The code of ethics under APES 110 was issued by Accounting Professional and Ethical Standards Board. It is the independent body that was established in the year 2006. The code is segregated under 3 parts – (1) Part A is applicable to the members (2) Part B is applicable to the members under public practice and (3) Part C is applicable to the members carrying on business, however, the members under public practice may also use this part if they find it relevant (Aasb.gov.au 2018). Fundamental principles of APES 110 for the professional accountants are outlined on integrity, objectivity, due care and professional competence, professional behaviour and confidentiality. Further, the conceptual frameworks applicable to the members are applicable to –
a.
Audit working papers are utilized for documenting the information gathered during the audit procedures. The working papers deliver sufficient information that is obtained by the auditor for supporting her or his opinion with respect to the financial statement. However, the auditor must respect the confidentiality of the information obtained during the procedure of audit and shall not disclose these information to any third party without specific and proper authorization from the client. This information can only be shared if there is any professional or legal obligation to disclose the information. Here in the given circumstance, The Mortdale Accounting firm that carried out various audits of public companies delivered the working papers to peer reviewer Penshurst Accountants. However, the clients of Mortdale were not advised for such peer review. Therefore, the ethical principle of APES 110 had been breached as proper authorizations from the clients were not taken (Accounting Professional and Ethical Standards Board (APESB) 2013).
b.
In any organization the employer shall evaluate the integrity, objectivity, professional competence and experiences before engaging him with the organization. He can use any approach, he finds appropriate to evaluate these facts. These approaches include taking interviews, checking the professional certificates and contacting the previous or current employer. However, if the potential candidate insists on hiring her without contacting any referees and current employer and the employer do the same based on her request then it will breach the principle of APES 110.
c.
As per section 250 of APES 110 the member shall not solicits new work by advertising or any other marketing form. It will create compliance threat with fundamental principles. For instance, self interest threat will be created to the compliance of professional behaviour principle if the achievements, service or the products are advertised in the way that is not consistent with the ethical principle. In the given case, CA Wendal Sailor after starting superannuation and insurance business contacted their client several times to advice regarding their services before delivering final opinion on audit. Therefore, it will breach the ethical principle of APES 110 as the chartered accountant used unethical marketing approaches for their services.
d.
If any member of the audit team has any kind of relationship with the client, its director or employees, it will create familiarity threat if the same member carrying on the audit of the client. It is considered that as the member has long relationship with the client he will be sympathetic to the interest of the client. Here I the given case, Judith Durham apart from being in the board of directors also involved in the audit of the same charitable organization (Haron et al. 2014). Though his position is honorary and he does not perform any management function, involving himself in the board of directors of the organization is sufficient to breach the ethical principle of APES 110 if he carries out the audit.
e.
The auditor shall respect the confidentiality of the information obtained during the procedure of audit and shall not disclose these information to any third party without specific and proper authorization from the client. Further, the auditor shall maintain the confidentiality even after the audit procedures are over. In the given case, Ernie Dengate while selling his accounting business delivered the auditing, tax and bookkeeping related working papers to the purchaser (George, Jones and Harvey 2014). However, the permission from the clients was taken only for the tax related working papers. Therefore, before sharing the audit and bookkeeping papers Mr. Denagte must had been taken permission from the clients as sharing papers without proper authorization will violate the ethical principle of APES 110.
f.
As per Section 290.110 of APES 110, if any managerial employees or partner provides non-audit services in addition to the audit services, it will create self-interest threat. Further, the threat will be highly significant and no safeguard will be able to reduce this threat to the level of acceptance. Therefore, the audit member shall not provide such services. In the given case, the public accountant Fred Nerk apart from providing audit services provides various non-audit services like advisory services related to management and tax services. Therefore, it will create self-interest threats and will violate the ethical principle of APES 110 if he continues providing audit services as well as non-audit services together (Al Momamani 2013).
g.
As per APES 110, the auditor shall not keep any asset of the client in his custody unless it is required by law. Further, he is not allowed to prepare the financial statement of the client. However, if as part of audit procedure he wants to keep any audit audit working papers with him to safeguard it from being lost or theft he is allowed to do so (Klein 2015). In the given case due to insufficiency of facilities in the client’s computer the All Good Chartered Accountants maintained certain part of the accounting record on its own computer. This will violate the principle of APES 110 as the action was necessary for carrying out the audit procedures smoothly.
h.
