Professional etiquette requires that if investigations are carried out in the affairs of organizations to which the accountant is not the auditor then the auditors must be communicated with. This is to observe the usual courtesies and to obtain their cooperation. To be credible, the auditor must possess and be seen to possess certain qualities.
The Fundamental Principles of Procurement Auditing
– Integrity- acting honestly, reliably, in good faith and in the public interest. Integrity also implies fair dealing and truthfulness.
– Professional competence and due care- Maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional service; and Act diligently in accordance with applicable technical and professional standards when providing professional services.
– Confidentiality- Respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority or unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of members or third parties.
– Professional behavior- Members should ensure they comply with relevant laws and regulations and should avoid any action that discredits the profession.
– Independence and objectivity: being free from circumstances or influences that compromise, or may be seen as compromising, professional judgment and acting in an impartial and unbiased manner;
Importance of Independence
It is a legal and professional requirement. The companies act section 161 (2) of Kenyan law disqualifies several parties from being appointed the auditors due to lack of independence and ethical statement
• It is a key attribute to the audit which adds to the assurance and credibility of the published procurement records of the reporting entity.
• An audit is an independent examination exercise and therefore the person conducting it must be independent
• Independence of the auditor give confidence to the potential users of procurement audits that the audit opinions reached were not influenced by the management or any other agent of the reporting entity.
• Audit opinions are personal judgement and therefore the auditor must be independence
• Independence enables the auditor to apply, observe and approach his professional work objectively.
Threats to Independence and Objectivity
Threats to independence and objectivity may arise in the form of self-review, self- interest, advocacy, familiarity and intimidation threats. Appropriate safeguards must be put in place to eliminate or reduce such threats to acceptable levels.
The following are the challenges or threats that auditors may face in the process of being independent.
1. Self-interest Occurs when a firm of a member of the assurance team has some financial or other interest in an assurance client e.g. providing a loan to a client.
2. Self-review threat- Self-review threats may occur when a previous judgement needs to be re-evaluated by members responsible for that judgement e.g. performing a service for a client that directly affects the subject matter of an assurance engagement.
3. Advocacy threat- Occurs when members promote a position or opinion to the point that subsequent objectivity may be compromised e.g. acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.
4. Familiarity threat-Occurs when, because of a close relationship, members become too sympathetic to the interests of others e.g. Long association with a client leading to over-familiarity with client management such that professional judgement could be compromised
5. Intimidation threat- Occurs when members are deterred from acting objectively by threats, actual or perceived e.g. being pressured to reduce inappropriately the extent of work performed in order to reduce fees.
Safeguards of Independence of Auditor
(How the independence of a procurement auditor may be strengthened) Safeguards which may remove or reduce threats to members fall into three categories:
• safeguards created by the profession, legislation or regulation
• safeguards in the work environment
• Safeguards created by the individual.
Each of these categories is considered below. Later sections of this chapter consider the specific threats which might apply to specific situations.
Safeguards created by the profession, legislation or regulation include:
• educational, training and experience requirements for entry into the profession
• continuing professional development requirements
• corporate governance regulations
• professional standards (such as ISAs)
• professional or regulatory monitoring and disciplinary procedures (such as ICAP’s own disciplinary procedures)
• External review by a legally empowered third party (such as a regulator appointed by the Government) of the reports or information produced by a member.
Safeguards in the work environment include:
• the employer’s own systems of monitoring and ethics and conduct
programmes (such as an internal training or a mentoring programme)
• recruitment procedures, ensuring that only high-calibre, competent staff are recruited
• appropriate disciplinary processes
• strong internal controls
• leadership that stresses the importance of ethical behaviour and which expects employees to behave ethically
• policies and procedures to implement and monitor the quality of employee performance
• policies and procedures to implement and monitor the quality of engagements
• documented policies regarding the identification of threats to compliance with the fundamental principles, the evaluation of those threats and the implementation of appropriate safeguards
• communication of such policies and procedures and training on them
• the use of different partners and engagement teams for the provision of non-assurance services to assurance clients
• policies and procedures to stop individuals who are not members of an engagement team from inappropriately influencing the outcome of the engagement
• policies and procedures to give employees the power to report ethical issues to senior staff at the employing firm, without fear of retribution from those about whom they are making the report
• discussing ethical issues with the client
• disclosing to the client the nature of the services provided and the fees charged (this could be done via the audit committee)
Safeguards created by the individual include:
• complying with continuing professional development requirements
• keeping records of contentious issues and approach to decision-making
• having a broader perspective on how other organisations operate by
• forming business relationships with other professionals
• using an independent mentor
• keeping in contact with legal advisors and professional bodies.