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query on auditing - expression of audit opinion
07-08-2010, 11:31 PM
Post: #1
query on auditing - expression of audit opinion
HI

is anyone who could answer my question, or is there any chartered accountant there?

my question is, is it allowed that an auditing firm (chartered accountants)will audit (external audit)and express an opinion to its current client whom he is engaged in providing accounting and bookkeeping services?
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07-10-2010, 12:33 AM
Post: #2
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by agent_0078</i>
<br />HI...

is anyone who could answer my question, or is there any chartered accountant there?

my question is, is it allowed that an auditing firm (chartered accountants)will audit (external audit)and express an opinion to its current client whom he is engaged in providing accounting and bookkeeping services?


<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Bro try to learn the difference between external audit and internal audit.. Your answer is in this topic... external auditors dont provide bookkeeping services..
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07-12-2010, 03:29 AM
Post: #3
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by agent_0078</i>
<br />HI...

is anyone who could answer my question, or is there any chartered accountant there?

my question is, is it allowed that an auditing firm (chartered accountants)will audit (external audit)and express an opinion to its current client whom he is engaged in providing accounting and bookkeeping services?


<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Hello,

the situation you described used to be very common in the accounting / auditing practice. Many auditing firms run also accounting department providing bookkeeping and other services to its clients.
However, there is a strong conflict of interest issue. Auditor and accountant should not come from the same company - otherwise it's like auditor is auditing his own work and independence disappears. That is simply not allowed - please refer to International Standards on Auditing.
Best regards
Silvia M. / http://www.ifrsbox.com
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07-12-2010, 07:34 PM
Post: #4
 
Dear,

External auditors can not provide consultancy and other services to its listed clients n prohibited under CCG.
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07-16-2010, 07:44 PM
Post: #5
 
wow!
thanks a lot for that. because honestly, since i saw this situation in the company i am working right now, i tried searching the code of ethics for charterred accountants coz i thought there might be a difference with the code of ethics of CPAs because i am aware that CPAs not only in the Philippines do not allow that.But i don't see any difference its basically the same. yet i was still in doubt because i am not a CPA or CA that's why i have my reservation and good that i found this site.
i really appreciate for sharing your ideas,and at least now i could have the confidence to question and suggest for the best of the company and to the firm as well.

this site is really a help to many!
a million thanks.[)]
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07-16-2010, 07:54 PM
Post: #6
 
Yes bro, i was quite confuse most especially 'bout how the said auditing firm had allowed the situation to happen which i personally saw they do.
so auditing firm can not provide accounting or bookkeeping services, did i get it right? or a firm who is an external auditor of a certain company can not provide bookkeeping to the said company?

it's a great help bro.thanks so much for sharing.
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07-16-2010, 07:56 PM
Post: #7
 
thanks, but what is CCG?any specific provision that i could cite if ever.
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07-16-2010, 11:43 PM
Post: #8
 
Dear

Reply is as under


CCG

Since you are from Philippines, just ignore this CCG which stands for Code of Corporate Governance. This CCG is a part of listing regulations in Pakistan and is required to be followed by companies whose securities are listed on the stock exchanges.

Many other countries have also adopted similar Code of Corporate Governance, so you can check whether there is similar Code in Philippines and the entities to which such code (if any) would be applicable. Normally such Code is applicable to listed companies only.


CODE OF ETHICS


Now I come back to your original query. CAs the mother institutes of which are members of IFAC have to follow IFAC guidelines. The CODE OF ETHICS issued by IFAC has been revised in July 2009. Member institutes of IFAC normally adopt this CODE OF ETHICS without or with modifications. So before directly following the IFAC's code of ethics you will have to check if there has been made any modification by your local bodies for adoption fo this code. Further the CODE itself states that the local laws wherever differ with the CODE will overrule the Code. So, you will have to see this before relying on my answer.


DIFFERENTIATION BETWEEN TYPES OF ENTITIES


The CODE OF ETHICS issued by IFAC creates a difference between entities for defining the requirements i.e. Public Interest Entities and Other Than Public Interest Entities. The requirements suggested by the CODE OF ETHICS for Public Interest Entities are more stringent since normally public money at large is invested in such entities.


MANAGEMENT RESPONSIBILITY


Section 290 of revised CODE OF ETHICS deals with the ethical standards established for assurance engagements (means for external audits).

