Ch # 13.

Professional Ethics and Codes of Conduct Page 322

Chapter # 13 Professional ethics and codes of conduct

Question # 1 Q.4 Spring 2011

A chartered accountant is required to comply with five fundamental principles specified by ICAP’s Code of Ethics.
However, compliance with the fundamental principles may potentially be threatened by a broad range of
circumstances. Required: Briefly describe the categories of threats that may potentially affect compliance with
fundamental principles. Give two examples for each category. (10)

Question # 2 Q.7 Autumn 2012

Discuss the categories of threats that may be involved in each of the following independent situations and advise the
partners of the concerned firm with regard to the possible course of action that may be followed, in each case.
a) Burewala Bank Limited (BBL) is a listed audit client of Umer and Company, Chartered Accountants (UCC). BBL
has granted a house loan of Rs. 5 million to a partner in UCC. (04 marks)
b) Kamal was the audit manager during the last year’s annual audit of Faisalabad Textile Mills Limited (FTML). He
has joined FTML as their Manager Finance, prior to the commencement of the current year’s audit. (08 marks)

Question # 3 Q.9 Autumn 2013

Discuss the categories of threats that may be involved in each of the following independent situations and advise the
concerned engagement partners with regard to the possible course of action that may be adopted in each case.
a) Awesome Hotels Limited (AHL) is a listed company and is audited by Mansoor andCompany, Chartered
Accountants. The partners of Mansoor and Company stay in the hotels managed by AHL while they are travelling.
(05)
b) An audit team member on Hunza Limited (HL) has inherited 100,000 shares in HL after the death of his father.
(05)

Question # 4 Q.5 Spring 2014

Discuss the categories of threats that may be involved in each of the following mutually exclusive situations and advise
the partner of the concerned firms with regard to the possible course of action which may be adopted in each case:
a) The audit of JJ Limited (JJL) is at its completion stage. The meetings of the audit committee and the board of
directors are scheduled to be held within a week, to consider and approve the annual financial statements. JJL is
facing financial difficulties and has not paid the audit fee of the previous year. The CFO of JJL has committed to
pay the previous as well as current year’s audit fee, after signing the audit report. (04)
b) During the course of audit of HP Limited (HPL), the engagement partner has informed the firm that his brother
has acquired 200,000 shares in HPL. (05)

Question # 5 Q.10 Autumn 2014

a) Briefly describe the term ‘Integrity’ in accordance with the Code of Ethics for Chartered Accountants. (02)
b) Briefly describe ‘advocacy threat’ and give an example thereof. (02)
c) Briefly state the difference between ‘actual independence’ and ‘perceived independence’. (03)
d) The principle of confidentiality imposes an obligation on chartered accountants to refrain from disclosing
confidential information. State three key exceptions to the above rule. (02)

Question # 6 Q.7 Spring 2015

Discuss the categories of threats that may be involved in each of the following independent situations and advise the
partners of the concerned firm with regard to the possible course of action that may be followed in each situation:
a) Ahmed has recently joined a firm of Chartered Accountants. The firm intends to depute him on the audit of
Masoom (Private) Limited (MPL). Prior to joining the firm, Ahmed had been providing accounting and taxation
services to MPL for many years, in the capacity of a consultant. (04)
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b) It has been discovered that father of one of the trainees posted on the audit of Chalak Limited (CL), has a financial
interest in CL. (04)
c) Hoshiyar Limited (HL), an audit client of your firm has recently advertised certain vacancies in its accounts
department. The said positions have been applied for by number of individuals including two staff members who
are posted on the audit of HL. (04)

Question # 7 Q.9 Autumn 2015

Discuss the categories of threats and related safeguards in each of the following situations:
a) Your firm is the auditor of Prime Super Markets Limited, a chain of super markets. During a promotional
campaign, the management has distributed discount vouchers which have also been given to the audit team
members. (04)
b) You are manager on audit of Abid Textile Mills Limited. Client has requested you to send two staff members on
secondment for three months to assist chief financial officer as its two senior accounting team members have
resigned recently. (05)
c) Fine Petroleum Limited (FPL) is the audit client of your firm for five years. During the year, the engagement
partner has been changed due to mandatory rotation as per Code of Corporate Governance. However, the firm
has decided to retain Atif, the audit manager, who has been involved in the audit of FPL for past five years. (04)

