Discuss about the APES for Auditng and Assurance Standards.
The act of Peter Harmon is not in accordance to the APES 110, Code of Ethics for Professional Accountants, hence he is said to have violated the ethical code of conduct. As per Section 240 of APES 110, an auditor if is to receive any kind of a referral fee or commission from any dealer or such outsider for referring the client, then the same should be intimated to the client beforehand (APESB, 2010). The dealer’s details along with the calculation of such a referral fee should be well communicated in writing. Thus in this case Peter should have informed the client about his arrangement with Computer Services Limited so as to prevent from violation of any such clauses of the ethical code.
Confidentiality is one of the main requirements of an auditing profession and therefore it denies the auditor from disclosing any kind of details about its clients to any third party or such other outsider but for the requirement of law. Therefore, David should have asked the client before passing on the details to Allied Insurance about them. Thus to ratify one’s acts, David should take prior acquiescence from the client and then disclose the details to the insurance company.
An auditor is expected to conduct his duty with undue influence. Independence is the core of an auditing profession. Due to the same an auditor can either perform audit services or non-audit services. Performing both the services would be in contradiction to the rule (icaew.com., 2012). But if the auditor has got permission from its client for the performance of both the services then the same can be done but the work should be rechecked by another auditor of the same firm so as to safeguard any kind of threats to audits as well as to ensure maintenance of integrity and objectivity (auasb.gov.au., 2015) .
Therefore the auditing staff can lend a hand in doing the data entry for the client but only after attaining priori consent from the client.
Advertising the professional work in an auditing profession should be in line with the fundamentals of the professional standards. Therefore comparing one’s work with that of its competitors or such other firms would be construed as contradicting the ethical requirements of the profession as well as bringing in disrespect to the profession (ethicsboard.org., 2012). On analysing the said situation it is understood that Barry’s act was an unacceptable one. He has contravened the fundamental principles of professionalism by sending management services to the client without his consent so as to grab the work from the other auditor. In order to ratify his acts, he should immediately stop doing the same.
A self interest threat and a self review threat comes in case a professional performs the dual function of an auditor as well as a director of the same company as per Section 290.146 of the APES 110. An honorary director is one who is not active in the board meetings and does not have any say in the company’s day to day activities but even then it is likely to pose a threat to the integrity and objectivity of an auditor’s duty. Therefore in this case Katrina NG who is acting as a director will have to resign from the duties of an auditor immediately as performing dual duty is not permissible by the act.
An accounting professional has the ability to perform multi-functions such as auditing, management services, taxation and such other non-audit services as well. But if the same person performs both the audit and non-audit functions then there is said to be a threat to the independence and integrity in performance. Thus on analysing the said scenario, it is construed that he will have to step down from any one kind of service i.e. audit or non-audit.
However the Combines Code of Corporate Governance says that a person can perform both the tasks only if the audit committee counter checks the work performed by Peter.
As per the standards issued by the institutes, an auditor can advertise the work performed by him or her but only in the journals and newsletters issued by the institute. Soliciting of audit and non-audit services by publishing advertisements which are too loud and eye-catching, mentions the details about the staff and the employees and compares the work performed by other auditors is unacceptable as per the ethical standards (cpaaustralia.com., 2014). Therefore it is understood that Hornsby Auditors have violated the ethical conduct. Further by stating that they would help the clients gain higher benefits of tax is an incorrect statement which is also in violation of the Rule.
Thus Hornsby Auditors should ensure to advertise only in the journals and newsletters and that too should not mention such facts and figures which would bring disrepute to the profession.
The AICPA;s code of conduct mentions that an auditor can start the work of audit even if the past dues from the client is pending. However, issuance of the audit report should be done post clearance of the past dues.
Therefore in the particular case, David Cheadle has not contradicted any provisions of the act by commencing the audit work of the client. But at the same time should ensure that the past dues are cleared before the audit report is issued.
While conducting an audit, an auditor should always try to obtain confirmation of the balances from the debtors, financiers and the creditors. The same is done so as to become extra sure and cautious about the sanctity of the balances shown in the balance sheet of a company. This also adds to the true and fair view of the transactions which are recorded. However there may be circumstances when the auditor is unable to get the confirmation from the debtors and creditors respectively, in such a scenario he should take possible steps to satisfy oneself about the sanctity of the same.
