1.Requirement A
As per the provided situation, Jenny Wang has been conducting the audit operations of Panania Cars Pty Ltd for last six years. Due to a sales offer for the long established customers, the company is proposing an offer to the auditor to a car on twenty percent offer. As per APES 110, Section 260, Gifts and Hospitality, in case the auditor is offered with an gift, hospitality or offer from the audit client, there may be creation of audit threat to compliance with the fundamental principles of auditing (apesb.org.au 2018). Thus, in case the auditor accepts the offer or gift or hospitality from the client, a threat to audit objectivity principle can be created. The present case can be explained with the light of this principle (George, Jones and Harvey 2014). As per this principle, Jenny Wang is not supposed to accept the offer from Panania Cars Pty Ltd as the auditors are not required to receive any kind of offers from the clients. In case Jenny Wang accepts the offer, there can be a potential threat of Objectivity principle (Athanasiou 2014).
Requirement B
As per the provided situation, Katrina Wearne is conducting the audit operations of Lancom Cosmetics for November and December 2008. Katrina Wearne has received a Christmas gift of $350 cosmetics from the company. The essence of this case is similar to the above situation. According to APES 110, Section 260, Gifts and Hospitality, the audit clients may offer gifts to the auditor and this type of offer can create the threat of non-compliance with the required auditing principles (apesb.org.au 2018). Moreover, there is a chance of the creation of the self-interest threat to the audit objectivity principle in case the auditors accept the gifts. In the presence of this threat, the members of public practice need to evaluate the significance of the level of threat for the application of correct safeguards. The provided case can be explained from the perspective of this regulation. The application of this regulation imply that Katrina Wearne is not supposed to accept the gift of $350 worth cosmetics from the company as it can lead to the violation of the audit objectivity principle. Thus, it can be concluded that Katrina Wearne has violated the ethical principle of audit Objectivity by accepting the gift (apesb.org.au 2018).
Requirement C
From the provided situation, it can be seen that D. Marron has been engaged in an organization as a computer consultant for carry out the review program of the company and the client has required him to review the installation of a new computer system in order to maintain the production and inventory records. However, in the presence of lack of required technical knowledge, D. Marron is not able to review the installation program and permits the company to go for the installation. As per APES 110, Section 130, Professional Competence and Due Care, the auditor re required to have sufficient professional knowledge and skill to provide the clients with the required auditing services (apesb.org.au 2018). For this reason, the auditors are required to act diligently in accordance with the required technical and professional standards at the time of providing the audit services. By applying this regulation in the current situation, it can be said that D. Marron should not have taken the review program of the company in the absence of required technical knowledge (Trung 2015). In addition, he should not have provided the permit to go ahead with the installing without reviewing the situation. Thus, this total scenario violated the principle of Professional Competence and Due Care (Clayton and Staden 2015).
Requirement D
From the provided situation, it can be observed that six small chartered accountant firm has been involved in the review of quality assurance working paper. Quality Assurance Review (QAR) is considered as a crucial aspect in the audit operation that involves in the measurement of the various auditing aspects in order to provide the best auditing practice and to increase the quality of auditing (Fox 2013). As per the provided situation, the audit firms are reviewing the audit papers of another audit firm so that the strengths and weaknesses of the audit operations can be identified. It implies that the main objective behind the conduct of review program is to spot the strengths and weaknesses in the auditing process for the development of auditing strategies. One of the major parts of the review program is that the auditors of one company review the audit documents of another company in order to identify the streets and weaknesses in them (Pizzini, Lin and Ziegenfuss 2014). Thus, it is a required course of action in the audit review. Thus, the above discussion indicates towards the fact that there is not any violation in audit ethical principles in the provided situation as it is required to review the papers in this kind of review program.
