With respect to the case study it can be stated that tax guarantee is being provide by Berowra Accountants to their clients with reference to a special advertisement. Thus this situation mandates the understanding in relation to the tax fund concept. The difference between tax owed and tax paid is terms as tax refund. In addition tax refund may be availed by an organization in situation where the tax liability is lower than tax paid by them. The profit , income and tax expenses of the organization are used to determine its eligibility for tax refunds. No auditor can thus make an express guarantee for tax refund. In addition the auditors have the responsibility of locating any misstatement in relation to financial accounting. Thus in case of tax refund the service is of non-audit nature. Therefore under APES 110 Code of Ethics for Professional Accountants, Section 130 actions of Berowra Accountants is a violation of Competence and Due Care principle. They failed to stay within professional limits in relation to their actions in accordance to the provisions of the profession al code of conduct.
It has been stated through the facts of the case study that a local club has asked Jamie to act as the treasurer of their club. Jamie is also a professional auditor at a charter accounting firm. He is also accustomed of auditing only large organizations. The categorization of athletic clubs is done under non-profit societies (Galit and Metaban 2012).. As per the provisions of section 210 APES 110 Professional Appointment when an auditor is accepting an appointment by a new client it has to be determined by him that whether the appointment is going to be a hindrance in compliance of basic principles of audit towards ethics. In the given situation no breach of ethical principles can be foreseen where Jamie accepts the proposal of the local club. There is no identified connection between the work of Jamie as an auditor of large public organizations and a treasurer of the local club. In addition appointment as a treasurer of a nonprofit organization does not affect any ethical principles. Thus the action of Jamie is to be considered within the limits of ethics (Han Fan, Woodbine and Cheng 2013).
The provided situation states that whether or not payment would be made to the auditors who in this case are Pymble Accountants relies upon the appropriateness of the audit opinion in relation to the audit clients who in this case are Monlec Ltd. In addition it a demand of an audit report which is favorable to them has been demanded from the client Monlec Ltd. However the auditors in this context must consider that through the virtue of their profession they actually have to represent the shareholders and investors and not their clients. With respect to the provisions of section 120 of the APES 110 Principle of Objectivity the auditors have the duty of not manipulating their reasonable judgment under any form or pressure and avoid a situation resulting in a conflict of interest. Thus the auditors must not change their audit report under any biasness or influence (Kuan 2014). The principle of objectivity of auditing would be expressly violated by the auditors in case they indulge in providing a report to the clients which is in their favor unreasonably. On the other hand no ethical or legal principle will be violated if the auditors act with integrity and make a reasonable and correct audit.
In relation to this part it has been given through the facts of the case that all papers and report of Motoring services have been provided by Winton Accountants to Chadwick Chartered Accountants. In this situation it is the responsibility of Chadwick Chartered Accountants to review the quality of audit in relation to Winton Accountants. Section 140 of the APES 110 Principles of Confidentiality expressly states that it is the responsibility of the auditors of maintaining confidentiality in relation to the acquired information of the auditing clients (Athanasiou 2014). According to these provisions it can be derived that no auditor has the right to disclose to any third party the information acquired from a client. However as stated in the situation all confidential information in relation to Motoring services have been provided by Winton accountants to Chadwick Chartered Accountants as they have given them all the audit papers. Therefore it can be stated evidently that the principles of confidentiality in relation to auditing have been violated by Winton Accountants.
It has been given to us through the case study that as Leona is ill Jane Davis has been sent as her replacement for the purpose of auditing Jenkins Ltd by Thornleigh Accountants. In addition the intention of including Jane to the audit team of Jenkins Ltd by Thornleigh Accountants is from middle of July. The situation therefore poses a threat towards the independence of audit in relation to Thornleigh Accountants. As per section 100.12 of APES 110, Self-review Threat, there is a restriction imposed upon the member of the audit team of using information from an audit conducted by another person belonging to the team. There is also a restriction upon members towards using the result produced by the work of another member(Carey, Monroe and Shailer 2014). In the given situation it is evident that the these principles would be applicable on the situation of Thornleigh Accountants as there is a plan of utilizing the information which Jane has in relation to Jenkins Ltd in relation to the accounts of the company. Thus the situation triggered self-review threat of auditor’s independence where the inclusion of Jane is done by Thonleigh Accountants to the audit team.
