From the provided situation, it can be seen that Berowra Accountants are providing the guarantee of tax refund to their client thorough special advertisement. In this case, it is required to know the concept of tax refund. Tax return refers to the difference between tax paid and tax owed. More specifically, companies can get tax refund when the amount of tax liability of the companies is less than tax paid. Whether a company will get tax refund or not totally depends on the income, profit and tax expenses of the companies (Galit and Metaban 2012). It is not possible for the auditors to make the guarantee of tax refund. On the other hand, the main responsibility of the auditors is to examine the financial accounting of the companies in order to find material misstatement and to do compliance check. Thus, it would be non-audit service in case of tax refund. For this reason, as per APES 110 Code of Ethics for Professional Accountants, Section 130, this act of Berowra Accountants has breached the principle of Professional Competence and Due Care (Han Fan, Woodbine and Cheng 2013). As per this act, an auditor can make client by knowing the limitations of the professions and Berowra Accountants has failed to do so.
According to the provided case study, Jamie Harvey, an auditor of a charter accounting firm has been asked to be the treasurer of the local club. In addition, Jamie Harvey only does the audit of large public corporations. It needs to be mentioned that athletic clubs are considered as not-for-profit societies. According to APES 110 Professional Appointment, Section 210, at the time of accepting a new client appointment, the auditors are required to determine whether the acceptance of the appointment would affect the compliance of fundamental ethical principles of audit (Ottaway 2014). In this case, if the auditor accepts the proposal to be the treasurer, there would not be any breach of ethical principles and there are certain reasons. First, Jamie Harvey is the auditor of large public corporations and there is not any connection between the works of the club and large companies. Second, any fundamental ethical principle will not be affected in case of the appointment in not-for-profit organizations (Kuan 2014). For all these reasons, there will not be any ethical issues.
In the provided case, there is a situation where the payment of the auditor that is the Pymble Accountants is dependent on the audit opinion that needs to be appropriate to the audit client, Monlec Ltd. It implies that Monlec Ltd is demanding for favorable audit report from the auditors. In this context, it needs to be mentioned that auditors are the representative of the stakeholders and investors, not the companies. According to APES 110 Principle of Objectivity, Section 120, the auditors should not compromise their business or professional judgment for any kind of biasness, conflict of interest or any kind of influence (Athanasiou 2014). It implies that the judgment of the auditors should not be affected with any kind of influence or biasness. In case of the provided situation, in case the auditor provides an audit report that is favorable for Monlec Ltd, then there will be a breach of objectivity principle of auditing. There will not be any breach of auditing ethical principle if the auditors do not provide a biased audit opinion (Trung 2015).
In the provided case, it can be seen that Winton Accountants has provided all the audit reports and papers of Motoring Services to Chadwick Chartered Accountants. Chadwick Chartered Accountants have the job of reviewing the audit quality of Winton Accountants. This situation indicates that Chadwick Chartered Accountants have to perform different kinds of tests and processes to check the audit quality of Winton Accountants. APES 110 Principles of Confidentiality, Section 140 state that auditors have the professional obligation to maintain the confidentiality of the information acquired about the auditing clients (Athanasiou 2014). It implies that the auditors cannot disclose the acquired information about the audit clients to any third party. In the provided situation, it can be seen that Winton Accountants have disclosed all the confidential information about Motoring Services to Chadwick Chartered Accountants by providing them all the audit papers (Carey, Monroe and Shailer 2014). Thus, Winton Accountants have breached the principles of confidentiality in auditing with their action.