Question # 8 Q.5 Spring 2016

Identify the threats that may be involved and applicable safeguards, if any, in each of the
following scenarios:
a. Your firm is the auditor of Delicious Biscuits Limited (DBL) for the past three years. On previous year’s audit,
Affan was the audit manager. He has recently joined DBL as GM finance. (05)

b. ABC leasing company has a lease portfolio of Rs. 500 million. Atif, the Audit Manager on ABC, has obtained a lease
finance amounting to Rs. 800,000 from ABC. (05)

Question # 9 Q.8 Autumn 2016

Identify the threats which may be involved and suggest appropriate safeguards, if any, in each of the following
scenarios:
(a) The planning phase of the annual audit of ABC (Private) Limited for the year ended 30 June 2016 is in progress.
The engagement partner intends to include Kamran as a member of audit team who joined the firm last month.
Before joining the firm Kamran was employed in the finance department of ABC. (05)

(b) Nasir is the audit manager on the audit of Diamond Limited (DL) for the year ended 30 June 2016. Nasir has
informed that his father owns 10,000 shares in DL. (04)

Question # 10 Q.4 Spring 2017

Discuss the categories of threats and related safeguards in each of the following situations:
(a) An unlisted audit client which has recently been incorporated has requested your firm to assist the finance
department in the preparation of financial statements. (03)

(b) Saleem has recently been promoted as a partner and the audit of TTL has been assigned to him. TTL owns and
operates a chain of restaurants. The following matters are under his consideration:
(i) Asif has been involved in the audit of TTL as audit senior for the last three years. He has recently qualified as
chartered accountant and Saleem wants to appoint him as audit manager.
(ii) TTL’s management has requested Saleem to include Rashid, a semi-senior, in the audit team. Rashid is the
son of TTL’s Marketing Director.
(iii) The firm has long cordial relationship with the management of TTL. Saleem has noticed that the firm often
uses the restaurants run by TTL for conducting its internal functions. (07)
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Question # 11 Q.3 Autumn 2017

Discuss the threat(s) that may be involved and the related safeguards in each of the following situations:
a) Anwar, an ex-trainee has recently rejoined your firm. He is interested in acting as the engagement manager on
Curtains Limited, where he had been employed during the past two years. (04)
b) House Limited (HL) owns the building in which the Karachi office of your firm is located. HL owns multiple
projects across the city and provides its premises to various concerns on rental basis. HL has requested your
firm to become its auditor for the year ending 30 June 2018. (05)
c) Window Limited (WL), an audit client of your firm has approached the taxation department of your firm to
review the income tax return to be filed by WL. (03)

Question # 12 Q.5 Spring 2018

(a) Discuss the threats and the related safeguards in each of the following situations:
(i) Saleem is the audit senior at Mango Industries Limited (MIL). MIL’s finance manager has requested him to
provide the residential addresses of the engagement manager and the engagement partner. The finance
manager wants to send them one of MIL’s latest product. (03)
(ii) Akram is the audit senior engaged on the audit of Dragon Limited (DL). He has informed the audit manager
that he has been offered a job by DL and that he would be joining DL from 1 April 2018. The audit is expected
to be completed on 15 March 2018. (03)
(b) Amjad is the audit senior at Orange Limited (OL), a software house. OL has adopted IFRS 15 ‘Revenue from
Contracts with Customers’ for preparation of its financial statements for the year ending 31 March 2018.
However, the manager finance of OL is indecisive as regards revenue recognition on certain contracts.

He has asked Amjad to suggest accounting treatment of such contracts in accordance with IFRS 15. Amjad does
not have in-depth knowledge of this IFRS and therefore, he has consulted his friend who has recently attended a
workshop on IFRS 15.

Required:
(i) Discuss the threats in the above situation. (03)
(ii) What actions the firm should take to ensure that such situation is avoided in future? (03)

Question # 13 Q.5 Autumn 2018

(a) You have recently been promoted as a partner in the assurance department of a firm of chartered accountants.
Your portfolio of clients includes Shah Motors (Pvt.) Limited (SML), a leading car dealer. Qaiser, a senior manager
assurance in your firm, has been auditing SML for the past 7 years. While updating you about SML, Qaiser
informed about the following:
(i) On the request of an audit team member, CFO of SML has helped the team member’s brother in securing early
delivery of a vehicle ordered by him on preferential basis.
(ii) SML has hired a new Head of Marketing. His son Amjad is expected to be included as a junior team member
in SML’s audit team.