Therefore in the present case, the auditor should not give any negative comments since he was able to satisfy himself about the correctness of the balances shown in the balance sheet.
The asset base of a client is the main revenue generating unit. Therefore due to the same an auditor should ensure that he or she verifies in detail the asset section of a client. The client should give full access to the auditor so as to verify the same. However in the said case, the auditor was not given access by the client to verify the plant and machinery which contributed to 20% of the total revenue of the company. Therefore in this scenario the auditor’s opinion should be qualified one.
Contingent liabilities are an integral part of the financial statements of all entities. Thus if a company is of the opinion that there may be a probable liability in future then he r she should at least mention the same with the amount at the bottom of the financial statement as contingent in nature (aasb.gov.au., 2011). This would give the users a fair idea about the fact that there can be a possibility of such an expense which would have a significant implication on the financials of the company. Thus its disclosure is compulsory. Irrespective of the fact that the client has denied its disclosure, the auditor should disclose the same as the investors and the other users of the financial statement of the entity trust on the auditor’s report while making any kind of investment decisions.
It is compulsory for al retailers to maintain its books of account even if its majority sales is in cash. It would be impossible for an auditor to audit its books of accounts without the same. Therefore in this case the auditor will not be able to audit the books of account of the client thus giving no opinion on the same.
An auditor should start the work of audit by verifying the opening balances first. If the audit client is a new one then this stage is a must, but if the same is an old one then the auditor can prefer to skip this step since he had only audited the previous year’s accounts. Therefore even if the client denies checking of the same, the auditor should make efforts to check the same. Even if he is able to satisfy himself about the correctness of the opening balances in spite of the client not allowing to check the same, yet he should give a qualified audit report simply to fence oneself against any future litigations.
All the companies which are registered in Australia are to maintain their books of accounts as per the Australian Accounting Standards. If the same is not so then the auditor should demand from the client to remake the books of accounts as per standards. However in spite of the same, if the client does not then the auditor should give a negative remark about the same.
As per AASB 102, every entity should value their inventory as per FIFO or the weighted average method. However if any entity is maintaining its books of accounts as per the LIFO method then the auditor should ask them to value it again as per the specified method (aasb.gov.au., 2015). Therefore if the client does not change the method of valuation even after being intimated by the auditor about the requirements of the standard, then he should give an adverse remark.
This is a case wherein the going concern is questionable. Before the audit report was issued the going concern became questionable because of the exit of the major customer. Therefore the auditor should ask the client to prepare the accounts again using the cash basis and even then if the client does not then he should give an adverse opinion (aasb.gov.au., 2012).
References:
APESB, (2010), APES 110 Code of Ethics for Professional Accountants, <https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf>
auasb.gov.au., (2015), Auditing Standard ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with the Australian Auditing Standards, <https://www.auasb.gov.au/admin/file/content102/c3/ASA_200_Compiled_2015.pdf>
aasb.gov.au., (2015), AASB 102 – Inventories, Available at <https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf>
aasb.gov.au., (2011), AASB 137 -Provisions, Contingent Liabilities and Contingent Assets, <https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPoct10_01-11.pdf>
aasb.gov.au., (2012), AASB 101- Presentation of Financial Statements, https://www.aasb.gov.au/admin/file/content105/c9/AASB101_09-07_COMPsep11_07-12.pdf
cpaaustralia.com., (2014), An Overview of APES 110 Code of Ethics for Professional Accountants, Available at https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/ethics/an-overview-of-apes-110-code-of-ethics.pdf (Accessed 27th January 2017)
ethicsboard.org., (2012), Revised Code of Ethics – Completed, Available at https://www.ethicsboard.org/projects/revised-code-ethics-completed (Accessed 27th January 2017)
icaew.com., (2012), The provision of non-audit services to audit client, Available at https://www.icaew.com/en/technical/ethics/auditor-independence/provision-of-non-audit-services-to-audit-clients (Accessed 27th January 2017)
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