From the provided case, it can be observed that Thornleigh Accountants have sent Jane Davis in the place of Leona Ng to complete the audit of Jenkins Ltd due to the illness of Leona. Now, Thornleigh Accountants is intending to include Jane Davis in the audit team to conduct the audit of Jenkins Ltd from mid July. This particular situation develops the threat of audit independence for Thornleigh Accountants. According to APES 110, Self-review Threat, Section 100.12, a member of an audit team does not have the right to use the results of a previous audit judgment made by another audit members of the same audit team (DeFond and Zhang 2014). In addition, it also states that the results of any previous audit judgment by any member of the same audit company cannot be used. The same principle is also applicable for Thornleigh Accountants as the company is planning to use the audit judgment of Jane Davis as she has been the accounts manager of Jenkins Ltd and she has the knowledge about the accounts of the company. Thus, self-review threat of auditor’s independence will be raised in case Thornleigh Accountants includes Jane Davis in the audit team.
From the provided situation, it can be seen that the John Darrow is responsible to conduct the audit operations of Winmalee Ltd. Winmalee Ltd has presented to John all the accounting paper copies including accounting standards and computer files in order to support their valuation of intangible assets. In this context, it needs to be mentioned that it is the responsibility of the auditors to obtain conclusive audit evidences by examining different types of financial accounts of the audit clients and the auditors are not supposed to consider any papers provided by the audit client. In the provided situation, the auditors can feel pressured by the audit client in order to agree with the judgment of audit client. In addition, by providing these papers, Winmalee Ltd can create indirectly create pressure on John to deliver their favorable audit report. Thus, as per APES 110, Section 200.8, this situation can create Intimidation Threat of auditor’s independence (Ojo 2013).
From the provided case study, it can be seen that the chocolate company has invited the auditors to visit the second chocolate show and also invited them in the social club of the company. It needs to be mentioned that the auditors should not involve any kind of entertainment activities with the audit clients. According to APES 110, Self-interest Threat, Section 100.12, there will be a threat of auditor’s independence in case any kind of financial or non-financial interest of the auditors influence the audit opinion (Deumes et al. 2012). In the provided case, it can be observed that the chocolate company may be trying to influence the auditors by inviting them in the entertainment activities as the motive can be to get favorable audit opinion. Thus, in case, the auditors accept the invitation of the company to attend the social club, they would create the self-interest threat of auditor’s independence.
The main responsibility of the auditors is to examine the financial statements of the companies in order to ensure that the financial statements of the companies are free from material misstatements and they have been prepared by complying with all necessary regulations. In addition, auditors do not have the responsibility to comment on the financial position of the companies if there is not any kind of fraud. In case of Connor Company, it can be seen that the firm is heavily dependent on bank overdraft to pay their loans, as they do not have any other finance option left. In addition, the bank wants repayment within one month. It shows the weak financial condition of Connor Company. However, this aspect has not created any effect on the materiality. The auditor has not encountered any material misstatement in any of the financial statements of Connor Company. It implies that the Connor Company has not manipulated any of their financial statements to hide their weak debt-paying condition. Thus, the auditor will issue Unqualified Audit Opinion for Connor Company (Tsipouridou and Spathis 2014).
It is the responsibility of the companies to prepare and present their financial statements based on the standards of generally accepted accounting principles. In addition, companies are required to comply with the accounting regulations of the country in which they are operating. In the provided situation, it can be seen 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. For this reason, the differential effect between the adoption of FIFO and LIFO has affected the valuation of inventory that contributes to material misstatement. Thus, in this particular area, the auditor has every right to issues adverse opinion, as there are both compliance issue and material misstatement. However, except inventory, there is not any sign of material misstatement in any of the financial statement of the company and there is not any compliance issue. For this reason, the auditor will issue Qualified Audit Opinion. Qualified audit opinion is almost similar to unqualified audit opinion; but, in qualified audit opinion, the auditor has to add another paragraph that will highlight the reason for which the report is not unqualified (Rahimian, Tavakolnia and Karamlou 2014).
It is required for the companies to do the valuation of their fixed assets like plant, machinery, land, building and others on a regular basis due to the change in market price. In case of Victorian Manufacturing Company, it can be observed that they have not done the valuation of their factory in Melbourne for last five years as the directors think there is not any change in the market value. Thus, the directors are taking a major assumption that may not be appropriate 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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