Only 54% of respondents to a KPMG quiz can apply the APES110 Code of Ethics

Results of the quiz, which was open to all accountants, show a reasonable understanding of audit independence requirements, with 54% of respondents scoring what the KPMG team considers a passing grade.

Both regulatory frameworks and fundamental principles are relatively well understood by respondents, who consistently answered questions about the Corporations Act, secondments to audit clients, and restrictions on former partners or officers correctly.

Specific scenarios, however, presented greater challenges.

See the questions and results below – hover or click on each graphic to see the correct response.

Haven’t completed the survey yet? You can still complete it here – it takes around 20 minutes. Come back to check your results against your peers’.

1 Non-PIE clients’ year-end

Q: A non-PIE (public interest entity) audit client has requested its accounting firm's help in preparing its year-end financial statements. The preparation of these financial statements will be based on a comprehensive trial balance and books and records, both approved by the client's management, for the accompanying notes to the financial statements.

Considering the APES110 (IESBA) requirements, is this arrangement permitted?

The 60% of respondents who correctly recognised the guidelines demonstrate a good understanding of independence requirements. Assisting with the preparation of year-end financial statements for a non-PIE audit client is permissible with appropriate safeguards.

2 Payroll services for audit clients

Q: An accounting firm has a payroll services division, as well as audit, taxation, and corporate finance divisions. An audit client, who is not a PIE, has requested the accounting firm to provide comprehensive payroll services. These services would involve collecting new employee data, reviewing and approving timesheets, preparing payroll calculations (including determining the appropriate account classification for each transaction), issuing pay-slips, and handling payroll tax, PAYG withholding, and superannuation payments.

Considering the APES110 (IESBA) which of the following statements best reflects the permissibility of such services being provided to the audit client?

Slightly fewer respondents understood the requirements here. This accounting firm with separate divisions may provide payroll services to an audit client, with safeguards in place to ensure that independence is maintained. Just 58% answered correctly, showing understanding of the need for safeguards in specific scenarios.

3 Secondment compromising independence

Q: An audit client requires temporary support in financial modelling and forecasting for impairment testing and going concern review. The firm's corporate finance division offers this service to clients. A senior manager from the corporate finance division is selected for a loan staff (secondment) arrangement with the audit client for up to nine months. The senior manager will be responsible for the assignment's output and report to client's management.

Considering APES110 (IESBA) requirements, is this arrangement allowed?

Seconding a corporate finance division senior manager to an audit client could compromise independence and objectivity, and is not permissible – 71% of respondents demonstrated understanding of this point.

4 From auditor to director?

Q: Which of the following statements best reflects the permissibility of a former audit partner joining [their] audit client as a director nine months after signing the auditor's opinion for the previous financial year, considering the Corporations Act (Section 324CI)?

“Former audit partners cannot become a director for their client within two years of signing the opinion,” IPA Group Executive Advocacy and Policy Vicki Stylianou says.

“This is clear in the Corporations Act, as a safeguard against threats to independence and questions of integrity.”

5 AASB16 advice to non-PIE audit clients

Q: An accounting firm has been requested by a non-PIE audit client to provide advice regarding AASB16 and the associated leasing calculations. The client has requested advice and observations in respect of options available to assist with compliance with this accounting standard. The client’s management will evaluate the options and takes full responsibility on how the entity will apply and adopt the new standard.

Which of the following options, considering APES110 (IESBA), best reflects the permissibility of an accounting firm providing advice to a non-PIE audit client regarding AASB16 and associated leasing calculations?

“The client's management must take responsibility for application and adoption in this scenario,” Stylianou says.

6 From client to auditor, with approval

Q: Which statement accurately describes the permissibility of a former director or officer of an audit client joining as a partner or employee of the entity's audit firm within 12 months after resigning, according to the provisions of the Corporations Act?

“Only four in 10 respondents demonstrate an understanding of independence restrictions in this scenario,” Stylianou says.

“This reveals a need for greater education – the audit client can provide approval for a former employee to join the audit firm.”