Required:
Discuss the possible threats which may arise, their significance and the safeguards required to mitigate those
threats. (10)

(b) State the circumstances where a chartered accountant may be required to disclose the information obtained
during the audit. (03)

Question # 14 Q.10(a) Spring 2019

You are the audit manager at a client Exim (Private) Limited (EPL). During the finalisation meeting with the client, the
CFO of EPL admired the performance of the audit team. He informed that a junior member of the audit team gave
valuable suggestions regarding a trading business which EPL is considering to launch in the near future, as he had
worked as an intern in a large business house involved in similar business. The CFO also informed that the audit junior
has offered to arrange a warehouse on reasonable rent as he works part time in his brother’s estate agency.
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Required:
Identify the threats in the above scenario and suggest appropriate safeguards. (05)

Question # 15 Q.8(a,c) Autumn 2019

(a) Shayan has recently been hired as the audit manager in a firm of chartered accountants which is the auditor of
Python Limited (PL). Shayan previously served as manager finance in PL for three years.
The firm is considering to depute Shayan as the engagement manager for the audit of PL for the year ended 31
August 2019.

Required: Identify the possible threats which may arise and discuss their significance. Also, discuss the
safeguards required to mitigate the threats under each of the following assumptions:
(i) Shayan resigned from PL with effect from 30 June 2019
(ii) Shayan resigned from PL with effect from 30 June 2018 (07)

(c) You are the manager on the audit of Dolphin (Private) Limited for the year ending 31 December 2019. The client
has requested you to send an audit trainee on secondment for October and November 2019 to assist the chief
financial officer, as one of the key staff members of the accounting team has resigned.

Required: Identify the threat(s) in the above scenario and suggest appropriate safeguards. (04)

Question # 16 Q.9 Spring 2020

(a) You are a partner in a firm of chartered accountants. You have received a letter from a special investigation
committee formed by the government to investigate the affairs of Naqshbandi Limited (NL).

Your client Rahim Limited (RL) is the subsidiary of NL. The investigation committee requires you to submit the
details of all the transactions carried out by RL with NL and its related parties. The committee also requires your
firm to report the transaction value and the arm’s length value of all the transactions.

Required: In the light of Code of Ethics for Chartered Accountants, discuss any three factors that your firm should
consider while disclosing client information to the investigation committee. (03)

(b) Your firm has just been appointed as the auditor of Get Fit Gym Limited (GFG) which operates a chain of high end
gyms and fitness centers across the country. The managing director of GFG is a close friend of the audit manager
and the audit was awarded to your firm through this connection.

In a recent meeting, the managing director of GFG has offered to grant membership to all the staff members of
your firm at 50% discount.

Required: Evaluate the threat(s) which may arise in the above situation. Also discuss the safeguards required to
mitigate such threat(s). (08)

Question # 17 Q.8 Autumn 2020

Haris Awan has recently been appointed as a partner in HBC Chartered Accountants. Haris has been assigned the audit
of Hemlock Limited (HL). HL has been the firm’s client for the past 15 years. Haris has asked Babar Raza, manager
responsible for the audit of HL for the last seven years, to assist him in the planning phase. Babar has informed him
that:
(i) attitude of HL’s Chief Financial Officer (CFO) has been very aggressive towards audit team members, particularly
at times when questioned on any of his judgements in relation to accounting matters.
(ii) CFO normally gives us a short deadline for completion of the audit.
(iii) one of the previous audit team members has recently joined HL as Manager Finance and has ensured us his full
cooperation towards the timely completion of the audit.

Required: Discuss the possible threat(s) which may arise in the above situation, their significance and the safeguards
required to mitigate those threats. (12)
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Question # 18 Q.9(a) Autumn 2020

In the light of ICAP’s Code of Ethics, state the circumstances where a Chartered Accountant is required to disclose
confidential information. (03)

Question # 19 Q.9 Spring 2021

You are the Ethics and Quality Control Manager in an audit firm namely HMB Chartered Accountants. The audit
manager responsible for the audit of Fantom Limited (FL), has started the audit planning for FL and come across the
following matters for which he needs your guidance:
(i) Fizza was planned to be the engagement supervisor for the audit of FL. She has received an employment offer
from FL. However, she is considering not to accept FL’s employment offer.
(ii) FL is the main sponsor of the ongoing cricketing event. Being the main sponsor, FL has received some entry
passes of VIP enclosure of the final match. It has offered three such passes to the audit team members.
(iii) Your firm is under renovation process and about to procure two central air conditioning systems through
tendering process. Your firm has received quotations from various vendors including FL. The total expenditures
for purchase and installation of two central air conditioning units are expected to be Rs. 50 million.
(iv) FL has offered your firm that the fee for taxation services of this year may be based on a percentage of tax saved.

