control review (“a pre-issuance review”); or

(ii) After the audit opinion on the second year’s financial statements has been issued, and
before the audit opinion being issued on the third year’s financial statements, a professional
accountant, who is not a member of the firm expressing the opinion on the financial
statements, or a professional body performs a review of the second year’s audit that is
equivalent to an engagement quality control review (“a postissuance review”).

Fees overdue

A self-interest threat might be created if a significant part of fees is not paid before the audit report for the
following year is issued. It is generally expected that the firm will require payment of such fees before such
audit report is issued.

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Examples of actions that might be safeguards to address such a self-interest threat include:
o Obtaining partial payment of overdue fees.
o Having an appropriate reviewer who did not take part in the audit engagement review the work
performed.

When a significant part of fees due from an audit client remains unpaid for a long time, the firm shall
determine:
(a) Whether the overdue fees might be equivalent to a loan to the client; and
(b) Whether it is appropriate for the firm to be re-appointed or continue the audit engagement.

Contingent fee : A firm shall not charge directly or indirectly a contingent fee for an audit engagement

SECTION 511 FINANCIAL INTERESTS

Holding a financial interest in an audit client might create a self-interest threat.
A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not accept
a loan, or a guarantee of a loan, from an audit client that is a bank or a similar institution unless the loan or
guarantee is made under normal lending procedures, terms and conditions.
Even if a firm or network firm receives a loan from an audit client that is a bank or similar institution under
normal lending procedures, terms and conditions, the loan might create a selfinterest threat if it is material
to the audit client or firm receiving the loan.
An example of an action that might be a safeguard to address such a self-interest threat is having the work
reviewed by an appropriate reviewer, who is not an audit team member, from a network firm that is not a
beneficiary of the loan.

SECTION 522 RECENT SERVICE WITH AN AUDIT CLIENT

If an audit team member has recently served as a director or officer, or employee of the audit client, a self-
interest, self-review or familiarity threat might be created.
An example of an action that might be a safeguard to address such a self-interest, self-review or familiarity
threat is having an appropriate reviewer review the work performed by the audit team member

SECTION 523 SERVING AS A DIRECTOR OR OFFICER OF AN AUDIT CLIENT

Serving as a director or officer of an audit client creates self-review and self-interest threats.

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SECTION 523 EMPLOYMENT WITH AN AUDIT CLIENT

Employment relationships with an audit client might create a self-interest, familiarity or intimidation threat.

SECTION 525 TEMPORARY PERSONNEL ASSIGNMENTS

The loan of personnel to an audit client might create a self-review, advocacy or familiarity threat.
Examples of actions that might be safeguards to address threats created by the loan of personnel by a firm
or a network firm to an audit client include:
o Conducting an additional review of the work performed by the loaned personnel might address a
self-review threat.
o Not including the loaned personnel as an audit team member might address a familiarity or
advocacy threat.
o Not giving the loaned personnel audit responsibility for any function or activity that the personnel
performed during the loaned personnel assignment might address a self-review threat.

A firm or network firm shall not loan personnel to an audit client unless:

o Such assistance is provided only for a short period of time;

o The personnel do not assume management responsibilities and the audit client is responsible for
directing and supervising the activities of the personnel

SECTION 540 LONG ASSOCIATION OF PERSONNEL (INCLUDING PARTNER ROTATION)

WITH AN AUDIT CLIENT
When individual is involved in an audit engagement over a long period of time, familiarity and selfinterest
threats might be created.
Examples of actions that might be safeguards to address such familiarity or self-interest threats include:
o Changing the role of the individual on the audit team or the nature and extent of the tasks the
individual performs.
o Having an appropriate reviewer who was not an audit team member review the work of the
individual.
o Performing regular independent internal or external quality reviews of the engagement.

SECTION 601 ACCOUNTING AND BOOKKEEPING SERVICES

Providing accounting and bookkeeping servicesto an audit client might create a self-review threat.

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A firm or a network firm shall not provide to an audit client that is not a public interest entity accounting
and bookkeeping services including preparing financial statements on which the firm will express an
opinion or financial information which forms the basis of such financial statements, unless:
(a) The services are of a routine or mechanical nature; and
(b) The firm addresses any threats that are created by providing such services that are not at an acceptable
level.
Examples of actions that might be safeguards to address a self-review threat created when providing
accounting and bookkeeping services of a routine and mechanical nature to an audit client include:
o Using professionals who are not audit team members to perform the service.
o Having an appropriate reviewer who was not involved in providing the service review the audit
work or service performed.

SECTION 603 – VALUATION SERVICES

Providing valuation services to an audit client might create a self-review or advocacy threat.
A valuation comprises the making of assumptions with regard to future developments, the
application of appropriate methodologies and techniques, and the combination of both to
compute a certain value, or range of values, for an asset, a liability or for a business as a whole.
Factors that are relevant in evaluating the level of self-review or advocacy threats created by providing
valuation services to an audit client include:
o The use and purpose of the valuation report.
o Whether the valuation report will be made public.
o The extent of the client’s involvement in determining and approving the valuation methodology
and other significant matters of judgment.
o The degree of subjectivity inherent in the item for valuations involving standard or established
methodologies.
o Whether the valuation will have a material effect on the financial statements.
o The extent and clarity of the disclosures related to the valuation in the financial statements.
o The degree of dependence on future events of a nature that might create significant volatility
inherent in the amounts involved.

Examples of actions that might be safeguards to address threats include:

o Using professionals who are not audit team members to perform the service might address self-
review or advocacy threats.
o Having an appropriate reviewer who was not involved in providing the service review the audit
work or service performed might address a self-review threat.

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 Code of Ethics/MB/CAP II/AOC

A firm or a network firm shall not provide a valuation service to an audit client that is a public interest
entity if the valuation service would have a material effect, individually or in the aggregate, on the financial
statements on which the firm will express an opinion.

SECTION 604 – TAX SERVICES

Providing tax services to an audit client might create a self-review or advocacy threat.

SUBSECTION 605 – INTERNAL AUDIT SERVICES

Providing internal audit services to an audit client might create a self- review threat.

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