Professional Ethics and Code of Conduct
Domain 7 tests independence in fact and appearance, the five threats, and the specific prohibitions in the ICAI Code and Companies Act.
Framework
- Identify threats: self-interest, self-review, advocacy, familiarity and intimidation.
- Apply safeguards only if a reasonable third party would conclude independence is preserved; some threats cannot be safeguarded away.
- Section 144 prohibits certain non-audit services for company audits, including internal audit, design and implementation of financial information systems, actuarial services and management services.
- Contingent fees for audit work are prohibited; confidentiality continues after the engagement ends.
Worked example
An audit client asks the firm to design and implement its new ERP financial module and also continue as statutory auditor. The work involves designing controls the auditor will later test, creating a self-review threat. For a company audit, Section 144 expressly prohibits design and implementation of a financial information system. The firm should decline the ERP work, or resign from the audit if the relationship is not compatible, rather than rely on a safeguard.
Traps
Confusing “management services” with routine tax representation; accepting audit and internal audit for the same client; charging a success fee for audit; and failing to communicate with the previous auditor before accepting appointment.