Ethical Requirements for Auditors free essay sample

A. It is extremely important to ensure that the auditing profession meets its responsibilities to its clients. While working for a company to audit their financial information, they are also at the same time working for the public and regulators who rely on externals auditors to prove credibility to the financial information that companies release (Cooper, Coram, Richardson, Leung, 2009). To assist in quality assurance, the profession, and government have developed multilevel framework which is designed to regulate the audit profession. This framework includes: * Ethical standards: the New Zealand Institute of Chartered Accountants Act 1996 requires that NZICA have a code of ethics that governs the professional conduct of its members, which is a form of firm regulation. * International Standards on Auditing (ISA): These standards, in particularly ISA (NZ) 220 are the back bone behind keeping quality assurance on all auditors work. It sets clear standards that auditors must follow to ensure quality audits are performed, starting at engagement level. We will write a custom essay sample on Ethical Requirements for Auditors or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Professional Standards: PS-1 quality control sets basic requirements and guidance for auditors regarding a system of quality control. * Firm regulation: it is the responsibility of each public firm to implement procedures so that accountants abide by the professional standards. Quality of auditing services may vary between auditing firms as they may adopt additional standards for each engagement, however, the one standard that all auditing firms must follow is Quality Control for an Audit of Financial Statements (ISA NZ 220) (Cooper, et al. 2009). This standard provides auditors with information on their responsibilities (beginning pre engagement level) as an engagement partner/team. It states that it is the responsibility of the engagement partner to ensure quality control systems are in place and to encourage quality of audits to the engagement team to which that engagement partner has been assigned (New Zealand Institute of Chartered Accountants [NZICA], (b) 2009). It is his or her responsibility to set an example regarding audit quality during engagements by encompassing the above listed framework to provide assurance in the quality of their work. It also states the engagement partner, along with members of the engagement team as appropriate, should document any and all enquiries and discussions that have arisen with regards to ethics. There are five main fundamental principals with regards to ethics, they are: integrity, objectivity and independence, ompetence, quality performance, and professional behaviour (NZICA, (a) 2006). The document prepared by the engagement partner and the engagement team should include any potential threats identified with regard to these five principals, along with any safeguards used. It should also include the manner in which any issues arising have been resolved, and a conclusion on how they have complied with all ethical requirements. It should also be noted that the New Zealand Stock exchange (NZX) has its own corporate governance code that listed companies must follow which has a section on auditing that relates to our code of ethics, particularly objectivity and independence, quality performance, and professional behaviour (New Zealand Stock Exchange, 2006). This code is helps to ensure that external audits are performed at an appropriate level of quality. B. To consider whether the audit partner should accept the appointment of auditor to GML, we must first look at the steps auditors are required to take prior to accepting an engagement. ISA (NZ) 220 paragraph A8, and PS-1 Quality Control section 32, both state that a firm is required to establish policies and procedures for the acceptance of an engagement in order to provide it with reasonable assurance that it will only accept engagements where it: * â€Å"Is competent to perform the engagement and has the capabilities, time and resources, to do so; * Can comply with relevant ethical and professional requirements; and * Has considered the integrity of the client, and does not have information that would lead it to conclude that the client lacks integrity. (NZICA, (c) 2010) Relating this to GML, as we are given no information on our own firm, the first step is void. In terms of compliance with ethical requirements, Rule 1 under integrity in the code of ethics says that, a member must not engage in any business and/or activity that may impair his or hers integrity or that of the profession (NZICA, (a) 2006). As GML has been named in a anti-corruption inquiry, such a ctivity may relay back onto the auditors for not prying deep enough into the company’s financial records, thus hurting the integrity of the auditor. In considering the integrity of the client, the same incident of the anti-corruption inquiry can be used to suggest that GML does indeed lack integrity, also, the reason for the managing director approaching our firm because he is unhappy with the present audit partner may have something to do with incident, and would be wise to seek information from the current auditing firm (NZICA, (a) 2006). On the matter of the managing director of GML approaching our firm to accept the appointment of auditor to the company, the managing director does not have the legal power to choose a new auditor if he is unhappy with their current one. The appointment of an auditor must be done at an annual meeting where the majority of the shareholders vote in a new auditor in compliance with section 196 of the Companies Act 1993 (New Zealand Legislation, 1993). Therefore the managing director of GML does not have to power to appoint a new auditor and in agreeing to an engagement would be considered illegal. In summary, the factors to be considered by our audit partner before he decides on accepting the appointment are: does my firm have the capabilities, time, and resources to take on this audit? Are we able to comply with our ethical requirements (integrity, objectivity and independence, competence, quality performance, and professional behaviour), and does our client lack integrity considering the recent anti-corruption inquiry into GML? Does the managing director of GML have the legal power to appoint us as auditor of the company? References: Cooper, B. , Coram, P. , Richardson, P. , Leung, P. (2009). Modern Auditing Assurance Services. Milton, QLD: Wiley Sons New Zealand Institute of Chartered Accountants. (a) (2006). Code of Ethics. Retrieved from http://www. nzica. com/Technical%20and%20business/Ethical%20and%20professi onal/~/media/NZICA/Docs/Tech%20and%20Bus/Ethical%20and%20professional/Standards%20and%20Guidance/Ethical%20Standards/CodeofEthics_Oct06_. shx New Zealand Institute of Chartered Accountants. (b) (2009). International Standard on Auditing (New Zealand) 220. Quality Control for an Audit of Financial Statements. Retrieved from http://www. nzica. com/Technical%20and%20business/Audit%20and% 20assurance/Standards%20and%20guidance/~/media/NZICA/Docs/Tech%20and% 20Bus/Audit/Standards%20and%20Guidance/Audit%20Standards/ISA%20_NZ_% 20220 %20_May%2010_. ashx New Zealand Institute of Chartered Accountants.