7 Bookkeeping for SMSF audit clients

Q: An accounting firm has been requested by an SMSF non-PIE audit client to provide bookkeeping and accounting services as follows:

• Coding transactions and posting them to the general ledger
• Preparing the general ledger from source documents
• Preparing journal entries and posting them to the trial balance
• Selecting accounting software
• Establishing and maintaining data feeds
• Managing the fund's investments and compliance with superannuation laws

Which of the following options, considering APES110 (IESBA), best reflects the permissibility of an accounting firm providing bookkeeping and accounting services to an SMSF non-PIE audit client?

“Providing bookkeeping and accounting services to an SMSF non-PIE audit client is impermissible under any circumstances,” Stylianou says.

“Fewer than half of respondents were aware of this independence limitation – again revealing a need for further education.”

8 Platform implementation services

Q: An accounting firm’s audit client has advised of their need to upgrade their software suite. The current sales and purchase software is not compatible with the general ledger, leading to inefficiencies and inaccuracies in financial reporting. Since the client only has one IT employee who lacks the necessary expertise for the software upgrade, the client asked if the accounting firm's IT consulting team could assist in designing and implementing the new IT systems. The desired outcome is for the IT consulting team to integrate the client's sales and purchase data with the general ledger, automating accounting records and financial statements.

Which of the following options best reflects the permissibility of an accounting firm providing the above IT implementation services to an audit client, considering APES110 (IESBA)?

“Fewer than half of respondents clearly understood the restrictions around auditing firms advising on, designing and implementing sales and purchase platforms,” Stylianou says.

“This scenario’s permissibility varies based on several factors, and each case must be assessed on its merits.”

9 Software and support are permissible

Q: An accounting firm's IT services division has developed a customisable software program to assist clients with IFRS 17 (Insurance contract) compliance and disclosures. An audit client has expressed interest in licensing the software, and the audit partner is evaluating the possibility. The accounting firm may also provide ongoing helpdesk support for the software.

Which of the following statements is most likely true regarding this scenario, considering APES110 (IESBA)?

“This is one of two questions that tied for most challenging, and an area in which further education is needed,” Stylianou says.

10 Policy development is a managerial role

Q: An accounting firm has been requested by a non-PIE audit client to provide assistance regarding AASB16 leasing calculations. The scope of the engagement includes:

• Determining the likely scope for the client and what system changes might be required to meet the clients AASB16 obligations
• Developing the accounting policies that would demonstrate compliance with the requirements of the standard
• Applying the requirements of the accounting standard to determine the accounting entries that will be required to be made retrospectively and in the current accounting period

Which of the following actions, considering APES110 (IESBA), is the most appropriate for an accounting firm?

“Just over half of respondents answered correctly and demonstrated their understanding of the threat this action would pose to independence,” Stylianou says.

“Respondents can take action to better understand the types of assistance that would see a firm assume a management responsibility role, as is the case in this scenario.”

11 Valuations for listed audit clients

Q: The accounting firm's corporate finance division has been asked to perform valuation services for the mining tenements of a listed (PIE) audit client, for which the firm is also the appointed auditor.

According to APES110 (IESBA) , which of the following is the most appropriate action for the accounting firm to take?

“Almost seven in 10 respondents recognised the threat of self-review in this scenario, and the risk associated with it,” Stylianou says.

Across all questions and respondents, KPMG assigned a passing grade to just over half of respondents, 54%.

The importance of ethics training

“We were particularly pleased to see high levels of familiarity with and understanding of the regulatory framework,” Stylianou says.

“However, responses to this survey also show a need for greater education and training in audit independence, particularly to build accounting professionals’ ability to assess the risks in specific scenarios and respond appropriately.”

Ethics training was discussed at length during the IPA Town Hall on 26 October 2023.

“Just doing an ethics education course does not make you ethical,” IPA Group CEO Andrew Conway told attendees.

And while the concept of ethics does not change, the practical application and the dilemmas accountants might face do.

“The ethical dilemmas and the context of the dilemmas change year-to-year. If we go back 10 years, there was no such thing as cryptocurrency, for example, and so we need to think about the context of ethics and update that,” Conway said.

“We need to make sure everyone is assessed and we have some form of measure that we can say, particularly to regulators, that we at least contextualise our ethics annually.”

IPA offers an annual, complimentary ethics refresher. Find out more: IPA 2023 Annual Ethics Refresher Short Course.