Requirement E
As per the provided situation, it can be observed that Bill Holland, a chartered accountant, has a casualty and fire insurance agency for complementing his auditing and tax services and he has appointed Simone Taylor to run the business. After that, Bill Holland requests Taylor to review the adequacy of insurance as a part of his audit program. As per APES 110, Section 290.156, Provision of Non-assurance Services to Audit Clients, it is the obligation on the auditors not to provide any non-assurance services to the audit client as it can create the threat of audit independence (apesb.org.au 2018). In addition, APES 110, Section 140, Confidentiality, it is the obligation on the auditors not to disclose any confidential business information of the client to any third party (Van Akkeren and Tarr 2014). By applying these principles in the current situation, it can be observed that Bill Holland provides non-assurance services to their audit client by seeking the expertise of Taylor. Apart from this, Bill Holland breaks the confidentiality of business information of the audit clients by sharing this information to Taylor to review the adequacy. Thus, in this scenario, Bill Holland has violated the ethical principal of Confidentiality and Provision of Non-assurance Services to Audit Clients of auditing (Dal Pont 2014).
Requirement F
From the provided situation, it can be observed that Emma Lawrence provides services like tax services, management advisory services, and bookkeeping services along with audit services to the same audit clients. In this context, the principle of APES 110, Section 290.156, Provision of Non-assurance Services to Audit Clients can be mentioned. As per this principle, the auditors are prohibited from prodding any kind of non-audit services to the audit clients as the delivery of these services can lead to the creation of threat to audit independence (apesb.org.au 2018). The independent threats under this are self-review threat, self-interest threat and advocacy threat. For this reason, there is a requirement of establishing required safeguards for this threat. The provided situation can be explained with the help of this principle. By applying this principle in the provided situation, it can be observed that Emma Lawrence violates the principle of APES 110 by providing non-assurance cervices to the audit client like management advisory services, and bookkeeping services (Wijesinghe 2015). In the presence of this scenario, Emma Lawrence has violated the audit ethical principle of Provision of Non-assurance Services to Audit Clients with her actions (Carey 2015).
2.Situation 1
From the provided situation, it can be observed that Enid Blyton is an auditor of Anthony Don Chartered Accounting firm for the last four years and has taken the responsibility to conduct the audit operation of Green Thumbs that is a small environmental company. The company has just got listed one month ago. From the provided situation, it can be seen that new contractor of Green Thumbs responsible for the disposal of toxic assts has major bad reputation in the market. However, Peter Don, the audit manager has suggested Enid Blyton to focus on their main auditing activities that is to make sure that the financial statements of the company is free from material missstements.
Audit independence is considered as one of the major aspects in the audit profession as it helps in maintains the quality of the whole audit operations. In this context, it needs to be mentioned that there are five types of threat to audit independence; they are Self-interest threat, Self-review threat, Advocacy threat, Familiarity threat and intimidation threat. Self-review threat is occurred when the auditors have financial or other interest in the audit cline (Ball, Tyler and Wells 2015). The occurrence of self-review threat can be seen when the auditors use the papers of preview audit judgment in the current audit operation. There is the creation of advocacy threat in case the auditors involve themselves in the promotion of the client’s business. The occurrence of familiarity threat can be seen in case there is a longstanding relationship between the auditor and the client. Lastly, the intimidation threat of audit independence is created when the auditors are deterred from acting objectively due to any actual or perceived pressure (J. Clout, Chapple and Gandhi 2013).
The provided situation can be explained in the light of the above discussion. In this context, it is required to be mentioned that the main responsibilities of the auditors is to inspect the financial statements of the companies in order to ensure that they are free from material missstements. By applying the regulation of audit independence in the current situation, it can be observed that the provided situation does not create any kind of threat of audit independence (Ball, Tyler and Wells 2015). However, there is a potential for the creation of the threat of audit independence in case Enid Blyton helps the company in the selection of appropriate contractor for waste disposal. In case Enid Blyton provide assistance in the selection of contractor to the company, it will be considered as the delivery of non-assurance services as it is not the responsibility of the auditors to proved non-askance services (Ball, Tyler and Wells 2015). Thus, this aspect will create self-review, self-interest and advocacy threats of audit independence.
