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Explain the following terms: a. Materiality; b. The duty of confidentiality; c. Professional indemnity insurance;...

      

Explain the following terms:
a. Materiality;
b. The duty of confidentiality;
c. Professional indemnity insurance;
d. Peer review;
e. Quality Control;

  

Answers


Peter
a) Materiality: A matter is material if its inclusion or omission will affect the decision reached
by the user of the account and if they affect the view of the account. Whether an item is material may depend on the degree of approximation of item of which it is a part. There may be critical points when materiality can be important, for example in turning a small profit into a small loss or just making a company’s assets exceed its liabilities or reversing a trend.

b) Duty of confidentiality: The guide to professional ethics states that information acquired in the course of professional work should not be disclosed except consent has been acquired from clients employer or other proper source or where there is public duty to disclose or where there is a legal or professional duty or right to disclose.
A member acquiring information in the course of professional work should neither use nor appear to use that information for his personal advantage or for the advantage of a third party.

c) Professional indemnity insurance; There is a tendency to sue the auditor knowing that he will not have to pay but his insurer will. The auditor seeks to pay some premiums to an insurance firm so that in case of any suit filed against him the insurer can pay. The effect of this is that the insurer will insist on reasonable skill and care on the part of the insured.

d) Peer review may be described as an independent review of a firm’s accounting and auditing practices. It is intended that the review be done by practitioners upon fellow practitioners hence the term “peer review”.
The work of the review is limited to:-

• Professional aspects of the practice.
• Overall total quality control policies.
• Professional aspects of firm’s accounting and auditing practices like maintenance of working papers work products such as financial statements.

e) Quality control; Audits should be extremely well done and yet be completed expeditiously and economically. The auditor should ensure that audits are carried out:

i. In accordance with international accounting standards.
ii. In conformity with statutory and contractual requirements.
iii. In accordance with ethical standards.
iv. In agreement with any professional standards set out by the firm and by other professional bodies.
v. Economically and to time schedules with minimum risk.

Musyoxx answered the question on March 14, 2018 at 16:25


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