Auditor Independence and Audit Opinion

The assignment delves into the crucial relationship between auditor independence and the issuance of an accurate audit opinion. It presents a scenario where company directors attempt to influence the audit process by overriding the auditors' assessment of land and building values. The analysis explores how this lack of independence can lead to a disclaimer of opinion due to limitations in the auditors' examination. The discussion emphasizes the importance of auditor objectivity and its direct impact on the reliability of financial reporting.

Running head: AUDITING AND ASSURANCE
Auditing and assurance
Name of the student
Name of the university
Author note

1AUDITING AND ASSURANCE
Table of Contents
Answer to question 1..................................................................................................................2
Requirement [a]......................................................................................................................2
Requirement [b].....................................................................................................................2
Requirement [c]......................................................................................................................3
Requirement [d].....................................................................................................................3
Answer to question 2..................................................................................................................4
Requirement [a]......................................................................................................................4
Requirement [b].....................................................................................................................5
Requirement [c]......................................................................................................................5
Answer to Question 3.................................................................................................................5
Requirement [a]......................................................................................................................5
Requirement [b].....................................................................................................................6
Requirement [c]......................................................................................................................6
References..................................................................................................................................7

2AUDITING AND ASSURANCE
Answer to question 1
Requirement [a]
The analysis of the situation makes us reach to a conclusion where the Berowa
Accountants have been found to provide the tax refund guarantee to their clients through the
special advertisement. The concept of tax refund is therefore of utmost importance in this
case. In order to understand the mentioned case it is important to understand the aspects that
are related to the tax payment and tax refund. The concept of tax return is the basic difference
between the tax that is paid and tax that is owned. The income and profit of the company
plays a major role in the tax refund paid to the company. It needs to be mentioned that the
when the tax liability of the company is less than the actual tax that is paid it is then that the
companies get the refund of the tax (Galit and Metaban 2012). The auditors find difficulty in
making the guarantee of tax refund. It has also been studied that the primary responsibility of
the auditor is to examine the financial accounting of the companies in order to explore the
material misstatement and to check the compliance. Therefore in case of tax refunds it would
be considered as a non-audit service. This is the reason that as per APES 110 Code of ethics
for Professional Accountants, Section 130, the mentioned act of Berowa Accountants has
breached the principle of Professional Competence and Due Care (Han Fan, Woodbine and
Cheng 2013). This act justifies the fact that it is possible for an auditor to make clients by
being aware of the limitations of the professions and it is evident in this case that Berowa
Accountants has failed to do so.
Requirement [b]
By analyzing the case study it has been observed that, Jamie Harvey, an auditor of a
charter accounting firm was asked to serve the designation of the treasurer of the local club.
Apart from this, it was observed that Jamie Harvey does the audit of only large public

3AUDITING AND ASSURANCE
corporations. This should however be taken into consideration that the athletic clubs are
always considered as the non-profit societies. According to APES 110 Professional
Appointment, Section 210, the auditor are required to determine the effect of the acceptance
of the appointment and whether they would affect the compliance of the fundamental ethical
principles of audit (Ottaway 2014). It can be commented that in case if the auditors lands up
in accepting the proposal to be the treasurer there would be breach to some extent and there
are certain specific reasons for such breach. In the first place it has observed that Jamie
Harvey is the auditor of large public corporations and the works of the large companies and
clubs are not at all connected. In the second place in case of the appointment any fundamental
ethical principle will not be affected. This is same for all non profitable organizations (Kuan
2014). It is because of this reasons that there will not be any kind of ethical issues.
Requirement [c]
There is a situation in the case where the payment of the auditor, Pymble Accountants
is completely reliant on the appropriate needs of the audit opinion which has to be presented
to the audit client, Monlec Ltd. It is directing to the fact Monlec Ltd is demanding for
favorable audit report from the auditors. It needs to be mentioned here that the auditors are
not the representatives of the company but they are the representatives of the stakeholders
and the investors. According to APES 110 Principle of Objectivity Section 120 it is not
desirable on the part of the auditors to compromise their professional and business judgment
for any kind of conflict of interest or any kind of influence or biasness (Athanasiou 2014).
Therefore it implies that the judgment of the auditors should not make a difference for any
influence or biasness (Trung 2015).
Requirement [d]
From the provided case it can be witnessed that Winton Accountants has provided all
kinds of audit reports and papers of the Motoring services to Chadwick Chartered

4AUDITING AND ASSURANCE
Accountants. The later performed the job of reviewing the quality of audit of Winton
Accountants. This is the situation where it indicates that there is a need on the part of
Chadwick Chartered Accountants to perform variable tests and different processes in order to
evaluate the quality of audit of the Wanton Accountants. The rules under APES 110
principles of Confidentiality, section 140 states that the auditors have the professional
obligation in order to maintain the confidentiality of the information that is acquired
regarding the auditing clients (Athanasiou 2014). This implies that the auditors must maintain
the privacy of the auditing clients. However a contrasting situation has occurred in the
provided case where the Winton Accountants have disclosed the confidential information
about the Motoring Services to Chadwick Chartered Accountants by providing them the audit
papers (Carey, Monroe and Shailer 2014).
Answer to question 2
Requirement [a]
The further case that can be observed from the provided case is that Thornleigh
Accountants have observed Jane Davis in the place Leone Ng in order to complete the audit
of Jenkins Ltd due to the illness of Leona. The next step of Thornleigh Accountants is to
include Jane Davis in the team of audit in order to conduct the audit of Jenkins Ltd from mid
July. This can be termed as a threat of independence of audit for Thornleigh Accountants.
According to the APES 110, Self-review Threat, Section 100.12, there is no right of a
member of audit team to use the results of a previous judgment of audit that is made by
another audit members (DeFond and Zhang 2014). It has also been mentioned that the results
of any previous audit judgment by any member of the same audit company cannot be used.
Therefore, if Thornleigh Accountants includes Jane Davis in the audit team self-review threat
of the auditor`s independence will be raised.