The professional behaviour as per section 150 of APES 110 obliges that the members shall comply with the required regulations and laws and must avoid any kind of omission or action that may disrepute the profession. It includes involving himself with any kind of fight or misbehaving with any person (Ardelean 2013). As per the given case, Mr Jameson after drinking alcohol and drugs involved in a fight and as a result of that convicted to 3 months gaol and his license got suspended for 1 year. Therefore, the behaviour of Mr Jameson will breach the ethical principle of APES 110 as he violated the professional behaviour as per the code.
Audit reports include opinion regarding whether reasonable assurance is there that the company’s financial statement are free from any material misstatement. Different types of audit opinions are –
a.
As the auditor could not get the confirmation from various major clients, he satisfied himself for the accounting balances through other means. Therefore, qualified opinion will be issued.
b.
As the property, plant and the equipment count not verified that comprised of 35% of the assets and it was due to restriction from the client the auditor will issue disclaimer of opinion.
c.
In the given scenario necessary disclosures regarding contingent liabilities were excluded by the client management. Moreover, this will have material impact if these liabilities become actual liabilities. Therefore, the auditor will issue qualified opinion.
d.
Due to lack of internal control considerable portion of the retailer’s sales could not be verified that were made on cash basis. Further, the assurance could not be generated through any other test. Therefore, the auditor will issue qualified opinion.
e.
If the opening balances of certain accounts are not provided by the client, the auditor has the option to conform the balance from the previous year’s closing balance. However, if the auditor is satisfied that no material misstatements exist in the financial statement he can issue unqualified opinion (Naslmosavi, Sofian and Saat 2013).
f.
If the client is not following the AAS while preparing the financial statements the auditor will issue adverse opinion as each company registered under ASX are obliged to follow the requirements of AAS.
g.
If the client is following the LIFO method for the inventories the auditor shall issue qualified opinion as LIFO method is not permitted under AAS
h.
If the going concern status of the company is in doubt and the client does not disclose the fact in the disclosures, the auditor shall issue qualified opinion as this is a material fact (Amin, Krishnan and Yang 2014).
References
Aasb.gov.au. 2018. Australian Accounting Standards Board (AASB) – Home. [online] Available at: https://www.aasb.gov.au/ [Accessed 8 Apr. 2018].
Accounting Professional & Ethical Standards Board, 2018. Code of Ethics for Professional Accountants. [ebook] Australia: Accounting Professional & Ethical Standards Board. Available at: https://www.apesb.org.au/uploads/standards/superseded_pronouncements/21092016145901_APES_110.pdf [Accessed 8 Apr. 2018].
Accounting Professional and Ethical Standards Board (APESB), 2013. APES 110 Code of Ethics for Professional Accountants.
Al Momamani, M.A., 2013. The effect of auditors’ ethics on their detection of creative accounting practices: A field study. International Journal of Business and Management, 8(13), p.118.
Amin, K., Krishnan, J. and Yang, J.S., 2014. Going concern opinion and cost of equity. Auditing: A Journal of Practice & Theory, 33(4), pp.1-39.
Ardelean, A., 2013. Auditors’ ethics and their impact on public trust. Procedia-Social and Behavioral Sciences, 92, pp.55-60.
Cox, J.D., 2013. Strengthening financial reporting: An essay on expanding the auditor’s opinion letter. Geo. Wash. L. Rev., 81, p.1036
de Andrés Suárez, J., García, E.C., Méndez, C.F. and Gutiérrez, C.R., 2013. The effectiveness of the audit committee in Spain: implications of its existence on the auditor’s opinion. SERIEs, 4(3), pp.333-352.
George, G., Jones, A. and Harvey, J., 2014. Analysis of the language used within codes of ethical conduct. Journal of Academic and Business Ethics, 8, p.1.
Haron, H., Ismail, I., Ibrahim, D.N. and Aw, L.N., 2014. Factors influencing ethical judgement of auditors in Malaysia. Malaysian Accounting Review, 13(2), pp.47-86.
Klein, G., 2015. Ethics in accounting: A decision-making approach. John Wiley & Sons.
Naslmosavi, S., Sofian, S. and Saat, M.B.M., 2013. The effect of audit firm size on independent auditor’s opinion: Conceptual framework. Asian Social Science, 9(9), p.243.
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