Section 290.156 to 290.166 of the code deal with Non-assurance services provided to audit clients. It prohibits auditors from taking any MANAGEMENT RESPONSIBILITIES that can affect their independence as auditors. It states that the threats to independence cannot be safeguarded by whatever measures auditors may adopt if they take management responsibilities in any case.

Since, maintaining accounting records and preparing financial statements is a management responsibility, it prohibits auditors from doing so. Please check section 290.167 to 290.174.

Yet, the requirements differ for above stated two types of entities.

Further, in certain circumstances and subject to certain requirements the Code has allowed providing some of such services as well.


NON-PUBLIC INTEREST ENTITIES


The requirements for NON-PUBLIC INTEREST ENTITIES are bit softer, and if certain safeguarding measures have been taken, auditors are allowed to provide some of such services provided the services are of a routine or mechanical nature and any threat created is reduced to an acceptable level. These services include

• Providing payroll services based on client-originated data;
• Recording transactions for which the client has determined or approved the appropriate account classification;
• Posting transactions coded by the client to the general ledger;
• Posting client-approved entries to the trial balance; and
• Preparing financial statements based on information in the trial balance.

By adopting safeguarding measures auditors of Non-Public Interest Entities have to ensure that independence as auditors is not getting affected at all. These measures include

• Arranging for such services to be performed by an individual who is not a member of the audit team; or

• If such services are performed by a member of the audit team, using a partner or senior staff member with appropriate expertise who is not a member of the audit team to review the work performed.


PUBLIC INTEREST ENTITIES


With respect to PUBLIC INTEREST ENTITIES the Code has stiff requirements. In case of PUBLIC INTEREST ENTITIES the code of ethics does not allow providing such services to audit clients EXCEPT in very rare circumstances and upon establishing very stringent safeguards against independence threats. Section 290.172 of the Code states that a firm can provide accounting and bookkeeping services, including payroll services and the preparation of financial statements or other financial information, of a routine or mechanical nature ONLY for the divisions or related entities of an audit client that is a public interest entity if the staff members of the firm providing the services are not members of the audit team and

(a) The divisions or related entities for which the service is provided are collectively immaterial to the financial statements on which the firm will express an opinion; or

(b) The services relate to matters that are collectively immaterial to the financial statements of the division or related entity.

The above conditions are presumably extremely strict and ALMOST render no room for providing any such accounting services to audit clients.


EXTREME EMERGENCY SITUATION


Notwithstanding the above in extreme emergencies and unusual circumstances (and not as a routine matter) the audit firm can provide accountancy services to its audit client for the verifiable and demonstrable reasons. It can be done when it is not practical for the client to make any such arrangements from any other source. This can be the case when only the firm has the resources, knowledge and expertise of client’s systems and procedures and if such a service will not be provided by the firm it can result in extreme hardships for the client (for example, as might result from a failure to meet regulatory reporting requirements). However, following safeguards will be taken by the firm even in such a case

(a) Those who provide the services are not members of the audit team;
(b) The services are provided for only a short period of time and are not expected to recur; and
© The situation is discussed with those charged with governance.


GENERAL GUIDANCE BY AUDITORS TO AUDIT CLIENTS


The Code of ethics allows providing general guidance to the audit client as to the reporting requirements and complexities during the course of audit provided no responsibility is taken for anything by auditors.

These may include guidance on the application of accounting standards or policies and financial statement disclosure requirements and the appropriateness of financial and accounting control and the methods used in determining the amounts of assets and liabilities to be stated in the financial statements or proposing adjusting journal entries noted as a result of audit, advising on reconciliation issues, accumulating information for regulatory reporting purposes, and conversion of existing financial statements from one financial reporting framework to another etc.

You can also download the Code of Ethics issued by IFAC for study purpose from following website free of charge

http//www.ifac.org.


MY CONCLUSION AS TO YOUR QUERY


In my view, if your entity is not a PUBLIC INTEREST ENTITY and the auditors have established the safeguards as per Code of Ethics, they can provide some of the accounting services which are of routine or mechanical nature and do not at all require decision making or taking of management responsibilities in any respect.

If they tend to take management responsibility such as decision making, approval and authorization or as a result use their influence in accounting and business matters, then such services are not allowed.

In case you are a public Interest Entity, your auditors cannot provide you such services EXCEPT for the circumstances narrated above where any work done by them for some divisions or branches of your company is not material at financial statements level and after ensuring that they have met all ethical requirements as per code. (Since, immateriality is a condition, in my view no such services can be provided to Public Interest Entity at all.)

I hope you will find out answer to your question.

Regards


KAMRAN
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