Topic 1:

CODE OF ETHICS
FOR AUDITORS

NURUL AZIRAH BINTI MOHD WAZIR

Department Accounting and Finance (DAF,FBMP)

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At the end of this topic, students should be able to:

 Explain the importance of ethics practiced

 Discuss the fundamental principles of ethics and
professional conduct under MIA BY-LAW.
 Identify several threats to comply with the ethics and
area of controversy.

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 What are ethics?

a) It is a set of moral principles or values.

b) Purpose: For the inculcation of sound

professional practice and prevention of illegal
dishonorable practices by members

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 Why needed for ethical
conduct in profession?
IMPORTANCE EXPLANATION

1. Professionalism

2. Raise public
confidence

3. Improve quality of
services

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FUNDAMENTAL PRINCIPLES OF ETHICS
AND PROFESSIONAL CONDUCT

(MIA BY-LAWS AND OTHER MIA BY-LAWS)

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 PROFESSIONAL CODE OF
ETHICS AND BEHAVIOUR

• All professional bodies would impose a

code of conduct on their members
• For accountant in Malaysia, Malaysian
Institute of Accounts has By-Laws on
Professional Conduct and Ethics

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 MIA BY-LAWS

PRINCIPLES EXPLANATION

1. Integrity

2. Objectivity

3. Professional
competence and
due care

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 PRINCIPLES EXPLANATION

4. Confidentiality

5. Professional
Independence

6. Professional
behaviour

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 INTEGRITY

 Implies not only honesty but also fair dealing and

truthfulness

 To be sincere, honest and straightforward in his

professional and business relationships.

 To protect integrity, he should not associate with any

reports or statements that he believes is false, materially
misleading or is furnished negligently.

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 OBJECTIVITY

 Is the state of mind of the auditor, ir presupposes

intellectual honesty

 This principle requires the professional accountant

to maintain an attitude of impartiality

 Not to allow biases to influence their objectivity in

making professional judgment.

 A professional accountant is required to be fair, and

be free of conflicts of interest in their professional
work.
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 PROFESSIONAL
COMPETENCE AND DUE CARE
 This principle must cover two requirements:
1. To maintain professional knowledge and skill at the level
required to ensure competent services are provided
(competence)
2. To act diligently in accordance with technical and professional
standards (due care)

 Auditors duty of care

1. It is implied that the auditor would carry out his work with
reasonable skill and care
2. Degree of skill and care depends on the nature of work
undertaken

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PROFESSIONAL COMPETENCE (contd.)

• would have obtained a degree in accounting or

passed the examination of a professional body

• Continue professional education by attending

seminars, courses, workshops (CPD)

• should be technically qualified and experienced in

areas which client practice

• should not undertaken or continue professional work

which he is not himself competent to perform - unless
he obtains advice or assistance to enable him to carry
out duties
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 DUE CARE & SKILLS (contd.)

• perform duty with diligently / carefully, use professional skills,

avoid negligence & bad faith

• which include completeness of audit working papers,

sufficient evidence and adequate audit report

• must employ generally accepted auditing standards.

• when appointed - contractual relationship exist (engagement

letter would provide the terms of appointment)- auditor has
responsibility to fulfill his contractual duty to his client

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 CONFIDENTIALITY

 disclosing confidential information outside the firm or

the employing organisation without proper and specific
authority

 Using such confidential information to their personal

advantage or the advantage of others

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 CONFIDENTIALITY (contd)

Confidentiality principle may be overruled:

 Disclosure is permitted by law and is authorised by the
client or employer
 Disclosure is required by law; breach of law, evidence in
court
 There is professional duty to disclose; to comply with
quality review, inquiry by professional/regulatory body

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PROFESSIONAL INDEPENDENCE

• an unbiased viewpoint in the performance

of audit tests, the evaluation of the results
and the issuance of audit report

• an attitude of mind characterized by integrity

and an objective approach to professional
work

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 PROFESSIONAL INDEPENDENCE
(contd.)

 Independence of mind

 Independence in appearance

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 PROFESSIONAL BEHAVIOUR

 To act in a manner consistent with the good reputation of

the profession

 Should be law abiding, refrain from conduct/activities that

might bring discredit to the profession

 If convicted of a serious crime, membership may be

revoked by the professional body

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 OTHER MIA BY-LAWS

ADVERTISING, PUBLICITY AND

SOLICITATION
 Advertising
Firms use of various media to communicate favourable information about the
services. Using medium of magazines, radio.

 Publicity
Same defined as advertising.

 Solicitation
Firms offer personally to other clients to engage with their services.
Example, having lunch with personal clients and explain about firm’s
services.
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 OTHER MIA BY-LAWS

FEES AND COMMISSION

a) Professional fees should be taking into account:

i. the skill and knowledge required for the type of

work involved
ii. The level of training and experience of the
persons necessarily engaged in the work
iii. The time necessarily occupied by each person
engaged in the work
iv. The degree of responsibility and urgency that the
work entails

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 OTHER MIA BY-LAWS

COMMISSION
a) Discourage the payment or acceptance of
commission by members in their dealings.

b) The rule of commission prohibit paying a

commission to:

i. to obtain a client
ii. To accept a commission for a referral to a client
of products or services

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 Factors that may compromised
MIA-by law

• Undue dependence on a single audit client

• Overdue fees
• Litigation
• External pressures or influences
• Family & other personal
• Relationships
• Beneficial interest in shares
• Loans to/from clients
• Provision of other services (offer non-audit services)

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 THREATS TO COMPLIANCE

 Self-interest threat
 Self-review threat
 Advocacy threat
 Familiarity threat
 Intimidation threat

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 AREA OF CONTROVERSY

LOW-BALLING
 when audit firms charged lower price for their
service which not consistent with the market.
 charging low fees so that other competitor
firms are outbid; audit standards become
questionable
 Purpose: to attract more clients
 Audit time and extent of audit procedures may be
decreased.
 Auditor’s integrity, objectivity and independence is
compromised.
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 OPINION SHOPPING
 approaching another firm for a second opinion
and then pressuring the current auditors to
accept the favourable second opinion

 Clients seek views of other professional accountants,

hoping the accountants will agree with the client’s
desired accounting policies.

 Clients may threaten to change auditors to influence

accountants.

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 OFFER MULTIPLE SERVICES

 Provision of other services to client

 May invalidate independence
 Problems for large and small accounting firms
(accountancy, consultancy, corporate finance &
taxation.

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