Monday, July 28, 2014

2014 Handbook of the Code of Ethics for Professional Accountants

On 17 July 2014, IESBA published the 2014 edition of the Handbook of the Code of Ethics for Professional Accountants. This handbook replaces the 2013 edition. It contains the following changes to the Code :

  • Definition of “Those Charged with Governance”. The IESBA has revised the definition of the term “those charged with governance” to more closely align it with that in the International Auditing and Assurance Standards Board (IAASB)’s International Standard on Auditing (ISA) 260, Communication with Those Charged with Governance. The IESBA also added a new paragraph 100.25 and made a change to paragraph 290.28 to clarify that a subgroup of those charged with governance of an entity, such as an audit committee, may assist the governing body in meeting its responsibilities. The revised definition of “those charged with governance” and related changes to the Code are effective on July 1, 2014. The changes were published on the IESBA website in September 2013.
  • Conforming Changes to Part A of the Code Based on Newly Defined Term “Professional Activity”. Conforming changes have been made to paragraphs 100.5 (c), 100.9, 100.12 (b), 120.2, 130.1 (b), and 130.6 based on the newly defined term “professional activity” arising from changes to the Code addressing conflicts of interest, which the IESBA issued in March 2013.

The Code of Ethics for Professional Accountants contains three parts. PART A – GENERAL APPLICATION OF THE CODE, establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework that professional accountants shall apply to :

  1. Indentify threats to compliance with the fundamental principles;
  2. Evaluate the significance of the threats identified; and
  3. Apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level.

A professional accountant shall use professional judgment in applying this conceptual framework.

PART B – PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE and PART C – PROFESSIONAL ACCOUNTANTS IN BUSINESS, these two parts of the Code describe how the conceptual framework applies in certain situations. They provide examples of safeguards that may be appropriate to address threats to compliance with the fundamental principles. They also describe situations where safeguards are not available to address the threats, and consequently, the circumstance or relationship creating the threats shall be avoided.

Part B applies to professional accountants in public practice. While Part C applies to professional accountants in business. Professional accountants in public practice may also find Part C relevant to their particular circumstances.

The use of the world “shall” in this Code imposes a requirement on the professional accountant or firm to comply with the specific provision in which “shall” has been used. Compliance is required unless an exception is permitted by this Code.

The handbook is available at : IFAC webpage

Thursday, February 6, 2014

Audit Procedures to be DONE when EVENTS or CONDITIONS that may cast doubt about GOING CONCERN have been Identified

As described within my previous post, Event or Conditions that may cast DOUBT about GOING CONCERN Assumption, if events of conditions have been identified that may cast significant doubt on the entity’s ability to continue as a GOING CONCERN, the auditor shall obtain sufficient appropriate audit evidence to determine whether or not a material uncertainty exists through performing ADDITIONAL AUDIT PROCEDURES, including consideration of mitigating factors.

As disclosed in paragraph 16 of ISA 570, the required additional audit procedures to be done shall include :

  1. Where management has not yet performed an assessment of the entity’s ability to continue as a going concern, requesting management to make its assessment;
  2. Evaluating management’s plans for future actions in relation to its going concern assessment, whether the outcome of these plans is likely to improve the situation and whether management’s plans are feasible in the circumstances;
  3. Where the entity has prepared a cash flow forecast, and analysis of the forecast is a significant factor in considering the future outcome of events or conditions in the evaluation of management’s plans for future action : (i) Evaluating the reliability of the underlying data generated to prepare the forecasts; and (ii) Determining whether there is adequate support for the assumptions underlying the forecast;
  4. Considering whether any additional facts or information have become available since the date on which management made its assessment;
  5. Requesting written representation from management and, where appropriate, those charged with governance, regarding their plans for future action and the feasibility of these plans

Several audit procedures which are relevant to the requirement in paragraph 16 of ISA 570 may include the following :

  1. Analyzing and discussing cash flow, profit and other relevant forecasts with management
  2. Analyzing and discussing the entity’s latest available interim financial statements
  3. Reading the terms of debentures and loan agreements and determining whether any have been breached
  4. Reading minutes of the meetings of shareholders, those charged with governance and relevant committees for reference to financing difficulties
  5. Inquiring of the entity’s legal counsel regarding the existence of litigation and claims and the reasonableness of management’s assessments of their outcome and the estimate of their financial implications
  6. Confirming the existence, legality and enforceability of arrangements to provide or maintain financial support with related and third parties and assessing the financial ability of such parties to provide additional funds
  7. Evaluating the entity’s plans to deal with unfilled customer orders
  8. Performing audit procedures regarding subsequent events to identify those that either mitigate or otherwise affect the entity’s ability to continue as a going concern
  9. Confirming the existence, terms and adequacy of borrowing facilities
  10. Obtaining and reviewing reports of regulatory actions
  11. Determining the adequacy of support for any planned disposals of assets

Evaluating management’s plans for future actions may include inquiries of management as to its plans for future action, including, for example, its plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital (HRD).