1 [a] At the time of conducting the audit operation of the business organizations, the auditors have to comply with different kinds of ethical standards. All these ethical standards are recorded in Accounting Professional and Ethical Standards 110 (APES 110). One of such principle is the principle of confidentiality. The principle of confidentiality states that the auditors of the businesses do not have the authority to disclose the important information of the audited organization to any third party. In the provided situation, The Mortdale Accounting firm has provided the audit working papers of the current audit client to Penshurst Accountants. He has provided these papers to Penshurst Accountants without informing the audit client. By this act, Mortdale Accounting has breached the auditing principles of confidentiality as per the principles of APES 110 (Townsend 2014).
[b] As per the provided situation, Jan Dungog applies to a local public accounting for one of the position of accountants. Jan Dungog is currently working a company and at the same time, he is applying for a new position in a new company. Jan Dungog has asked the local company not to inform his current employer for this job application. The local company has accepted his application and has appointed him in the company without contracting the current employer of Jan Dungog. This act of Jan Dungog and the local company has breached the principle of Professional Appointment as Section 210 of APES 110 (apesb.org.au 2017). This principle states that before the acceptance of auditor’s engagement application as an employee, the organization needs to determine whether there is any threat involved in this process or whether there is any lack of compliance. In the provided case, the company breached this principle with its act.
[c] In the provided case, two situations are there. As per the case, Wendal Sailor is an audit professional; at the same time, he has his own business of superannuation and insurance. In this process, no auditing ethical standard is breached, as it is fair for an auditor to have his/her own business. It has been seen that at the time of conducting the audit operations for the business organizations, Wendal Sailor uses to provide them with additional advises about other services. As per Section 290 Provision of Non-assurance Services to Audit Clients principle of APES 110, the auditors cannot provide any kind of services to the audit clients at the time of conducting the audit operations for them as this act poses the threat of auditor’s independence (Ge, Simnett and Zhou 2016). These kinds of services are not mentioned in the audit agreement and this reason makes them illegal in auditing profession.
[d] As per various kinds of auditing principles, any member of the audit team of the business organizations cannot hold any significant position in any other business organization. There are instances where it has been seen that auditors of a business organization is the acting members of the board of director of any other company. As per the ethical principles of auditing, it is an illegal process as this act poses the threat of auditor’s independence. However, in the provided case, the situation is different. Judith Durham is the audit partner of a non-profit making organization. At the same time, he is holding an honorary position in the board of director’s of a business organization. This process does not create any threat of auditing as Judith Durham has an honorary position and he is not involved in any management function of the company (Cornforth 2012).
[e] As per the provided situation, Ernie Dengate has sold his accounting practices like tax, auditing and bookkeeping. He has obtained the permission to sell his tax related working paper, but he does not have the permission to release or sell other profession papers. However, in spite of his fact, he has sold all the papers to a new accountant Jago. The ethical principle in Section 250 marketing Professional Services of APES 110 states that at the time of marketing of the professional papers, the threat of auditor’s independence may be arrived (Clayton and Staden 2015). In the provided situation, Ernie Dengate has sold all the professional papers in spite of not having the permission of selling all the papers. As per the above-discussed code of ethical practice, Ernie Dengate has violated the principle of marketing of professional services. Hence, in this situation the marketing of professional services principle is breached.
[f] There are instances all over the world where the auditors of the organizations have been found providing non-audit services to the business organizations. Some of the major non-audit services are tax service, management advices and many others. These types of services are illegal services in case they are not included in the audit agreement. In 290.156 of Provision of Non-assurance Services to Audit Clients of APES 110, all the details are provided (Carey 2015). As per the provided case study, Fred Nerk use to provide audit service along with other non-assurance services at the same time. There is a possibility that Fred Nerk may accept any kind of financial or non-financial rewards from the audit clients apart from the audit fees as per the audit agreement. Hence, with this act, Fred Nerk has breached the ethical principle of 156 of Provision of Non-assurance Services to Audit Clients as per APES 110.
[g] At the time of conducting the audit operations of the business organizations, the auditors need to be careful about the information of the auditor’s business. At the time of the audit operation, the auditors have to deal with business information with high confidentiality. Hence, it is the responsibility of the auditors to keep the information in the safest place so that people without authorization cannot access it. As per the provided situation, the company is keeping the audit information in another computer due to lack of adequate facilities. In this situation, it can be happened that the new computer facility do not have proper security measures. This situation is harmful for the audit profession as there is high risk of the threat of auditor’s independence. Thus, it can be said that the action of company has breached the objectivity principles of Section 280 objectivity of APES 110 (Ottaway 2014).
[h] At the time of conducting the audit operations of the business organization, it is the responsibility of the auditors to comply with all the ethical code of conducts of auditing. In this process, the auditors need to maintain the aspect of integrity and he needs to be honest. Apart from this, it is the responsibility of the auditors to behave well in front of everyone. As per the provided case, it can be seen that the auditors of Balgowlah Accountants was involved in various kinds of illegal activities like consumption of alcohol and drugs, fighting with others, reckless driving and for all these, he was sentenced for 3 months of jail. By all his act of the auditor, he has breached the Ethical Principle of APES 110. In this process, the auditor has failed to act responsibly and properly in front of the public (apesb.org.au 2017)
2 [a]
At the time of conducting the audit operations of the business organization, it is essential that the auditors be provided with all the necessary information of the company. In order to make the correct and fare audit opinion, the auditors need the assistance of the information. In the provided situation, the auditor of the company was not getting any confirmation about eight of the major customers of the company. However, with the help of other information, the auditors become ensure that the account balances of these clients are correct. Hence, in this position, the auditors would issue the Unqualified Audit Opinion (Mock et al. 2012).
