In 2018, the International Ethics Standards Board for Accountants® (IESBA®)
released a completely rewritten and revamped Code of Ethics for professional
accountants (PAs). It has been renamed to “International Code of Ethics for
Professional Accountants (including International Independence Standards) (“the
Code” or “the revised and restructured Code”). Some of the major changes included an
enhanced conceptual framework, with the introduction of “reasonable and informed
third-party test” (RITP) which believed to further strengthen auditor’s independence.
Design a hypothetical case study which demonstrates the application of “reasonable
and informed third-party test” in the context of financial statement audit.
Include in your case study an evaluation of the significance of threats, followed by a
proper safeguard plan to address the identified threats with reference to the revised code
(Total marks: 100)
Refer Appendix 1 for the remaining marks allocation.
The total marks for this assignment are 100%, but it carries 20% of overall assessment
for this module.
* The detailed marking criteria’s for the allocation of 100 marks is provided in
You must present your work in THREE (3) sections as follows:
1) Background of the company (20%)
You, as one of the audit managers of BWC International Cooperative, has been
assigned to lead the audit of a public listed company which based in Malaysia
since 1998. According to the policy of BWC, all audit staffs must strictly adhere
to the professional ethical standards of the International Ethics Standards Board
for Accountants (IESBA). Failure to comply with the standard may result in
disciplinary and/or legal action. However, it appears that many of your
subordinates are not aware or unsure about the recent changes in the IESBA’s
code of ethics (2018). Thus, your role as their leader becomes particularly
critical in ensuring that none of your team members, including yourself, are
confronted with significant ethical dilemmas.
In the preliminary stage of the audit, some of these issues have been reported to
you by Albert (your subordinate) in the following structure:
A brief background of your assurance client’s company
Ethical issue(s) (i) referring to Section 604, the IESBA’s code of ethics
Ethical issue(s) (ii) referring to Section 606, the IESBA’s code of ethics
You are required to elaborate on these issues by adopting the approach of
narrative writing from the perspective of Albert. Do not include the analysis
of these issues in this section.
2) Evaluation of the issues (40%)
You are required to evaluate the implications/impacts of the ethical issues
(section 1.2 & 1.3) on your independence as the external auditor of the
company (section 1.1) in the context of the IESBA’s revised code of ethics.
You must support your evaluation with empirical evidence reported in the
journal articles preferably from the publisher of Elsevier1, Emerald2 or Taylor
& Francis3; or professional journals such as articles issued by the CPA4, or the
American Accounting Association 5 . Supporting your argument with
unpublished journal articles are strictly prohibited. Further, do not include the
recommendation for improvements in this section.
3) The plan (40%)
According to one the policies of BWC, you must demonstrate how to apply the
conceptual framework of the IESBA to deal with the ethical issues in your
section 1 as follows:
3.1) Identifying the threat to independence
Discuss the potential threat(s) to independence in connection to the ethical
issues as in section 1.2 & 1.3. Further, elaborate on how these ethical issues
affect the external auditor’s professional scepticism and compliance with
the fundamental principles.
3.2) Evaluating the significance of the threat
Ascertain if the identified threat is at an “acceptable level” as per the
IESBA’s revised code of ethics using the “reasonable and informed third
party test”. Highlight the factors that are relevant in evaluating the level of
threats to compliance with the fundamental principles.
Propose safeguard in addressing the threats identified above and evaluate if
the safeguards will eliminate those threats or reduce them to an acceptable
level using the reasonable and informed third party test.
3.4) Audit plan
You are also required to illustrate how the identified threats to
independence affects your preliminary judgement on materiality in
connection with your assurance engagement.
On another note, you must support your demonstration in section 3.1 – 3.3 by
citing the specific section or subsection of the code of ethics in the following
form, for example:
“The professional accountant shall apply the conceptual framework to
identify, evaluate and address threats to compliance with the fundamental
principles.” (Code of ethics for professional accountants, 2018., r. 120.4)
2000 words +/- 10%. Any deviation from this will be penalized.
FORMATTING AND LAYOUT
A Microsoft Office Word Document or other relevant applications as
permitted by module lecturer/ typed using computer. Usage of typewriter or
hand - written is STRICTLY not allowed.
12 font size, Time New Roman font and bold title and sub titles
A4 sized paper
Fully justified alignment
1½ line spacing
Margins of 1” at top and bottom; left and right
Appendix 1: Marking Criteria for Essay (20%)
Design a case study which comprehensively
includes the required elements with proper
examples, followed by the formulation of sound
safeguard and audit plan addressing the identified
Presentation of the analysis:
• Appropriate citation and references.
• Style and readability including proper
organization of answers.
• Overall presentation.
• This coursework must have a Cover Sheet,
Table of Content and Page Number and Proper
Heading/Title for each part answered, list of
references (Use any referencing system that is
suggested by the faculty)
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