International Federation of Accountants (IFAC) intensify independence of auditor and role in Malaysia to development of auditing standard and its purpose is to serve public interest to manage code of ethic rules and procedure guidance on auditor member engage financial statement to adopt high standard of ethic. IFAC's code of ethic is importance to instruct auditors given behaviour or action in between good or bad and right or wrong. Auditors should comply with fundamental principles of ethical code should be honest and straightforward in the business relationship and it is to maintain an attitude of fair and not bias to affect auditors' objective during making judgement and maintain the knowledge and skill at the level require by clients, confidentiality and professional attitude should compliance with law and regulation (Messier/ Glover/ Boh P.M., 2006). External auditors need to identify and evaluate the threat to apply safeguard and reduce threat is to ensure that principle are not compromise. This is because auditors have a duty to express an opinion as provides reasonable assurance about financial statement as whole from material misstatement and must be independent. The purpose of an auditor is increasing the degree of confidence of intended users in financial statement. Auditor provides reasonable assurance as high level and its gather sufficient evidence to conclude subject matter that is responsibility of another party and against suitable criteria. Important of independence auditor helps prevent the directors carry out fraudulent organisation or maximize own self-interest.
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IFAC code of ethic purpose in revise code process is to strengthen independence auditor expanding guidance for all independence auditor or accountancy address on honestly and confidence. When revised code of IFAC' ethic code is because this is existing threat on prior years such increase in personal advantage and this aim on minimize to maintain the external auditor of local and international scandals in auditing and accounting. (JICPA, 2006) [online].
IFAC code of ethic when revise help to gain the recognition and acceptable on auditor limit of authority. Revised code also helps to reduce or minimize to evaluate or address these threats and apply relevant safeguard to an acceptable levels. Code of ethic revised to be acceptable level will make auditor improve in competent and reputation (IFAC, 2010) [online]. For example, revise code is to changing and add new code of ethic for auditor to engage an acceptable level from the prior weakness.
IFAC code of ethic harmonisation in global it can be a positive aspect to auditor, process in harmonisation it can strengthen external auditor and purpose is set out international standard for professional practice. This provide and development every auditor to achieve auditor can simultaneously provide high quality service in public interest within global. It can let every auditor easily to understand the specific recommendation comply with the explanation. The tools is let auditors easy to discuss, therefore auditors can easily to find out the problem when it arise and to provide same safeguard by personal or group. Harmonisation IFAC code of ethic can help auditor improve the quality and consistency. (Clements C., Neill J.D., Stovall O.S., 2008)
Thus, IFAC code of ethic perform auditor on morality to strengthen auditor under auditor' behaviour and attitude also will affect the auditor whether can strengthen to independence auditor. Moral behaviour is importance to auditor creates and makes decision in provide safeguard to development the discipline and attitude. Under auditor morality in IFAC ethic code it can help develop auditor improve professional and also reputation at the same time can serve to improve the social value(Sahin R., -ztürk S., Ünalmis M., 2009) Example, an auditor got a good heart to perform an audit firm it can improve their reputation.
The negative aspect to independence auditor when revise code it have to take time with training on new code and spend many costs for training. Revised code has take more time to revise the code and update to auditor, some auditor cannot update immediately may be some auditor live at backward areas and may take risk to auditor such create a wrongly on the decision making. Revise code enhance auditor to follow the code. It let auditor has to spend more time to arrange time to engage this framework, auditor may take risk misstatement during revised code because sometime hard to handle between the both party(S. Dellaportas, K. Gibson, R. Alagiah, M. Hutchinson, P. Leung, D. Van Homrigh. John Wiley and Sons Australia, Milton (Qld)2005).
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Negative aspect of IFAC code has loopholes that is cannot fully capture variation regional in belief, cynicism and practice the code to make auditor cannot strengthen independence (ACCA, 2008). Loopholes sometime are avoid mistake on require ethic code because the world is changing and will change the culture and personality as well. Therefore, IFAC code cannot guarantee every country or every auditor may process the code of ethic. For example, free in culture over the world and will change the personally mind to process because it did not include law, so auditor may do what they want because code of ethic is did not under law. This is because ethic code cannot maintain use the same code and always have to revise (Catherine Capozzi, 2010)
The negative aspect is human nature and it will create a threat to auditor in IFAC code of ethic and cannot strengthen the auditor independence. Everybody also got personality human nature as well as auditor such as greedy it can make threat to auditor because auditor may take self-interest to make a fraud. Human nature will make auditor hardly to independence express the opinion. For example, if the client has relationship with auditor, it arise the familiarity threat if auditor has too sympathetic on the other interest. (Sara Reiter, 1007) The ethics of care and new paradigms for accounting practice
Code of ethic deeper maintain principles-based than rules-based it is cause auditor must comply with ethical by human behaviours. Principle-based is an objective in moral behaviours based on professional action which are good heart, attitude and behaviour. It is more flexible to consider and more sensitive part when making decisions (Majella Gomes, 2010). On the other hand, rules-based system gives no freedom to user because must follow their rules to do to make use the work, they are within the set of rules. This can be easy to let people know whether that person has complied by rules or not. (ACCA, 2008) The important use and maintain principle-based in ethic code is auditor has to express an assurance service it must come from human behaviour. http://www.mia.org.my/at/at/2010/04/03.pdf
The positive aspect of the principle-based approach maintaining in code of ethic it guidance the independence auditor can actively consider and demonstrative in their knowledge to express an opinion and without limits. Under the principle-based auditor has responsibility to actively consider the situation which related to data, and there is not an action present to give opinion by auditor to check of prohibition items from data. Further, that responsibility of auditor has independence to demonstrate the opinion has relative to reach about ethical. (ACCA, 2008)
Advantage of principle-based is also sufficiently flexible to address and changing situation. Ethic code maintain use this approach let all auditors easily and flexible to handle the rapid change in environment because it development and extending adopt to enhance auditor to perform high quality to make decision. (ICAEW, 2009) [online]. Auditor should also try to resolve when existing ethical problem on this approach, but if cannot be resolve try to ask accountancy to apply the principle to identify in each circumstance. Example, when a problem of exist the error in data of financial statement, auditor was allow flexible to resolve the problem.