Required:
Identify the threat(s) which may arise and evaluate their significance. Also recommend the course of action or the
mitigating actions which may be taken by your firm. (12)

Question # 20 Q.2b,c Autumn 2021

(b) Khursheed Jamal is a Chartered Accountant and has recently established his audit firm in the name of Khursheed
& Company, Chartered Accountants. He is trying to expand his clientele and in this process his friend, who is his
audit client and the owner of an advertising agency, has offered to provide significant discount for publicity of his
new firm.

Required:
In the light of Code of Ethics for Chartered Accountants, discuss whether Khursheed should accept the offer of his
friend. (07)

(c) Hussain Tarar is the audit partner responsible for the audit of Petra Travels (Private) Limited (PTL). The chief
executive officer (CEO) of the company has informed Hussain that due to liquidity issues amid COVID-19, several
employees including some staff members of finance department left the company. CEO has therefore requested
Hussain to provide two staff of the audit firm for some time to run the finance department.

Required:
In the light of Code of Ethics for Chartered Accountants, discuss the threats in the above scenario and suggest
appropriate safeguards. (07)

Question # 21 Q.4 Spring 2022

Your firm has been approached by a recently formed IT Company, Data Technology Limited (DTL), for appointment
as its statutory auditors. DTL is mainly owned by three foreign companies who are all registered abroad in tax heaven
countries. Your firm does not have any experience of auditing an IT company.

Required:
In the light of the Code of Ethics for Chartered Accountants, identify the threats to the fundamental principles and
discuss how your firm would evaluate these threats in the context of accepting the client and engagement. Also briefly
discuss the safeguards available to your firm to address the threats. (13)
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Question # 22 Q.1(c) Autumn 2022

Ahmed has recently joined your firm as an audit manager. The firm intends to depute him on the audit of Monsoon
(Private) Limited (MPL). Prior to joining the firm, Ahmed had been providing accounting and taxation consultancy
services to MPL for last many years. Ahmed was also assisting MPL in preparation of annual budgets, management
accounts and calculation of tax provision based on audited financial statements.

Required:
Identify and explain the threats to the fundamental principles of ICAP code of ethics. Also evaluate the significance of
the identified threats. (07)

Question # 23 Q.2 Spring 2023

(a) Your firm is the external auditor of Hoper Limited (HL) for the year ended 28 February 2023. HL has set a strict
deadline for the completion of audit. Due to this time limitation, one of the audit team members has prepared the
fixed asset schedule himself to ensure prompt completion of the audit for this account and efficient transition to
other areas.

Required:
In the light of the Code of Ethics for Chartered Accountants, identify and explain the threats to the fundamental
principles. (06)

(b) Chilas Insurance Limited has approached your firm for appointment as a statutory auditor for the year ending 31
December 2023. If your firm accepts this client, it will be the firm’s first client in the insurance industry. Apart
from the audit partner, there is only one audit supervisor who have the previous experience of handling insurance
clients.

Required:
In the light of the Code of Ethics for Chartered Accountants, identify the threats to the fundamental principles and
discuss how your firm would evaluate these threats in the context of accepting the engagement. Also briefly discuss
the safeguards available to your firm to address the threats. (10)

Question # 24 Q.1(a) Autumn 2023

Alia recently completed her Chartered Accountancy qualification and training from Rumi Iqbal and Company,
Chartered Accountants. During her training, Alia was mainly engaged in audits of fast moving consumer goods (FMCG)
companies.

She is currently working with an audit client who approached her for reporting manager position. One of the main
reasons for her selection was her audit experience in the FMCG sector. The audit client, who wants to employ her,
expects that she will help prepare a comparative analysis of certain financial aspects of the company using the data
from the sector that she may have obtained during the course of her audits.

Required:
In light of the Code of Ethics for Chartered Accountants, identify and explain the threats to the fundamental principles.
(08)