Question

2. As a profession, accountants are expected to act ethically and in the public interest. However, in practice there are many threats to the ethical behaviour of accountants and auditors. Discuss the different types of threats to ethical behaviour in the accounting profession and explain the impact accounting scandals have on the profession.

Answer 1

1. Self Interest Threat: The threat that arises when an auditor behaves in his or her own emotional, financial or other personal self-interest.

Situations that may create self-interest threats:

· A financial interest in a client or jointly holding a financial interest with a client.

· Undue dependence on total fees from a client.

· Having a close business relationship with a client.

· Concern about the possibility of losing a client.

· Contingent fees relating to an assurance engagement.

1. Self-Review Threat: The threat of biasness raising when an auditor audits his or her own work or the work of a mate.

Situations that may create self-review threats

· The discovery of a significant error during a re-evaluation of the work of the professional accountant in public practice.

· Having prepared the original data used to generate records that are the subject matter of the engagement.

· A member of the assurance team being, or having recently been, employed by the client in a position to exert direct and significant influence over the subject matter of the engagement.

· Performing a service for a client that directly affects the subject matter of the assurance engagement.

1. Advocacy Threat: The threat that arises when an auditor behaves as an advocate for or against an audit client’s side or opinion rather than as an unbiased attestor.

Situations that may create advocacy threats:

· Promoting shares in a listed entity when that entity is a financial statement audit client.

· Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.

1. Familiarity Threat: The threat that arises when an auditor is being highly influenced by a close relationship with an audit client.

Situations that may create familiarity threats

· A member of the engagement team having a close or immediate family relationship with a director or officer of the client.

· Accepting gifts or preferential treatment from a client, unless the value is clearly insignificant.

· Long association of senior personnel with the assurance client.

1. Intimidation Threat: The threat that arises when an auditor is being, or believes that he or she is being, covertly coerced by an audit client or by another interested party.

Situations that may create intimidation threats

· Being threatened with dismissal or replacement in relation to a client engagement. Being threatened with litigation.

· Being pressured to reduce inappropriately the extent of work performed in order to reduce fees.

Impact of accounting scandals will definitely had a negative impact on the profession. The profession will lose its respect and reputation from the economy. There will be adverse impact on the accounting body also which will lose its image from the world accounting body. It may be possible that the accounting body profession will be governed by any other superior body made by the government.