The purpose of assurance engagements is to increase the confidence of clients by reducing the risk. The public rely on auditors on their knowledge, skills and expertise to form an independent opinion on the information when providing assurance engagement. Therefore, code of ethic is fundamental principles that give a guidance of ethical behaviour (ACCA, 2009).
Therefore, the user needs to believe the assurance practitioners act in accordance with a code of ethic and the practitioner needs a code of ethics to make sure that he or she is worthy of that level of trust. [ACCA F8 ]
Because of various scandals of the corporate in the past, it show that there have a lack of independence. So, there is a need for a basis of trusted by the client, therefore, auditors need to be independent to the client. Independence is a state of mind that permit's the provision of an opinion without being affected by influences that compromise professional judgement. Auditors need to avoid the actions and circumstances that could be seen to affect independence (Liandu, N., 2002)[online].
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An independent auditor can provide assurance to the shareholders and other stakeholders of a company that the directors have exercised good stewardship and accountability to shareholders of a company (The Role of the External Auditor,2006) [online].
An auditor can give a report which states the opinion in true and fair view. Besides, auditors only provide reasonable assurance service (The Role of the External Auditor,2006) [online]. Beside, auditor also need to close the expectation gap that exist between what the public and the auditors via improves communication between auditors and users of accounts or user have to had a better understanding of meaning, purpose of the financial statements and the audit report. (ACCA, P7)
2.0 Main body
2.1 Role of IFAC's Code of Ethic for professional accountants for professional accountants in strengthening the independence of external auditors.
In the wake of the various scandal such as Enron and WorldCom corporation cases, the IFAC's code uses a conceptual framework approach to ensure all professional accountants compliance with five fundamental principles which are integrity, objectivity, professional competence and due care, confidentiality and professional behavior [mia2].
From time to time, IFAC will updated and revised the ethical codes so that it will come out with new safeguard and maintain the fundamental principles of the ethic which strengthens the code of ethic. However, the IFAC Code is intended to be a model code of ethics for national accounting organization throughout the world. Therefore the accounting profession seen to be move toward internationalisation. As an example, the world become attempting to harmonization. In order words, the IFAC Code can potentially serve as the basis for various national accountancy codes of conduct. [an analysis of int'l a/cting. ]
This mean that the revised of the code of ethic, the members of the IFAC have to be consider into the IFAC Guidelines on Ethics then updated and amended from time to time and have a central objective the convergence of a country's national code with the ethical code. Further, the requirements specify that member bodies should not apply less stringent standards than those stated in the Code. (IFAC 2 )
The revision of the ethical codes will set the standards of conduct for accountants in view of the professional responsibilities and duties owned by all accountants whether in public practice or otherwise, to their clients, employers, the authorities at the public. [mia2]
It is contended that international convergence to a single set of independence requirements will enhance the efficiency of global capital markets. Common auditor independence standards would provide a consistent understanding of the independence of auditors and what it means to be independent. In principle, this should increase confidence in auditors' reports. It could increase choices for market participants when selecting audit service providers (IFAC) [online].
Although revising the IFAC code of ethic will bring the positive aspects for professional accountants in strengthening the independence of external accountants, but it also will bring the negative aspects too.
Revision of the ethical codes for professional accountants will strengthening the independence of the external auditors but at the end, it will be depend more at a person's behaviour.
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According to Datuk Dr. Sulaiman says that integrity is really a matter of the heart because it has everything to do with one's conscience( cited in MIA, 2006). Beside that, to address the dwindling sense of integrity in the world today, countless measures have been introduced to plug loopholes and avoid similar scandals.
Although the accounting standards have been tightened, and there are newer and tougher compliance requirements that companies must adhere to in order to enhance corporate governance and transparency. (Mia, 2006)
2.2 The important of maintaining a principles-based approach in the Code of Ethics.
Principles-based approach is a simple set of key objectives are set out to ensure good reporting. Common examples are provided as guidance and explain the objectives. Although some rules are unavoidable, the guidelines or rules set are not meant to be used for every situation. The fundamental advantage of principles-based accounting is that its broad guidelines can be practical for a variety of circumstances. Therefore the practitioner needs to behave and be seen to behave in an ethical, professional manner. [ACCA, 2009]
The drawback that maintaining a principles-based approach in the code of ethic is the application of the IFAC's Code of Ethic are requires good judgement and common sense. Beside that, its use in any given cases may depend upon the individual involved and the level of the potentioal threat posed by a specific ethical lapse.
Altough provide standards, the ethical does not provide a set of rules. Reasonable differences of opinion can do exist with respect to interpretation and specific application must take into account the context of a given behaviour. A code of ethic cannot guarantee ethical behaviour or resolve all disputes.