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Ethics June 2013

In December 2010, the staff of the International Ethics Standards Board for Accountants (“IESBA”) issued several Questions and Answers (“Q&As”) to assist member bodies and others as they adopt and implement the IESBA’s Code of Ethics for Professional Accountants issued in July 2009. These Q&As are additional to the 2010 Q&As. The ESB of the Malaysian Institute of Accountants (“MIA”) has reviewed the Q&A publication produced by the IESBA staff and finds it helpful to assist members in implementing the MIA By-Laws (On Professional Ethics, Conduct and Practice) [Issued December 2010] (“the By-Laws”) and have accustomed the Q&As that are applicable and relevant in the Malaysian context for members’ reference. This publication does not amend or override the ByLaws, the text of which alone is authoritative. Reading these Q&As are not substitute for reading the By-Laws. These Q&As are not meant to be exhaustive and reference to the By-Laws itself should always be made. These Q&As do not constitute an authoritative or official pronouncement of the MIA.

June 2013

In December 2010, the staff of the International Ethics Standards Board for Accountants (“IESBA”) issued several Questions and Answers (“Q&As”) to assist member bodies and others as they adopt and implement the IESBA’s Code of Ethics for Professional Accountants issued in July 2009. These Q&As are additional to the 2010 Q&As. The ESB of the Malaysian Institute of Accountants (“MIA”) has reviewed the Q&A publication produced by the IESBA staff and finds it helpful to assist members in implementing the MIA By-Laws (On Professional Ethics, Conduct and Practice) [Issued December 2010] (“the By-Laws”) and have accustomed the Q&As that are applicable and relevant in the Malaysian context for members’ reference. This publication does not amend or override the ByLaws, the text of which alone is authoritative. Reading these Q&As are not substitute for reading the By-Laws. These Q&As are not meant to be exhaustive and reference to the By-Laws itself should always be made. These Q&As do not constitute an authoritative or official pronouncement of the MIA.

Reference should be made to the auditing standards. ISA 320, Materiality in Planning and Performing an Audit deals with an auditor’s responsibility to apply the concept of materiality in planning and performing an audit. The ISA requires materiality to be determined for the financial statements as a whole. Under the ISA, however, if there are one or more particular classes of transactions, account balances, or disclosures for which misstatements of lesser amounts could reasonably be expected to influence the decisions of users, the auditor is required to determine the materiality level to be applied to those particular classes of transactions, account balances, or disclosures. In such circumstances, that materiality level should be used if the proposed nonassurance service relates to the particular class of transaction, account balance, or disclosure.

A1

Reference should be made to the auditing standards. ISA 320, Materiality in Planning and Performing an Audit deals with an auditor’s responsibility to apply the concept of materiality in planning and performing an audit. The ISA requires materiality to be determined for the financial statements as a whole. Under the ISA, however, if there are one or more particular classes of transactions, account balances, or disclosures for which misstatements of lesser amounts could reasonably be expected to influence the decisions of users, the auditor is required to determine the materiality level to be applied to those particular classes of transactions, account balances, or disclosures. In such circumstances, that materiality level should be used if the proposed nonassurance service relates to the particular class of transaction, account balance, or disclosure.

In this circumstance, the firm would not be independent if it continued the service. The By-Laws prohibits a firm that is required to be independent from providing valuation services that would have a material effect on the financial statements of a public interest entity audit client. Accordingly, if at any time after agreeing to perform the valuation service it becomes apparent that the valuation service will have a material effect on the financial statements, the firm may not provide the valuation service and continue to be the entity’s auditor.

No. While ISA 600 states that the group engagement partner is responsible for the direction, supervision, and performance of the audit, this does not override the By-Laws’ definition of a key audit partner and does not eliminate the judgment required in determining whether other partners on the engagement are key audit partners. Depending upon the circumstances, the size of the group, and the role of the individuals, there may be other audit partners who make key decisions or judgments on significant matters with respect to the group financial statements—as may be the case with an audit partner who was responsible for the audit of a significant subsidiary of the group.

Whether a decision or judgment is a key decision or judgment will depend on the specific facts and circumstances. Professional judgment is required to make that determination. Generally, the subject matter of the decision or judgment would be significant to the financial statements taken as whole. Examples might be reaching a conclusion about whether there was a material impairment of longlived assets or about a significant tax uncertainty. Providing advice about such matters to the individual who has the responsibility to make such decisions would not make the person who provides the advice a key audit partner.

Yes. This would be the case if some of the firms share profits, costs, or a significant part of professional resources, or have common ownership, control, or management, common quality control policies and procedures, a common business strategy, or use a common brand name. For example, an association may comprise 50 firms that are separate and distinct legal entities. All the firms are listed in the association’s global directory and each firm refers to its membership of the association in its marketing and promotional materials. There is no profit or cost sharing, or common ownership, control, or management. Each firm has its own system of quality control policies and procedures and there is no monitoring of such systems across the association. Fifteen of the firms sign audit reports using the name of the association as part of their firm names. The other 35 firms do not use the association name when signing audit reports. The 15 firms are a network for the purposes of the By-Laws and the other 35 firms are not part of that network.

Yes. Paragraph 291.17 calls for an evaluation to be made of the significance of any threats that the firm has reason to believe are created by network firm interests or relationships and footnote 3 refers to paragraphs 290.13 to 290.24 for guidance on what constitutes a network firm. Under paragraph 290.20, a firm is deemed to be using a common brand name if it includes, for example, the common brand name as part of, or along with, its firm name when a partner of the firm signs an audit report. Paragraph 290.21 states that care should be taken as to how a firm makes reference to membership of an association of firms or a perception may be created that the firm belongs to a network. The use of a common brand name in signing assurance reports that are not audit or review reports would give the perception to the users of those reports that the firm belongs to a network.

Possibly. The reference to membership of the larger structure in their stationery and other promotional materials would not in itself create a network under the By-Laws. However, if one or more other factors were present, such as the sharing of profits, costs, and/or professional resources, that structure would be deemed to be a network.

Yes

Application of the test requires professional judgment. The reasonable and informed third party test is intended to establish an unbiased benchmark against which the professional accountant judges what action will be acceptable. Thus, for example, the professional accountant should consider whether a reasonable and informed third party would consider that the safeguards applied satisfactorily address the threat. It is important to note that the test focuses on information that is currently available and thus prevents the use of hindsight in determining whether the action was appropriate.