1.Requirement [a]
The analysis of the situation makes us reach to a conclusion where the Berowa Accountants have been found to provide the tax refund guarantee to their clients through the special advertisement. The concept of tax refund is therefore of utmost importance in this case. In order to understand the mentioned case it is important to understand the aspects that are related to the tax payment and tax refund. The concept of tax return is the basic difference between the tax that is paid and tax that is owned. The income and profit of the company plays a major role in the tax refund paid to the company. It needs to be mentioned that the when the tax liability of the company is less than the actual tax that is paid it is then that the companies get the refund of the tax (Galit and Metaban 2012). The auditors find difficulty in making the guarantee of tax refund. It has also been studied that the primary responsibility of the auditor is to examine the financial accounting of the companies in order to explore the material misstatement and to check the compliance. Therefore in case of tax refunds it would be considered as a non-audit service. This is the reason that as per APES 110 Code of ethics for Professional Accountants, Section 130, the mentioned act of Berowa Accountants has breached the principle of Professional Competence and Due Care (Han Fan, Woodbine and Cheng 2013). This act justifies the fact that it is possible for an auditor to make clients by being aware of the limitations of the professions and it is evident in this case that Berowa Accountants has failed to do so.
Requirement [b]
By analyzing the case study it has been observed that, Jamie Harvey, an auditor of a charter accounting firm was asked to serve the designation of the treasurer of the local club. Apart from this, it was observed that Jamie Harvey does the audit of only large public corporations. This should however be taken into consideration that the athletic clubs are always considered as the non-profit societies. According to APES 110 Professional Appointment, Section 210, the auditor are required to determine the effect of the acceptance of the appointment and whether they would affect the compliance of the fundamental ethical principles of audit (Ottaway 2014). It can be commented that in case if the auditors lands up in accepting the proposal to be the treasurer there would be breach to some extent and there are certain specific reasons for such breach. In the first place it has observed that Jamie Harvey is the auditor of large public corporations and the works of the large companies and clubs are not at all connected. In the second place in case of the appointment any fundamental ethical principle will not be affected. This is same for all non profitable organizations (Kuan 2014). It is because of this reasons that there will not be any kind of ethical issues.
Requirement [c]
There is a situation in the case where the payment of the auditor, Pymble Accountants is completely reliant on the appropriate needs of the audit opinion which has to be presented to the audit client, Monlec Ltd. It is directing to the fact Monlec Ltd is demanding for favorable audit report from the auditors. It needs to be mentioned here that the auditors are not the representatives of the company but they are the representatives of the stakeholders and the investors. According to APES 110 Principle of Objectivity Section 120 it is not desirable on the part of the auditors to compromise their professional and business judgment for any kind of conflict of interest or any kind of influence or biasness (Athanasiou 2014). Therefore it implies that the judgment of the auditors should not make a difference for any influence or biasness (Trung 2015).
Requirement [d]
From the provided case it can be witnessed that Winton Accountants has provided all kinds of audit reports and papers of the Motoring services to Chadwick Chartered Accountants. The later performed the job of reviewing the quality of audit of Winton Accountants. This is the situation where it indicates that there is a need on the part of Chadwick Chartered Accountants to perform variable tests and different processes in order to evaluate the quality of audit of the Wanton Accountants. The rules under APES 110 principles of Confidentiality, section 140 states that the auditors have the professional obligation in order to maintain the confidentiality of the information that is acquired regarding the auditing clients (Athanasiou 2014). This implies that the auditors must maintain the privacy of the auditing clients. However a contrasting situation has occurred in the provided case where the Winton Accountants have disclosed the confidential information about the Motoring Services to Chadwick Chartered Accountants by providing them the audit papers (Carey, Monroe and Shailer 2014).
2.Requirement [a]
The further case that can be observed from the provided case is that Thornleigh Accountants have observed Jane Davis in the place Leone Ng in order to complete the audit of Jenkins Ltd due to the illness of Leona. The next step of Thornleigh Accountants is to include Jane Davis in the team of audit in order to conduct the audit of Jenkins Ltd from mid July. This can be termed as a threat of independence of audit for Thornleigh Accountants. According to the APES 110, Self-review Threat, Section 100.12, there is no right of a member of audit team to use the results of a previous judgment of audit that is made by another audit members (DeFond and Zhang 2014). It has also been mentioned that the results of any previous audit judgment by any member of the same audit company cannot be used. Therefore, if Thornleigh Accountants includes Jane Davis in the audit team self-review threat of the auditor`s independence will be raised.