[b] At the time of conducting the audit operations of the business organization, it is the responsibility of the management of the audit client that they provide all the authorization to continue the audit operation of the company. However, in the provided situation, the management of the company has restricted the auditors to carry on the necessary procedures to verify the account balances of property, plant and equipment that is consists of 35% of the total assets. Hence, in this situation the audit will issue the Disclaimer Audit Opinion by stating the reason of not determination of the financial position of the company (Habib 2013).
[c] This case is relevant to the above-discussed case. It is the utmost liability of the business organizations to include all the necessary details in the financial statement of the organization. Contingent liability is a major aspect in the determination of the financial situation of the businesses. In the provided case, the management of the firm has not included apportion of contingent liabilities in the financial aspect when the liability. In this situation, the auditor of the company would issue the Disclaimer Audit Opinion due to the absence of necessary information (Habib 2013).
[d] It is the responsibility of the business organizations to comply with all the accounting principles and GAAP principles. The GAAP principle states that the internal control of the companies needs to be efficient too keep the records of all the business transactions. The loss of important information can affect the financial condition of the organization along with the audit opinion. In the provided case, due to lack of internal control, the organization has lost a crucial information about a large amount of cash sales and there is not any way to verify the account balance. Thus, the auditor will issue Adverse Audit Opinion (Blay and Geiger 2013).
[e] As per the above discussion, it is the responsibility of the business organizations to disclose all the financial information to the auditors of the company. As per the provided case, the auditor of the business organization is satisfied with the financial statements of the company as the auditor has not found any kind of material misstatement in the financial statements. However, the company has not provided the auditor with the opening balance of the financial year. For this reason, the auditor will issue Qualified Audit Opinion by stating the unavailability of the opening balance of the company (Ittonen 2012).
[f] The first priority regarding the accounting operations of the business organizations is to follow the accounting principles of Generally Accepted Accounting Principles (GAAP). In this regard, the business organizations need to comply with all the necessary accounting standards and principles of GAAP. However, in the provided case, it can be seen that the business organization has not been following the principles of GAAP for past four years. Thus in this case, the auditor will provide Adverse Audit Opinion by stating the fact the organization has not followed the principles of GAAP in the accounting process (Blay and Geiger 2013).
[g] Two kinds of methods of the valuation of stocks are there; they are Last In First Out (LIFO) and First In First Out (FIFO) method. As per the above discussion, it can be observed that the business organizations needs to comply with all the accounting and financial regulations of GAAP. In the provided case, it can be seen that the company has been using the LIFO method in spite of the fact that GAAP has disallowed the process of LIFO. Hence, due to not complying with the GAAP standards, the auditor will issue the Adverse Audit Opinion (Blay and Geiger 2013).
[h] The responsibility of the auditors is to investigate and analyze the various account balances of the companies and then to provide the audit opinion based on the analysis. In the provided case study, after the audit process of Numark, the auditor has confirmed that there is not any material misstatement and all the accounting processes are done as per the GAAP principles. However, the company has some issues regarding the nature of the product. In this case, the auditor will provide Unqualified Audit Opinion with the note about the issues regarding the product of the company (Mock et al. 2012).
References:
apesb.org.au. (2017). AN OVERVIEW OF APES 110 CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS. [online] Available at: https://www.apesb.org.au/uploads/meeting/board_meeting/24112014043919_agenda-item-16-f-cpa-australia-s-overview-of-apes-110.pdf [Accessed 17 May 2017].
apesb.org.au. (2017). APES 110 Code of Ethics for Professional Accountants. [online] Available at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 17 May 2017].
Blay, A.D. and Geiger, M.A., 2013. Auditor fees and auditor independence: Evidence from going concern reporting decisions. Contemporary Accounting Research, 30(2), pp.579-606.
Carey, P.J., 2015. External accountants’ business advice and SME performance. Pacific Accounting Review, 27(2), pp.166-188.
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.
Cornforth, C., 2012. Nonprofit governance research: Limitations of the focus on boards and suggestions for new directions. Nonprofit and Voluntary Sector Quarterly, 41(6), pp.1116-1135.
Ge, Q., Simnett, R. and Zhou, S., 2016. Ethical and Quality Control Requirements When Undertaking Assurance Engagements.
Habib, A., 2013. A meta-analysis of the determinants of modified audit opinion decisions. Managerial Auditing Journal, 28(3), pp.184-216.
Ittonen, K., 2012. Market reactions to qualified audit reports: research approaches. Accounting Research Journal, 25(1), pp.8-24.
Mock, T.J., Bédard, J., Coram, P.J., Davis, S.M., Espahbodi, R. and Warne, R.C., 2012. The audit reporting model: Current research synthesis and implications. Auditing: A Journal of Practice & Theory, 32(sp1), pp.323-351.
Ottaway, J., 2014. IMPROVING AUDITOR INDEPENDENCE IN AUSTRALIA: IS ‘MANDATORY AUDIT FIRM ROTATION’THE BEST OPTION?.
Townsend, S.R., 2014. The regulation of auditor ethical behaviour in Australia (Doctoral dissertation, Macquarie University).
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