5AUDITING AND ASSURANCE
Requirement [b]
By reviewing the provided situation it can be mentioned that the John Darrow is
responsible in conducting the audit operations of Winmalee Ltd. All the accounting papers
were presented to John by Winmalee Ltd which included the standards of accounting and the
computer files. In this situation it can be mentioned that the auditors are supposed to examine
all the financial and the related papers. They can feel pressurized in such situation. By
providing these papers, Winmalee Ltd can create an indirect pressure on John to deliver their
favorable audit report. Thus as per APES 110, Section 200.8, this situation can create
Intimidation Threat of the independence of the auditors (Ojo 2013).
Requirement [c]
From the above case study it can be mentioned that the auditors in this case was
invited for the second show in the chocolate company. This is evident here that the company
was trying to influence the auditors by providing them entertainment. Thus if the auditors
accept the invitation to attend the social club they would create the threat of self-interest of
the auditor`s independence (Deumes et al. 2012).
Answer to Question 3
Requirement [a]
The responsibility of the auditors is to evaluate the occurrence of the misstatement of
the financial statements and rectify the same. In case of the Connor Company it can be
observed that the firm is heavily dependent on the bank overdraft to pay loans. The bank
wants repayment within a month. The financial condition of the company is weak and it was
evident that the records of the company are real and they did not hide their poor position.
Thus the auditor will issue Unqualified Audit Opinion for Connor Company (Tsipouridou
and Spathis 2014).

6AUDITING AND ASSURANCE
Requirement [b]
In the given case it can be observed that the company is supposed to follow FIFO
method for the valuation of inventory, but they are following LIFO method as their parent
company of America uses it. Analyzing all the situations it can be mentioned that the
differential effect between the adoption of FIFO and LIFO has affected the valuation of
inventory that contributes to the material misstatement. It can be stated that the qualified
audit opinion is similar to unqualified audit (Rahimian, Tavakolnia and Karamlou 2014).
Requirement [c]
The valuation of the fixed assets is the basic requirement in all the companies. In case
of Victorian Manufacturing Company, it can be witnessed that the valuation of their factory
in Melbourne has not been done by them. Thus, the directors are taking a major supposition
that may not be fitting and can create a major material misstatement. At the time of
conducting the audit operations, the auditors need the current fair value of land and buildings
and in the absence of this, the auditors will not be able to provide correct audit opinion as it
limits their examination process. For this reason, the auditor will issue Disclaimer of Opinion,
as they are unable to complete the accurate audit report (Kachelmeier, Schmidt and Valentine
2016).

7AUDITING AND ASSURANCE
References
Athanasiou, A., 2014. Avoiding client persuasion. Taxation in Australia, 48(10), p.601.
Athanasiou, A., 2014. Boy, you're gonna carry that weight a long time!. Taxation in
Australia, 49(2), p.106.
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.
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of
Accounting and Economics, 58(2), pp.275-326.
Deumes, R., Schelleman, C., Vander Bauwhede, H. and Vanstraelen, A., 2012. Audit firm
governance: Do transparency reports reveal audit quality?. Auditing: A Journal of Practice &
Theory, 31(4), pp.193-214.
Galit, S.H. and Sorbe, T., Metabank, 2012. Computerized extension of credit to existing
demand deposit accounts, prepaid cards and lines of credit based on expected tax refund
proceeds, associated systems and computer program products. U.S. Patent 8,090,649.
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.
Kachelmeier, S.J., Schmidt, J.J. and Valentine, K., 2016. The disclaimer effect of disclosing
critical audit matters in the auditor’s report.
Kuan, K.T.C., 2014. Auditor independence: an analysis of the adequacy of selected
provisions in CLERP 9 (Doctoral dissertation, Queensland University of Technology).

8AUDITING AND ASSURANCE
Ojo, M., 2013. Audits, audit quality and signalling mechanisms: concentrated ownership
structures.
Ottaway, J., 2014. IMPROVING AUDITOR INDEPENDENCE IN AUSTRALIA: IS
‘MANDATORY AUDIT FIRM ROTATION’THE BEST OPTION?.
RAHIMIAN, N., TAVAKOLNIA, E. and KARAMLOU, M., 2014. Qualified Audit Opinion
and Debt Maturity Structure.
Trung, N.K., 2015. Ethics Education In The University. International Journal of Scientific &
Technology Research, 4(8), pp.5-10.
Tsipouridou, M. and Spathis, C., 2014, March. Audit opinion and earnings management:
Evidence from Greece. In Accounting Forum (Vol. 38, No. 1, pp. 38-54). Elsevier.

9AUDITING AND ASSURANCE