B independence in appearance the avoidance of facts

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(b) Independence in Appearance The avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firm’s, or a member of the assurance team’s integrity, objectivity or professional scepticism had been compromised. Section 290 of the By-Laws, Independence — Assurance Engagements defines the concept of independence in paragraphs 290.8 and 290.9
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Threats to independence (1) Self-interest threat The auditor has a direct financial interest or material indirect financial interest in the audit client (2) Self-review threat The auditor is also involved in the preparation of accounting records and financial statements of the audit client (3) Familiarity threat The audit firm’s long association with the audit client may be over influencing the auditor’s professional judgement with regard to the audit (4) Intimidation threat The pressure to reduce inappropriately the extent of work performed in order to reduce the audit fees
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Factors to safeguard Independence (1) Tenure and Appointment Regulations that requires tenure being set -The Companies Act 2016 - tenure of office to an appointed auditor from one AGM until the conclusion of the next. However, the company may remove an auditor by passing an ordinary resolution to be determined at a general meeting of the members of the company (s. 172(4)) Section 440 of the By-Laws. The general purpose of this pronouncement is to require any member of the profession who is approached, to replace an existing auditor to communicate with the existing auditor.
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(2) Management Advisory Services The provisions of Section 290 deal specifically with the issue of professional independence, especially paragraphs 290.104 to 290.125 on financial interests (Appendix 4) and paragraphs 290.158 to 290.205, provision of non-assurance services to assurance clients (3) Auditor Rotation No such regulation in Malaysia yet but in USA, Section 203 of the US Sarbanes-Oxley Act requires a five-year rotation cycle for the external lead and reviewing audit partners (4) Managing perception Auditors need to manage perception and preserve their independence Factors to safeguard Independence
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Discipline Members of MIA who breach the By-Laws may be subjected to disciplinary action after going through investigation and disciplinary process. Example of activities that may be subject to breach of By- Laws: Advertising, Marketing and Promotions Clients’ Monies Non-compliance to Auditing standards
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