2. More Core Principles

These principles ensure a high standard of professional service.

• Professional Competence & Due Care: Maintain professional knowledge and skill to provide competent service. Act diligently.
• Confidentiality: Respect the confidentiality of information acquired from professional relationships.
• Professional Behaviour: Comply with relevant laws and regulations and avoid any action that discredits the profession.

3. Auditor's Independence

Independence is the cornerstone of the audit profession. It means your judgment is not subordinate to the wishes of others or your own self-interest.

Two Key Perspectives:

• Independence of Mind
  A state of mind that permits an opinion without being affected by influences that compromise professional judgment.
• Independence in Appearance
  Avoiding situations so significant that a third party would conclude your integrity or objectivity has been compromised.

4. Threats to Independence

Various situations can create threats to an auditor's independence.

Common Threats:

• Self-Interest Threat: A financial or other interest that could influence your judgment (e.g., owning shares in the client).
• Self-Review Threat: Auditing work that you or your firm previously performed (e.g., auditing financial statements you helped prepare).
• Advocacy Threat: Promoting a client's position to the point that your objectivity is compromised (e.g., acting as their advocate in a lawsuit).

5. More Threats & Safeguards

Recognizing threats is the first step; the next is applying safeguards.

Other Threats:

• Familiarity Threat: Becoming too sympathetic to a client's interests due to a long or close relationship.
• Intimidation Threat: Being deterred from acting objectively by threats, actual or perceived (e.g., pressure to reduce audit fees).

Safeguards are actions taken to eliminate threats or reduce them to an acceptable level.

6. Professional Skepticism

This is an attitude that includes a questioning mind and a critical assessment of audit evidence.

It means being alert for:

• Audit evidence that contradicts other evidence.
• Information that brings the reliability of documents into question.
• Conditions that may indicate possible fraud.

7. The Audit Engagement (SA 210)

Before accepting an audit, the auditor must establish that the preconditions for an audit are present.

The Engagement Letter:

This is a written agreement sent by the auditor to the client. It confirms the terms of the engagement to avoid misunderstandings. It outlines:

• The objective and scope of the audit.
• The responsibilities of the auditor.
• The responsibilities of management.

8. Quality Control

High audit quality is essential to maintain public confidence.

• SQC 1
  Applies to the entire firm. It requires the firm to establish a system of quality control for all engagements.
• SA 220
  Applies at the individual engagement level. The engagement partner is responsible for implementing quality control procedures for that specific audit.