Acct19064 Auditing And Professional Practice Assessment Answers

Question 1

APES 110 for for code of ethics required by the professional accountants was issued by APESB (Accounting Professional and Ethical Standards Board). The code issued on the basis of Code of ethics for the Professional accountants and was released by the IESBA (International Ethics Standards board for the accountants). The main objective of the code is to deliver the outline with regard to the framework of code and to help the members in the access of the relevant sections under the code in more efficient way (Accounting Professional & Ethical Standards Board 2017).

The papers accumulated by the auditors during the process of audits are considered as the auditor’s properties. These papers shall not be shared with the third parties without proper authorization of the clients. However, the auditor may share the papers if it is required by the regulatory, legislative or legal requirements (Aasb.gov.au 2017). Further, if any request is received by the auditor with regard to the audit working papers, the auditor on his own discretion may share the papers after considering the merits and requirement of the case. However, in any case the prior authorization from the client must be taken to avoid any conflicts. Further, it is crucial for maintaining the client’s confidentiality and the independence and ethics of the auditor as required under maintenance of client’s confidentiality. Therefore, in the given case, if the auditor fails to take prior authorization from the clients to share the working papers with Penshurst Accountants, it will breach the ethical requirements of APES 110.

Prior to the engagement of any person the employer may enquire about the person in the professional level from his previous employer to assess the proficiency, objectivity, efficiency and integrity level of the person. However, for maintaining the auditor’s independence the employer shall not enquire about him from the applicant’s previous employer if he does not wish to the same (Carey, Monroe and Shailer 2014). Inspite of all this facts, it is the final decision of the employer whether he wants to enquire or not. Therefore, whatever may be the decision, it will not breach the ethical requirement of APES 110

When the auditor in addition to the services of audit provides other services like insurance advisor, superannuation advices, consulting services or any other business related services including the promotion of client’s business it creates the threat related to the fundamental principle of the compliance of APES 110. Further, if any member doing public practice advertises regarding the work lines or make any requests for any kind of job it will create threat to the independence of the auditor and will lead to self interest threat. As per the given case, the ethical principle under APES 110 will be violated as Wnndal Sailor, the chartered accountant during the audit, kept on calling the client frequently for informing regarding the other services offered by them before the issuance of the final audit report.

If the auditor or any partner from the audit firm has close relation with the client personally, professionally or holds any of the position in the client company, the situation will create the familiarity threat. Te audit partner in the given case study Ms Judith Durham along with the audit service also plays the board member role in the client company. Though the position is honorary and the position excludes any performance with regard to the management function, he shall not be involved in any task related to the audit procedure as it will violate the ethical principle of APES 110. Therefore, to perform the audit, Ms Judith shall immediately retire from the board or restrict herself to carry out any audit related task.

As per the concept of confidentiality under audit, the auditor may share the information related to his clients only with the prior approval from the client. If the auditor share any data related to the client to any third party for the advantage of that third party, his personal advantage and for any other purpose except the purpose of audit it will affect the auditor’s confidentiality. In the given circumstance, while selling the accounting practice by Ernie Dengate, he shared all the working papers related to auditing, tax and book keeping whereas the permission taken only for sharing the tax related papers (Han Fan, Woodbine and Cheng 2013). The business is purchased by Mr. Jago and the papers were shared with the new purchases only will not have much relevance here as in case of any type of sharing of the working papers prior authorization must be taken from the client. Therefore, the ethical principle under APES 110 has been violated here.

Where an auditor in addition to the audit provides any other services like tax services, consulting services, management advisory services or any other business related services these services are known as the non-audit services and while the non-audit services are provided by the auditor apart from audit services, it creates self-interest threat. Here in the given circumstance, the public accountant Fred Nerk delivers the advisory services related to management, tax services along with the service of audit. Therefore, it will violate the ethical principle related to APES 110.

The auditor is not allowed to prepare the accounts of the client as it will create the self interest threat as well as familiarity threat. However, they can maintain the audit related data and the audit working papers in the auditor’s personal computer or can use the client’s computer with particular protection if it helps them to carry out the audit smoothly. Therefore, it will not violate the ethical principle of APES 110 if the auditors maintain the working papers in client’s computer.

As per the professional behaviour under APES 110, the professional members must comply with relevant laws and regulations and shall not commit any action that he is aware as not complied with professional credit. The acts of consuming the drugs, alcohol more than the descent limit, acts of assaulting someone or act of conviction may be regarded as the violation under the professional behaviour (George, Jones and Harvey 2014). Mr Jameson therefore, will be charged under the violation of professional ethics of APES 110 as he was involved in different acts that were considered as against of requirement of professional behaviour.

Question 2

Generally 4 types of audit opinion are provided by the auditor while auditing the financial statement of the client. The unqualified opinion is provided when the audit report is clean, the qualified opinion is provided if the auditor is not able to express the unqualified opinion and the impact of the disagreement is not much material or pervasive (Accounting Professional and Ethical Standards Board (APESB) 2013). The auditor issues disclaimer of opinion when the disclaimer is provided rather than expressing the opinion and where the conflict is there among the client management and the auditor and the conflict is at high level, the adverse opinion is provided.

In the given case, the auditor will express unqualified opinion as the auditor was satisfied about the account balance. Though he was not able to get any confirmation from 8 big customers he did not get any suspicious facts while auditing and therefore unqualified report will be issued.

The audit may issue disclaimer of opinion if he is not allowed to verify any asset that comprises a significant part. Here in the given case the auditor was not allowed to verify the plant, property and equipment that comprised of 35% of the total asset. Therefore, the auditor will express disclaimer of opinion (de Andrés Suárez et al. 2013).

The disclosures with regard to the financial items are provided for providing the users of the financial statement with more clear and transparent information. Therefore, if the proper disclosures are not provided which was considered as the material disclosure then the qualified opinion will be expressed by the auditor (Cox 2013).

If the auditor is not able to verify any item that is considered to be material due to the inadequate system of internal control the auditor will express qualified opinion. As the sales value is a significant part and it cannot be verified due to insufficient internal control and no audit tests can be done to verify the item, qualified opinion will be issued.

Auditor will express unqualified opinion as no material misstatements were found during audit. Further, the auditor has the option of performing other tests to confirm the opening balance.

Answer (f)

While preparing the financial statement by any operating entity it must comply with the Australian Accounting Standards. Therefore, as the company is not complying with the AAS, the auditor will express qualified opinion (Naslmosavi, Sofian and Saat 2013).

Answer (g)

Valuation of inventory is a crucial part of the financial statement audit. Therefore, if the company applies the LIFO method for the valuation of the inventory which is not allowed as per Australian Accounting Standards then the auditor will express qualified opinion.

Answer (h)

 It is very clear from the given circumstance of the client that the going concern status is under threat as major customers went into liquidation and chances are not there that the existing customers can take their position. As this is considered to be a material fact, non-disclosures of this fact will lead to issuance of disclaimer of opinion by the auditor (Amin, Krishnan and Yang 2014).

Reference

Aasb.gov.au. 2017. Australian Accounting Standards Board (AASB) - Home. [online] Available at: https://www.aasb.gov.au/ [Accessed 14 Dec. 2017].

Accounting Professional & Ethical Standards Board, 2017. 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 14 Dec. 2017].

Accounting Professional and Ethical Standards Board (APESB), 2013. APES 110 Code of Ethics for Professional Accountants.

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.

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.

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.

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.

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.