The advantage use principle-based is robust result in the IFAC ethic code. Principles-based can help auditor perform independence to create a trust by regulation it is because the principle code is very robust and useful to let auditor to present an effectively in the financial statement to express high quality assurance because auditor will suffer during using rules-based perform the statement (Kranacher M.J, 2007).This approach prevent auditor create fraud and has limited to interpreting legalistic matter and avoid on requirement ethical. IESBA prefer auditor compliance on principles because rules-based may let auditor create fraud. (ACCA, 2008)
Conversely, the drawback of principles-based approach to ethic code is auditor must very clearly and understanding the ethic of the underlying principle. It is because as a code of ethic cannot be include all the situation and ethic dilemma. Some auditor cannot clear understand the principles-based approach and will create a threat to auditor to provide fail or no sufficient to comply without given an adequate or perhaps the explanation. This also will lead to lack of trust because people realise this auditor are useless and this happen may be defame to auditor (ACCA, 2008)
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This framework may let auditor process independence create some illustrative example and to interpreted mistake as rules to follow in all similar situations. A lack of precise guidelines may cause the application throughout the organization are inconsistent in the situation. So auditor has to carefully make decision to minimize mistake it may reduce consistency the concept which mistaken (Shortridge R.T./Myring M., 2002). Example, auditor explains a statement to shareholder which carries some words that shareholders cannot fully understand and create to another meaning. Further, principles-based hard to enforce legal, unless if the auditor discipline with the code of ethic got evidence. This will less effectiveness if auditor did not mention it, but if auditor voluntarily to create this judgement perhaps will less effective (ACCA, 2008).
Beside the code of ethic, International Standard of Quality Control (ISQC) also can strengthen the independence auditor. ISQC can improve procedures of auditor quality control, it can enforce more easily to complete the satisfy standard on assurance services (ACCA, 2010) [online]. ISQC did not limit auditor independence perform service engagement and it also help to improve service to the client because the quality of audit service not only limited engagement it also includes the relationship with client. By the way, ISQC also help improve auditor practice efficiency or create profitability and it comply require with the legal and regulation. This set out the leadership responsibility for quality on auditor to designate an engagement partner. Under quality control auditor has to respect client whether acceptable or continue the client and engage or not. This has to carry out with the ethic, monitoring and document of client. It help auditor when provide assurance service minimize to disclose liability risk (MIA, 2008)[online].
An audit committee's responsibility is to strengthen and ensure the independence auditor. Audit committee have a power to let external auditor whether can survive in the event dispute between management and auditor. Audit committee make a recommendation to the board would create a more relationship between management and auditor(ACCA, 2009).This also purpose strengthen auditor express opinion to the shareholder of approval in annual general meeting to discuss between independence auditor, management and members audit committee. Audit committees meet with the independence auditors in discharge the independence auditor' objective and how effectiveness of the audit process due financial statement of the company. Audit committee also can help independence auditor to suggest an opinion which taken problem from the auditor' present. Audit committees not only engage the dispute between independence auditor and management and also can resolve the dispute. (Modern Auditing)
Continue Professional Education (CPE) to development and maintain to continuously auditor skill and knowledge to strengthen auditor in independence. Auditor comply with the fundamental principle under the CPE that has a continuing duty to maintain the knowledge and skill, it must ensure take advantage to the client with the competent service based on current development and take into practice, technical, standard and legislation (MIA, 2005)[online] http://www.mia.org.my/handbook/bylaws/03partA_4.htm. It can increase auditor public expectation of the service to overcome the latest conflict of interest. CPE provide the level of regulatory for audit standard or high quality assurance and reputation to make auditor have value.
In the end, IFAC code of ethic play a role to make auditors practice and learn more morality come from a good heart. Ethic code always has to revised is avoid auditor cannot get more personal advantage it because code of ethic create to provide public interest. Revised ethic code and maintains the fundamental to provide safeguard because in every auditor mind will take personal advantage and aim auditor to improve in independence to making decision on the right way. Ethic code in harmonisation can make auditor become more professional. On the other hand, IFAC ethic code has not been success in global because cannot fully capture variation regional of all auditors. This limitation make IFAC has to improving process for the work to revise code to become globalisation. During the time for revise code have to use much time to survey and spend much cost. By the way, maintain principles-based in code of ethic it can improve the standard for auditors and easily for auditor understand the object. External auditor has to discipline on the code of ethic to strengthen paperwork. Auditor can flexible to address and change during variation environment and to perform high quality. It result in robust but must clearly understand the ethic of the underlying principle, if did not it may take mistake to auditor. Therefore, auditor must carefully read and making decision to reduce the risk mistake.