AAA Model Ethical Decision Making
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Added on 2021-04-19
AAA Model Ethical Decision Making
Added on 2021-04-19
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Running head: AUDITINGAuditingName of the Student:Name of the University:Author Note
1AUDITINGTable of ContentsIntroduction:....................................................................................................................................2Discussion:.......................................................................................................................................2Answer to Question 1:.....................................................................................................................2Auditor’s responsibility in reviewing the governance of an audit client:........................................2Answer to Question 2:.....................................................................................................................2Application of AAA ethical model for ethical issues identification:..............................................2Answer to Question 3:.....................................................................................................................3Explanation of role of auditors and statutory cap on liability of auditors:......................................3Conclusion:......................................................................................................................................3
2AUDITINGIntroduction:The report is prepared for analyzing the given case study on an Australian accountingfirm, Miller Yates Howarth which has various audit clients in the sector of mining, agriculture,property and manufacturing industries. In this regard, it is required to demonstrate theresponsibility of auditors to review the governance of audit clients. In addition to this, the issuesrelating to the governance of Common wealth bank has been identified and the recommendationmade by ASIC (Australian securities and investment commission) have been explained. Theapplication of AAA ethical decision making model has been done to the given situation wheresenior working manager at MYH is faced with situation where his team member is acting in anirresponsible way. The later part of report deals with explanation of role of statutory cap onliability of auditors and incorporation of auditors on limitations of auditor’s liability. Itdemonstrates the examination of limitation of liability of auditors in light of statutory cap andcorporation. Discussion:Answer to Question 1:Auditor’s responsibility in reviewing the governance of an audit client:An auditor as per the auditing standard ASA 135 is required to obtain an understandingof the environment and internal control of reporting entities by performing the procedures of riskassessment. Any susceptibility in the financial report of entity regarding the materialmisstatements either due to fraud or errors should be discussed with the engagement team. Theassessment of governance also require to understand the internal function of entity that wouldhelps in determination of function that is relevant to the process of auditing. Determination of
3AUDITINGrisks that are considered significant should be determined by using professional judgment. Anyassertion level and risk of material misstatements in the financial report should be assessed andidentified by auditors. Furthermore, auditors are required to obtain an understanding of theinternal control of entity and whether the risks sought from material misstatement is significantand whether the sufficient appropriate audit evidence is provided by substantive procedures(Furnham & Gunter, 2015). Another responsibility of auditor is to maintain and establish an internal control andappropriate modifications should be made as per the changes. Activities regarding themanagement of control within the organization include verifying the review of managementregarding the preparation of bank reconciliation on timely basis, evaluation of compliance ofsales personnel’s with the policies of reporting entity. However, it is not required by auditors tomake the assessment and identification of all business risk as it is not necessary that all businessrisks would give rise to material misstatement. Auditors should have detailed understanding ofinternal control that would assist them in identification of different types of factors that wouldaffect the material misstatement and how the timing, nature and extent of procedures of audit areimpacted. Auditors should have complete focus on audit of internal controls and financialstatements for analyzing the objectives impacting their materiality (Louwer et al., 2014). Anunderstanding of relevant internal control should be obtained by auditors by determining theextent, nature and timing of audit test and the identification of material misstatements. Forensuring that there is adequate governance, auditors are required to ascertain whether there isproper maintenance and implementation of control for evaluating control design. Externalauditors as per IAS 135 are required to conduct enquiries on functions of internal audit forassessing and identifying the material risks. The processing of entity to identify the business
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