Requirement [b]
By reviewing the provided situation it can be mentioned that the John Darrow is responsible in conducting the audit operations of Winmalee Ltd. All the accounting papers were presented to John by Winmalee Ltd which included the standards of accounting and the computer files. In this situation it can be mentioned that the auditors are supposed to examine all the financial and the related papers. They can feel pressurized in such situation. By providing these papers, Winmalee Ltd can create an indirect pressure on John to deliver their favorable audit report. Thus as per APES 110, Section 200.8, this situation can create Intimidation Threat of the independence of the auditors (Ojo 2013).
Requirement [c]
From the above case study it can be mentioned that the auditors in this case was invited for the second show in the chocolate company. This is evident here that the company was trying to influence the auditors by providing them entertainment. Thus if the auditors accept the invitation to attend the social club they would create the threat of self-interest of the auditor`s independence (Deumes et al. 2012).
3.Requirement [a]
The responsibility of the auditors is to evaluate the occurrence of the misstatement of the financial statements and rectify the same. In case of the Connor Company it can be observed that the firm is heavily dependent on the bank overdraft to pay loans. The bank wants repayment within a month. The financial condition of the company is weak and it was evident that the records of the company are real and they did not hide their poor position. Thus the auditor will issue Unqualified Audit Opinion for Connor Company (Tsipouridou and Spathis 2014).
Requirement [b]
In the given case it can be observed that the company is supposed to follow FIFO method for the valuation of inventory, but they are following LIFO method as their parent company of America uses it. Analyzing all the situations it can be mentioned that the differential effect between the adoption of FIFO and LIFO has affected the valuation of inventory that contributes to the material misstatement. It can be stated that the qualified audit opinion is similar to unqualified audit (Rahimian, Tavakolnia and Karamlou 2014).
The valuation of the fixed assets is the basic requirement in all the companies. In case of Victorian Manufacturing Company, it can be witnessed that the valuation of their factory in Melbourne has not been done by them. Thus, the directors are taking a major supposition that may not be fitting and can create a major material misstatement. At the time of conducting the audit operations, the auditors need the current fair value of land and buildings and in the absence of this, the auditors will not be able to provide correct audit opinion as it limits their examination process. For this reason, the auditor will issue Disclaimer of Opinion, as they are unable to complete the accurate audit report (Kachelmeier, Schmidt and Valentine 2016).
References
Athanasiou, A., 2014. Avoiding client persuasion. Taxation in Australia, 48(10), p.601.
Athanasiou, A., 2014. Boy, you’re gonna carry that weight a long time!. Taxation in Australia, 49(2), p.106.
Carey, P.J., Monroe, G.S. and Shailer, G., 2014. Review of Post?CLERP 9 Australian Auditor Independence Research. Australian Accounting Review, 24(4), pp.370-380.
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2), pp.275-326.
Deumes, R., Schelleman, C., Vander Bauwhede, H. and Vanstraelen, A., 2012. Audit firm governance: Do transparency reports reveal audit quality?. Auditing: A Journal of Practice & Theory, 31(4), pp.193-214.
Galit, S.H. and Sorbe, T., Metabank, 2012. Computerized extension of credit to existing demand deposit accounts, prepaid cards and lines of credit based on expected tax refund proceeds, associated systems and computer program products. U.S. Patent 8,090,649.
Han Fan, Y., Woodbine, G. and Cheng, W., 2013. A study of Australian and Chinese accountants’ attitudes towards independence issues and the impact on ethical judgements. Asian Review of Accounting, 21(3), pp.205-222.
Kachelmeier, S.J., Schmidt, J.J. and Valentine, K., 2016. The disclaimer effect of disclosing critical audit matters in the auditor’s report.
Kuan, K.T.C., 2014. Auditor independence: an analysis of the adequacy of selected provisions in CLERP 9 (Doctoral dissertation, Queensland University of Technology).
Ojo, M., 2013. Audits, audit quality and signalling mechanisms: concentrated ownership structures.
Ottaway, J., 2014. IMPROVING AUDITOR INDEPENDENCE IN AUSTRALIA: IS ‘MANDATORY AUDIT FIRM ROTATION’THE BEST OPTION?.
RAHIMIAN, N., TAVAKOLNIA, E. and KARAMLOU, M., 2014. Qualified Audit Opinion and Debt Maturity Structure.
Trung, N.K., 2015. Ethics Education In The University. International Journal of Scientific & Technology Research, 4(8), pp.5-10.
Tsipouridou, M. and Spathis, C., 2014, March. Audit opinion and earnings management: Evidence from Greece. In Accounting Forum (Vol. 38, No. 1, pp. 38-54). Elsevier.
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