Lecture Notes

Introduction

• We finished Chapter 1 yesterday.
• Today, we will start Chapter 11 (Ethics and Terms of Engagement).
• The exam will include questions based on case studies.

Case Study 2:

• "Me and You Private Limited" company received a working capital loan from the bank.
• Management is experiencing a shortfall in working capital.
• The bank has requested semi-annual financial statements.
• Management is requested to obtain a contribution report from a chartered accountant.

Key Points

Main Principles of Ethics

1. Integrity

   • Auditors should be straightforward and honest in all professional and business relationships.
   • Do not associate with false information.

2. Objectivity

   • Professional judgments should not be influenced by bias, conflicts of interest, or undue influence of others.
   • Auditors should remain fair and independent.

3. Confidentiality

   • Do not share client information with external parties.
   • Confidentiality can only be violated by law or with client's permission.

4. Professional Competence and Due Care

   • It is essential to maintain professional knowledge and skills.
   • Timely execution of work is mandatory.

5. Professional Behavior

   • Do not engage in any activity that might discredit the profession.
   • Avoid involvement in unethical acts.

Independence

• Independence means that the auditor should make their judgments independently of external influences.
• There are two types: Independence of Mind and Independence of Appearance.

Independence of Mind

• This is the mental state that allows auditors to present their perspective and make decisions without any pressure.

Independence of Appearance

• This is the external image of the auditor. It is also necessary to maintain.
• If external parties doubt the auditor's independence, it may harm their professional reputation.

Conclusion

• Both ethics and independence are critical aspects of the auditing profession.
• Further sessions will discuss these topics in more depth.