Professional Ethics and Governance: IESBA Code, Independence and AML
Professional Ethics and Governance tests the IESBA Code of Ethics as applied in Cyprus practice, together with corporate governance expectations and anti-money-laundering duties. The marks come from identifying the threat precisely, then judging whether a safeguard reduces it to an acceptable level or whether the engagement must be declined.
The conceptual framework
- Five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.
- Five threats: self-interest, self-review, advocacy, familiarity, intimidation. For each scenario, name the threat, then the safeguard - firm-level (training, rotation, independent quality review) or engagement-level (second partner review, disclosure to those charged with governance).
- Independence has two limbs: independence of mind and independence in appearance. Financial interests of the auditor or immediate family, loans, close business relationships, overdue fees and contingency fees all create self-interest threats; share ownership in an audit client has no safeguard - the interest must be disposed of or the individual removed from the engagement.
- Non-assurance services: preparing the financial statements and then auditing them creates a self-review threat; bookkeeping for a listed audit client is prohibited.
Governance and anti-money laundering
- Listed companies in Cyprus follow the Corporate Governance Code: an effective board with independent non-executive directors, an audit committee, risk management and internal control, and whistleblowing arrangements.
- Under the AML framework, accountants apply customer due diligence, identify beneficial owners, monitor transactions and report suspicions to the Unit for Combating Money Laundering (MOKAS), without tipping off the client.
Worked example
The audit engagement partner's spouse holds shares in the audit client. This is a direct financial interest of an immediate family member, creating a self-interest threat. No safeguard reduces it to an acceptable level; the shares must be disposed of before the engagement continues, or the partner must be removed. By contrast, an interest held through a diversified fund the partner does not control is not a direct financial interest and does not impair independence.
Traps that cost marks
Assuming a safeguard can reduce any threat to an acceptable level; confusing objectivity with confidentiality; misclassifying advocacy (promoting a client's shares) as a self-interest threat; and forgetting that confidentiality is subject to legal and regulatory exceptions such as money-laundering reporting.