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Auditing and Assurance Service

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Added on  2023/04/23

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This document discusses ethical principles and different kinds of audit opinions expressed by auditors. It also provides answers to questions related to APES 110 - Code of Ethics for Professional Accountants. Subject: Auditing and Assurance Service, Course Code: Not mentioned, Course Name: Not mentioned, College/University: Not mentioned, Document Type: Assignment

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Running head: AUDITING AND ASSURANCE SERVICE
Auditing and assurance service
Name of the student
Name of the university
Student ID
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1AUDITING AND ASSURANCE SERVICE
Table of Contents
Answer for question 1................................................................................................................2
Answer (a)..............................................................................................................................2
Answer (b)..............................................................................................................................2
Answer (c)..............................................................................................................................2
Answer (d)..............................................................................................................................3
Answer (e)..............................................................................................................................3
Answer (f)..............................................................................................................................3
Answer for question 2................................................................................................................5
Answer (a)..............................................................................................................................5
Answer (b)..............................................................................................................................5
Answer (c)..............................................................................................................................5
Answer (d)..............................................................................................................................6
Reference....................................................................................................................................7
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2AUDITING AND ASSURANCE SERVICE
Answer for question 1
Ethical principal for the members under different circumstanced is provided in APES
110 - Code of Ethics for Professional Accountants. The code includes 3 parts – recognizing
threat, assessing the significance of recognised threat and (iii) applying safeguards for the
threats, wherever needed (Accounting Professional & Ethical Standards Board 2019).
Answer (a)
As per the requirement of APES 110 the accounting professional is not allowed to
promote any product while providing audit service. In the given scenario, the professional
accountant provides various services like preparation of tax returns, book keepings and
management services. During the period when it was providing the services advising its client
to purchase the computer from Computer Service Ltd that will offer 10% commission if the
accountant’s referral helps it to sell the computer. Such referral commission or fee will create
self –interest threat to objectivity as well as professional competence and due care of the
professional (Martinov-Bennie and Mladenovic 2015).
Answer (b)
The auditor is not allowed to provide any suggestion for financial statement
preparation ant not incorporating their judgements that may have significance influence on
the preparation of financial statement. However, the auditor may assist the client in various
matters like converting the reporting framework to any other framework or provide assistance
for complying with accounting policies and these will not breach the ethical principal of the
auditor. Further, allowing the clients to use its computer where client record is maintained
will not breach the ethical principal unless the information is disclosed to the client
(Aasb.gov.au 2017).
Answer (c)
Members involved in public practice must ensure that while providing the services to
client it does not create any type of threat against the principal of fundamental objectivity.
For assuring this the auditor shall not establish any relationship with the client, its business,
employees or executives. In the given scenario, Katrina Ng, manager of the audit firm for non
profit entity. In addition to being the manager of audit firm, she also holds the honorary
position of board of directors of the client company. All Australian members shall be
complied with APES 110 even when the service provided is in honorary capacity. Otherwise
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3AUDITING AND ASSURANCE SERVICE
it will generate self-interest threat that will have adverse impact on the independence of the
auditor. Hence, immediately she shall resign from the post of board of directors or shall not
express any opinion on the audit procedure of not for profit entity. If she does not imply any
of these following, it will violate the ethical principal of APES 110.
Answer (d)
The professional member as per the requirements of APES 110 shall not be involved
in providing any other services except the professional services involving accounting, tax and
audit. Here in the given situation, apart from providing tax services, management services
and bookkeeping services is the treasures of Northbridge Joggers Club that is a not for profit
club that is run by him on weekends. Acting as the treasurer is not the permitted profession as
per the allowable profession (Amin, Krishnan and Yang 2014). Hence, acting as the treasurer
will violate the professional competence and due care as per the requirement of APES 110.
Answer (e)
While the member from public practice solicits the new work through the
advertisement in the newspaper or any other forms of marketing, it may create threat to the
compliance of fundamental principles. It will create self-interest threat if services, products or
achievements are advertised in a manner that is inconsistent with principle. Further, the
member shall not make any exaggerated claims for the offered services, experience gained or
qualifications possessed. They shall not further disparage the references or unsubstantiated
comparisons to work on other (George, Jones and Harvey 2014). In the given circumstances
The Berowra Accountants advertised in local newspaper with bright colourful page picture of
staff and provided that they are the top accountants in district and they are able to get highest
deductions for tax in all the accounting firms. Advertising about the firma and its staff in this
way will violate the ethical principal code mentioned in APES 110.
Answer (f)
Self interest threat will be created if the fees due from the client are unpaid for long
time, particularly if the considerable part is not paid before issuance of the report of the
following year. The client is required to make the payment of such fees before issuance of
audit report. However, if the fees remain unpaid after issuance of the report, significance and
existence of the threat must be analysed and the safeguards shall be applied when it is
required to remove the threat or reduce the threat level to the acceptable level. Further, the
auditor shall whether overdue fees may be regarded as a loan to client or not. Further, it shall

