Professional Ethics and Independence
Ethical framework
Candidates must know the IESBA Code principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behavior. Independence (for audits) requires independence of mind and independence in appearance. Know the threats (self-interest, self-review, advocacy, familiarity, intimidation) and safeguards. Understand fee dependence, contingent fees, long association/rotation, non-assurance services, and gifts/hospitality prohibitions. Know how the Azerbaijan Law on Auditing and the Audit Chamber reinforce these principles.
Traps in exam questions
- Assuming a safeguard always eliminates a threat - some threats (e.g., contingent fees for audit) cannot be reduced to an acceptable level.
- Confusing objectivity (a state of mind for all engagements) with independence (required for audits/reviews).
- Overlooking self-review when an auditor provides bookkeeping or valuation services to an audit client.
- Treating familiarity from long association as harmless - it can impair independence.
- Forgetting confidentiality exceptions required by law.
Rule of thumb
Apply the threat-and-safeguard test: identify the threat, assess its significance, apply safeguards, and if the threat cannot be reduced to an acceptable level, decline or withdraw.
Worked example
An audit partner has audited the same client for many years. Under the IESBA Code, long association creates a familiarity threat; for listed entities, partner rotation is required as a safeguard.