Professional Ethics and Audit Standards (Basics): Independence, Confidentiality and Due Care Questions

Question 1

What is independence of mind?

Accepted Answer

**Independence of mind** is the auditor’s ability to form an **unbiased** opinion.

Question 2

What is confidentiality?

Accepted Answer

**Confidentiality** means not disclosing or misusing client information without proper authority.

Question 3

Define professional ethics.

Accepted Answer

**Professional ethics** are principles/rules guiding professional conduct to maintain trust and credibility.

Question 4

What is integrity?

Accepted Answer

**Integrity** means being **honest** and straightforward in professional work.

Question 5

What is due care?

Accepted Answer

**Due care** means performing audit with required **skill, diligence, and attention**.

Question 6

Define professional scepticism.

Accepted Answer

**Professional scepticism** is a **questioning mind** and alertness to possible misstatement.

Question 7

State fundamental principles of professional ethics (any three).

Accepted Answer

Fundamental principles (any three):
- **Integrity**
- **Objectivity**
- **Professional competence and due care**
- **Confidentiality**
- **Professional behaviour**

Write 1 line meaning for each in exams.

Question 8

Explain independence of auditor (brief).

Accepted Answer

**Independence** means freedom from influences that compromise judgement. It includes:
- **Independence of mind** (actual unbiased judgement)
- **Independence in appearance** (seen as independent)

It is essential for credibility of the audit opinion.

Question 9

Explain any three threats to auditor independence.

Accepted Answer

Any three threats:
- **Self-interest**: financial/personal interest in client.
- **Self-review**: auditing own work.
- **Familiarity**: long association causing bias.
- **Advocacy**: promoting client’s position.
- **Intimidation**: pressure from management.

Add a short example for each.

Question 10

Explain safeguards to maintain independence (any three).

Accepted Answer

Safeguards (any three):
- **Rotation** of partner/team
- **Independent review** (quality control)
- avoiding financial interests/relationships
- firm policies on gifts and conflicts
- communicate with governance

If threats remain high, auditor should withdraw.

Question 11

Explain confidentiality and its exceptions (brief).

Accepted Answer

**Confidentiality** means client information should not be disclosed or used for personal advantage. Exceptions: disclosure may be required by **law/court**, required by **regulator**, or permitted with **client consent**.

Even then, disclose only what is necessary.

Question 12

Explain the importance of audit standards (basics).

Accepted Answer

Audit standards provide a common framework for **quality**, **consistency**, and **professional accountability**. They guide planning, evidence collection and reporting so audits meet minimum acceptable procedures.

Question 13

Explain independence of auditor and discuss threats and safeguards with a flow/table.

Accepted Answer

### **Explain Independence of Auditor and threats/safeguards**

**Independence** means the auditor is free from influences that compromise **professional judgement**.

**Types**:
- **Independence of mind**: actual unbiased judgement.
- **Independence in appearance**: auditor is *seen* as independent.

**Threats and safeguards (examples)**:

| Threat | Meaning (short) | Example safeguard |
|---|---|---|
| **Self-interest** | financial/personal benefit | remove interest, partner rotation |
| **Self-review** | auditing own work | independent review / separate team |
| **Familiarity** | close relationship | rotation, additional review |
| **Advocacy** | promoting client | avoid advocacy roles |
| **Intimidation** | pressure/threats | communicate with governance / withdraw |

```text
Identify threat → Evaluate significance → Apply safeguards → If not acceptable → Withdraw
```

Thus independence is essential for credibility of audit opinion.

Question 14

Explain confidentiality in auditing and list exceptions with a table.

Accepted Answer

### **Explain confidentiality and its exceptions**

**Confidentiality** means the auditor must not disclose or use client information for personal advantage.

**Why important**:
- protects client’s sensitive data
- maintains trust in the profession

**Exceptions (when disclosure may be allowed/required)**:
- **Legal duty** (court order)
- **Regulatory requirement**
- **Client consent**

| Situation | Auditor action |
|---|---|
| Legal notice/court order | disclose only required information |
| Regulator asks | comply as per rules |
| Client consent | disclose within agreed scope |

Thus confidentiality is a rule with limited, lawful exceptions.

Question 15

Explain due care and professional scepticism in audit with a flowchart.

Accepted Answer

### **Explain due care and professional scepticism in audit**

**Professional competence and due care** means the auditor maintains knowledge and performs work with **diligence** and **skill**.

**Due care includes**:
- proper **planning** and supervision
- adequate **documentation**
- obtaining **sufficient appropriate audit evidence**
- using experts when needed

**Professional scepticism** means a **questioning mind** and alertness to conditions indicating possible misstatement (error or fraud).

```text
Plan (due care) → Gather evidence (due care) → Question/investigate (scepticism)
→ Corroborate explanations → Conclude objectively
```

Together, due care and scepticism reduce audit risk to an acceptably low level.

Professional Ethics and Audit Standards (Basics): Independence, Confidentiality and Due Care

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