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4AUDITING AND ASSURANCE SERVICE
be assessed that owing to the significance of overdue fees, whether it is suitable for the audit
firm to be re-appointed or to continue the audit engagement. In the given scenario, audit fees
for the previous year’s audit closed on 30th June 2017 have not yet been paid by Olive Ltd to
the auditor David Chatham. Further, the auditor started the audit for the following year that is
for the year closed on 30th June 2018. In such circumstance, if the auditor continues auditing
for Olive Ltd it will create self-interest threat (Christensen, Glover and Wolfe 2014).
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5AUDITING AND ASSURANCE SERVICE
Answer for question 2
Different kinds of audit opinion those can be expressed on financial statement of the
client by the auditors are as follows –
Unqualified opinion – this opinion indicates that the financial statement is clean in all
material aspect and are prepared in true and fair view approach
Qualified opinion – this opinion is expressed when the auditor cannot express
unqualified opinion owing to various reasons like the accounts have not been prepared
in compliance with required standards
Disclaimer of the opinion – disclaimer opinion is expressed when it is not possible for
the auditors to express any definite opinion.
Adverse opinion – this opinion indicates that financial statement is involved with
gross misstatement that is fraud while the financial records are prepared (Tahinakis
and Samarinas 2016).
Answer (a)
Auditor was not able to get the confirmation from 4 of the major customers included
in sample. However, nothing is mentioned here regarding the sample size that is whether 4
clients is major component or minor component. Further, balances of these 4 accounts have
been confirmed through other procedures. Hence, in this scenario the auditor will express
unqualified opinion.
Answer (b)
In the given scenario the auditors were restricted to verify the property, plant and
equipment that form a material part of asset making it 25% of the total asset. Hence, the
auditor shall express disclaimer of opinion as restriction on verification of material
component of asset will restrict the auditor to express definite opinion (Sultana et al. 2015).
Answer (c)
An important disclosure associated with contingent liability is removed from the
disclosures. However, this may have material impact on entity’s financial report if the
contingent liability is converted into actual liability. However, as this item is independent and
will not have any other impact on the financial statement of the entity, the auditor will
provide disclaimer of opinion.
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6AUDITING AND ASSURANCE SERVICE
Answer (d)
Under the given scenario the auditor will issue qualified opinion as the entity used the
discarded accounting standards for preparing its financial reports that will lead to
misstatement in various contexts. Further, it did not make any amendments to the financial
reports through the misstatement extent was measurable (Chen and Zhang 2018).

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Reference
Aasb.gov.au. 2017. Australian Accounting Standards Board (AASB) - Home. [online]
Available at: http://www.aasb.gov.au/ [Accessed 26 Jan. 2019].
Accounting Professional & Ethical Standards Board, 2018. Code of Ethics for Professional
Accountants. [ebook] Australia: Accounting Professional & Ethical Standards Board.
Available at: http://www.apesb.org.au/uploads/standards/superseded_pronouncements/
21092016145901_APES_110.pdf [Accessed 26 Jan. 2019].
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.
Chen, B. and Zhang, X., 2018. If Leases are not Capitalized: The Effects of a Qualified Audit
Opinion on Investors’ Judgments and Decisions. Journal of Accounting and Finance, 18(2),
pp.200-212.
Christensen, B.E., Glover, S.M. and Wolfe, C.J., 2014. Do critical audit matter paragraphs in
the audit report change nonprofessional investors' decision to invest?. Auditing: A Journal of
Practice & Theory, 33(4), pp.71-93.
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.
Martinov-Bennie, N. and Mladenovic, R., 2015. Investigation of the impact of an ethical
framework and an integrated ethics education on accounting students’ ethical sensitivity and
judgment. Journal of Business Ethics, 127(1), pp.189-203.
Sultana, N., Singh, H., der Zahn, V. and Mitchell, J.L., 2015. Audit committee characteristics
and audit report lag. International Journal of Auditing, 19(2), pp.72-87.
Tahinakis, P. and Samarinas, M., 2016. The incremental information content of audit
opinion. Journal of Applied Accounting Research, 17(2), pp.139-169.
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