THE INSTITUTE of Chartered Accountants of Jamaica's Code of Ethics for members deals with auditors' independence as it relates to appointments in companies as follows -
When members in public practice are or were, within the period under current review or immediately preceding an assignment: (a) a member of the board, an officer or employee of a company; or (b) a partner of, or in the employment of, a member of the board or an officer or employee of a company;
They would be regarded as having an interest which could detract from independence when reporting on that company.
This applies where a member has been a partner of, or in the employment of, a member of the board or an officer or employee of a company in the two years prior to the commencement of the period being audited.
A member should not personally take part in the conduct of an audit of a company if he or she has, during the period upon which the report is to be made, or at any time in the two years prior to the first day thereof, been a member of the board, an officer (other than auditor) or employee of that company.
A firm's independence may be impaired because of the participation in the conduct of an audit by a member in public practice or senior employee who intends to join the client. The firm's guidelines should include the requirement for immediate notification to the firm by a member in public practice or senior employee involved in a client's audit of his or her intention or any discussions concerning the possibility of joining the client.
Where a member in public practice or senior employee is to join the client or is involved in substantive negotiations with the client he or she should be removed from the audit team and the significant audit decisions made by the member or senior employee should be reviewed.
When a member in public practice, in addition to carrying out an audit or other reporting function, provides other services to a client, care should be taken not to perform management functions or make management decisions, responsibility for which remains with the board of directors and management.
In all cases in which independence is required and in which a member in public practice is concerned in the preparation of accounting records for a client, the following should be observed:
The member in public practice should not have any relationship or combination of relationships with the client or any conflict of interest which would impair integrity or independence.
The client should accept responsibility for the statements.
The member in public practice should not assume the role of employee or of management conducting the operations of an enterprise.
Staff assigned to the preparation of accounting records ideally should not participate in the examination of such records. The fact that the member in public practice has processed or maintained certain records, does not eliminate the need to make sufficient audit tests.
Personal and family relationships can affect independence. There is a particular need to ensure that an independent approach to any assignment is not endangered as a consequence of any personal or family relationships.
Family relationships which always pose an unacceptable threat to independence are those in which an officer or senior employee of an audit client is closely connected to a member in public practice or an employee engaged on the assignment. Closely connected includes the spouse, dependent child or relative living in a common household but may include an extended family member to whom regular financial assistance is given or who is otherwise indebted financially to the member in public practice.