Situation 2
From the provided situation, it can be observed that Jean Douglas is conducting the audit operation of Dooley’s. It can be seen that there are certain parts of the situation. The given scenario indicates towards the fact that John, the CEO of Dooley’s has not made the full payment of the fees of the auditors as 30% of the audit fee is due. However, he has mentioned to the auditor that he will provide the cheque to the auditors in case he satisfies with the progress of the audit program. In addition, he also stated that the firm will start the deliberations of the selection of auditor for the following year. Thus, from the discussion, it can be observed that the CEO of the company is creation indirect pressure in the auditors by linking the audit fee with the audit performance that indicates towards the development of favorable audit opinion from the auditors. It case Jean Douglas provides the favorable audit opinion, there will be the creation of self-inherent threat of audit independence (Wu and Ying 2016).
In this context, it needs to be mentioned that it is the responsibility of the management of the companies to prepare and present the financial statements by complying with the required accounting standard in order to avoid material missstements. From the provided scenario, it can be observed that Dooley’s has not followed the required accenting standard for the valuation of inventory by not considering the fair value of inventory that led to material misstates. Apart from this, the company has provided an offer of free trip to Europe for the auditor after the successful completion of the audit operations (Hossain et al. 2016). It indicates towards the fact that the company wants a favorable audit report from the auditors by ignoring the material missstements due to non-compliance with the required accounting standard for inventory valuation. Thus, as per APES 110, Section 260, Gifts and Hospitality, it is the obligation on the auditors not to take any gifts and offers from the auditors as it indicates towards the presence of financial and other interests of the auditors in the client (apesb.org.au 2018). Thus, it case Jean Douglas accepts the offer from the CEO of Dooley’s, there will be creation of self-interest threat of audit independence.
References
Apesb.org.au. (2018). APES 110 Code of Ethics for Professional Accountants. [online] Available at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 30 Apr. 2018].
Athanasiou, A., 2014. Avoiding client persuasion. Taxation in Australia, 48(10), p.601.
Ball, F., Tyler, J. and Wells, P., 2015. Is audit quality impacted by auditor relationships?. Journal of Contemporary Accounting & Economics, 11(2), pp.166-181.
Carey, P.J., 2015. External accountants’ business advice and SME performance. Pacific Accounting Review, 27(2), pp.166-188.
Chapple, L., Crofts, P., Ferguson, C. and Hronsky, J., 2014. Professional independence and attachment bias: an exploratory study.
Clayton, B.M. and Staden, C.J., 2015. The Impact of Social Influence Pressure on the Ethical Decision Making of Professional Accountants: Australian and New Zealand Evidence. Australian Accounting Review, 25(4), pp.372-388.
Dal Pont, G., 2014. Ethical conflicts and the tax practitioner. Revenue Law Journal, 24(1), p.24.
Fox, M.J., 2013. Quality assurance management. Springer.
George, G., Jones, A. and Harvey, J., 2014. Analysis of the language used within codes of ethical conduct. Journal of Academic and Business Ethics, 8, p.1.
Hossain, S., Monroe, G.S., Wilson, M. and Jubb, C., 2016. The Effect of Networked Clients’ Economic Importance on Audit Quality. Auditing: A Journal of Practice & Theory, 35(4), pp.79-103.
Pizzini, M., Lin, S. and Ziegenfuss, D.E., 2014. The impact of internal audit function quality and contribution on audit delay. Auditing: A Journal of Practice & Theory, 34(1), pp.25-58.
Trung, N.K., 2015. Ethics Education In The University. International Journal of Scientific & Technology Research, 4(8), pp.5-10.
Van Akkeren, J. and Tarr, J.A., 2014. Regulation, compliance and the Australian forensic accounting profession. Journal of Forensic and Investigative Accounting, 6(3), pp.1-26.
Wijesinghe, M.C., 2015. Technical Update 2013/2.
Wu, H. and Ying, S.X., 2016. Realizing auditor independence in China: insights from the local context. Contemporary Management Research, 12(2), p.245.
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