In relation to this part it has been given through the facts of the case that the responsibility of conducting Winmalee Ltd’s Audit operation has been imposed on John Darrow. For the purpose of providing support the valuation of their intangible assets John has been presented with all the accounting paper copies which included computer files and accounting standards by Winmalee Ltd. However in relation to the situation in hand it has to be stated that the auditors have the responsibility of deriving the valuation of assets through the assessment of different accounts and not take into consideration any document provide by the client. Here John is under pressure of accepting the documents provided by Winmalee Ltd in relation to the valuation. This pressure has been created in an indirect manner by Winmalee Ltd on John through providing him with the document towards a favorable report of audit. According the provisions of section 200.8 of APES 110 a treat to the auditors’ independence may be created by the situation (DeFond and Zhang 2014).
It has been given to us through the case study that the auditors have been invited by the chocolate company to a social club owned by the company and a chocolate show. In this situation it would be appropriate to mention the fact that the auditors are required not to indulge in any form of social entertainment provided by the clients. According to the provisions of section 100.12 of the APES 110, Self-interest Threat, the independence of auditor would be put to threat in case the auditor has any form of interest in the client which could have an impact on their opinion(Ojo 2013). It may be evidently stated in the situation that there is an attempt on the part off the chocolate company towards influencing the auditor so that they provide a favorable audit report by inviting them to social functions. Thus a self interest threat in relation to auditors independence is going to be created where he accept any of the invitation provided by the chocolate company in relation to the social gatherings.
The primary duty of an auditor is to ensure that he appropriately examines the financial statement of an organization so that it can be ensured that there is no material misstatements which exists in relation to the financial statements. In addition it is also their duty to ensure that the financial statement is in accordance with existing ethical and legal provisions. The auditors are also restricted from commenting on the financial statement of the company in case there is no fraud involved (Deumes et al. 2012). In the given situation it is evident that Connor company heavily relies upon a band overdraft to get off their loan as they are left with no other financial resources. The time which has been allowed by the bank for the repayment is one month. The vulnerable financial position of the company is depicted through the situation. However materiality does not get affected through this aspect. No financial statement has been manipulated by the company with respect to not disclosing their liabilities. Therefore an unqualified audit opinion would be issued by the auditor (Tsipouridou and Spathis 2014).
The companies are imposed with a duty to present and prepare the financial statement in such a way that they are in compliance with standards of accounting which are generally accepted. Moreover it is also the duty of the company to act in compliance with the country’s accounting regulations were its operations are based. In the situation which has been provided it is evident that there is a requirement on the part of the company to follow FIFO method in relation to inventory valuation. However the company is actually following the LIFO method which is used by their parent company based in America. The situation is therefore going to result in a material misstatement in relation to the financial statement as there is a differential effect between the adaptation of LIFO AND FIFO method. Therefore in this context there is a right provided to the auditor of issuing an adverse opinion as the issue is in relation to both material misstatement as well as regulatory compliance. However no sign of material misstatement or compliance issue is present in the financial statement other than in the situation of inventory. Thus a Qualified Audit opinion may be issued. The opinion would be similar to each other however an additional paragraph has to be added to state why the decision of the auditor is unqualified (Kachelmeier, Schmidt and Valentine 2016).
The companies are required to conduct valuation in relation to their fixed assets such as land, plant and machinery and building regularly as the market price is subjected to change. It has been provided that no valuation has been done by Victorian Manufacturing Company with respect to their factory in Melbourne as they feel that the price is not going to change. Thus this assumption on the part of the directors may be inaccurate and therefore result in a material misstatement. When the audit preparation is conducted the current fair value of land and building is required by the auditor. However where such information is not present a correct audit opinion would not be able to be provided by the auditors as the examination process would be limited. Thus a disclaimer of opinion would be issued by the auditors as the audit cannot be completed by the accurately (Rahimian, Tavakolnia and Karamlou 2014).
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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