Page 70 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes A client, before engaging the services of a professional requires to be assured, (i) that he has the
required competence and (ii) that he is a person of character and integrity. As regards the first,
evidence is available to the client in the form of a certificate that the Chartered Accountant has
undergone the training and passed the appropriate examination in accountancy and as regards
the second, he would have an assurance only if the professional body to which he belongs has
adopted a code of professional ethics for its members.

The International Federation of Accountants (IFAC), in its guidelines on Professional Ethics for
the Accountancy Profession, has stated :-

“Persons who pursue a vocation in which they offer their knowledge and skills in the service of the affairs of
others have responsibilities and obligations to those who rely on their work. An essential pre-requisite for
any group of such persons is the acceptance and observance of professional ethical standards regulating
their relationship with clients, employers, employees, fellow members of the group and the public generally.”

IFAC in its Code of Ethics for Professional Accountants has also stated as under:-
The Public Interest: A distinguishing mark of a profession is acceptance of its responsibility to
the public. The accountancy profession’s public consists of clients, credit grantors, governments,
employers, employees, investors, the business and financial community and others who rely on
the objectivity and integrity of professional accountants to maintain the orderly functioning of
commerce. This reliance imposes a public interest responsibility on the accountancy profession.
The public interest is defined as the collective well-being of the community of people and
institutions the professional accountant serves.

A professional accountant’s responsibility is not exclusively to satisfy the needs of an individual
client or employer. The standards of the accountancy profession are heavily determined by the
public interest, for example :-
1. Independent auditors help to maintain the integrity and efficiency of the financial
statements presented to financial institutions in partial support for loans and to stockholders
for obtaining capital;
2. Financial executives serve in various financial management capacities in organizations
and contribute to the efficient and effective use of the organization’s resources;
3. Internal auditors provide assurance about a sound internal control system which enhances
the reliability of the external financial information of the employer;
4. Tax experts help to establish confidence and efficiency in, and the fair application of, the
tax system; and
5. Management consultants have a responsibility towards the public interest in advocating
sound management decision-making.

Professional accountants have an important role in society. Investors, creditors, employers and
other sections of the business community, as well as the government and the public at large rely
on professional accountants for sound financial accounting and reporting, effective financial
management and competent advice on a variety of business and taxation matters. The attitude
and behaviour of professional accountants in providing such services have an impact on the
economic well-being of their community and country.
Professional accountants can remain in this advantageous position only by continuing to provide
the public with these unique services at a level which demonstrates that the public confidence is
firmly founded. It is in the best interest of the worldwide accountancy profession to make
known to users of the services provided by professional accountants that they are executed at the
highest level of performance and in accordance with ethical requirements that strive to ensure

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