Auditing and Assurance Principles

This assignment delves into the core principles of auditing and assurance, focusing on ethical conduct and potential threats to auditor independence. It examines scenarios involving advertising for tax returns, financial interests in clients, and the use of LIFO inventory valuation methods. Students must analyze these situations and determine the appropriate audit opinion based on materiality and professional standards.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Question 1........................................................................................................................................2
Requirement [a]...........................................................................................................................2
Requirement [b]...........................................................................................................................2
Requirement [c]...........................................................................................................................2
Requirement [d]...........................................................................................................................3
Question 2........................................................................................................................................3
Requirement [a]...........................................................................................................................3
Requirement [b]...........................................................................................................................3
Requirement [c]...........................................................................................................................4
Question 3........................................................................................................................................4
Requirement [a]...........................................................................................................................4
Requirement [b]...........................................................................................................................4
Requirement [c]...........................................................................................................................5
References........................................................................................................................................6

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Question 1
Requirement [a]
According to APES 110 Codes of Ethics for Professional Accountants, Section 130, the
auditors are required to take into consideration the limitation of audit profession while to be
appointed in the client’s company to be the auditors. It creates the obligation on the auditors not
to make any false promises to the clients. Thus, Berowra Accountants are not required to give the
advertisements for tax refund as they have nothing to do with tax refund. Hence, the principle of
professional competence and due care has been violated (Houghton and Campbell 2013).
Requirement [b]
APES 110 Professional Appointment, Section 210 makes the obligation on the auditors
to determine the negative effect of their new appointment contract on the principles of audit
profession. In this contract, it needs to be mentioned that the athletic clubs are not-for-profit
societies in nature. For this reason, according to APES110, there will be no violation of audit
principles for Jamie Harvey’s treasurer position in the athletic club. In addition, this position will
not affect the audit of large public corporations. Thus, there will be no violation of ethical
principles (William Jr, Glover and Prawitt 2016).
Requirement [c]
APES 110 Principle of Objectivity, Section 120 indicates that the auditors should not
compromise their audit judgment or opinion due to any conflict of interest, influence, biasness
and others. In this case, the intention of Monlec Ltd can be to obtain favorable audit opinion by
making the audit payment dependent on the audit opinion. Pymble Accountants will be

3AUDITING AND ASSURANCE
breaching the principles of objectivity if they provide favorable audit opinion (Houghton and
Campbell 2013).
Requirement [d]
APES 110 Principles of Confidentiality, Section 140 makes the obligation on the
auditors to maintain the confidentially aspect of obtained information about the audit clients.
Thus, in this provided case, the actions of Winton Accountants have breached the principles of
confidentiality of auditing (William Jr, Glover and Prawitt 2016).
Question 2
Requirement [a]
As per APES 110, Self-review Threat, Section 100.12, it is the obligation on the audit
members not to use the audit judgment of previous audit operation done by another audit staff of
the same audit firm. For this reason, the intention of Thornleign Accountants about the inclusion
of Jane Davis in the audit team for Jenkins Ltd due to her pervious knowledge about the
company has created the elf-review heart of audit independence (Wright and Capps 2012).
Requirement [b]
As per APES 110, Intimidation Threat, Section 200.8, it is the obligation on the auditors
not to accept any information and financial papers from the audit clients as pressure for
delivering favorable audit opinion can be made on them and thus, it is the responsibility of the
auditors to obtain conclusive evidence from various analytical procedures. In this case, John
Darrow will be responsible for creating intimidation threat by accepting the accounting papers
from Winmalee Ltd (Carson et al. 2012).

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Requirement [c]
According to APES 110, Self-interest Threat, Section 100.12 bares the auditors from
having any financial and non-financial interest in the audit client as it has negative effect on the
transparency of auditing. Hence, in this situation, the auditors will be responsible for creating the
self-interest threat of audit independence in case they accept the invitation from the chocolate
company (Wright and Capps 2012).
Question 3
Requirement [a]
The given situation shows the weak debt position of the organizations and they are facing
difficulties in the repayment of their debts. In addition, the bank wants fast repayment of their
loans from the company. At the same time, the auditors have failed to encounter any kind of
material misstatements that can affect the materiality of their financial statements. Thus, it can be
proven that the company has not tried to hide their weak debt position with the help of any kind
of manipulation. Hence, the auditors will provide the company with Unqualified Audit Opinion
(Arens, Elder and Mark 2012).
Requirement [b]
In this case, material effect on the company’s inventory can be observed due to the
adoption of LIFO method instead of LIFO. Apart from inventory, this does not create any
material effect on the other financial statements of the company. Thus, the auditors will provide
the company with Qualified Audit Opinion by stating the reason for being qualified instead of
unqualified (Arens, Elder and Mark 2012).

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Requirement [c]
It is the obligation on the companies to make the valuation of their factory and plant on a
regular basis for getting the fair market value of them. In this case, the directors of Victorian
Manufacturing Company have made an assumption that the market value of their Melbourne
factory has not changed over the five years and thus, they have not done the valuation for five
years. The financial position of the company can be materially affected in case the assumption of
the directors is wrong. Thus, the auditors will provide Disclaimer of Audit Opinion due to lack
of evidence (Knechel and Salterio 2016).

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References
Arens, A.A., Elder, R.J. and Mark, B., 2012. Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Carson, E., Fargher, N.L., Geiger, M.A., Lennox, C.S., Raghunandan, K. and Willekens, M.,
2012. Audit reporting for going-concern uncertainty: A research synthesis. Auditing: A Journal
of Practice & Theory, 32(sp1), pp.353-384.
Houghton, K. and Campbell, T., 2013. Ethics and auditing (p. 354). ANU Press.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.
Wright, M.K. and Capps, C.J., 2012. Auditor independence and internal information systems
audit quality. Business Studies Journal, 4(2), pp.63-84.

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