Auditing and Ethical Practice

Running head: AUDITING AND ETHICAL PRACTICE
AUDITING AND ETHICAL PRACTICE
Name of the Student
Name of the University
Author Note

AUDITING AND ETHICAL PRACTICE2
Introduction
The main purpose of the assessment is to analyze the importance of audit independence
for the perspective of audit. Audit Independence can be regarded as important consideration
which allows auditor to maintain the overall quality of audit. The independence of an auditor is
one of the fundamental concepts of audit and the same needs to be maintained by the audit
professional in order to accurately estimate whether the financial statements are showing true
and fair view (Martinov-Bennie and Mladenovic 2015). The assessment would be reviewing
different cases which shows different threats which an auditor faces while executing his duties.
The assessment would also be showing possible safeguard measures which the auditor can
implement in order to maintain the fundamental principle of independence. Some of the
important threats which affect the overall quality of audit are self-interest threats, review threat
and familiarity threat (Howieson 2017). It is to be further noted that the analysis would be
including an objective assessment of the threats which the auditor faces and possible measures as
well for avoiding the threats in the first place.

AUDITING AND ETHICAL PRACTICE3
SL.N
O
a.
Threats
Holding of shares by the
immediate family member of
an individual who is practicing
in the same office is a self-
interest threat (APES
110.R510.4)
An immediate family member
of Andrew, who is practicing
in the same office with
Michalle, who is an
engagement partner of the
client (Blue Steel Limited)
shall not hold any ownership
interest (APES110R510.4)
In the given situation the
engagement partner Michalle
and his partner Andrew are
working in the same office.
Andrew’s wife recently got
hold of minor ownership
interest around 4% as a result
of merger.
Safeguards
As per APES110.R511.9,
if the interest is received
by the immediate family
member by way of
inheritance or gifts as a
result of merger or in
similar circumstances,
then enough of the
indirect financial interest
shall be disposed of
immediately as long as it
does not remain material.
Otherwise, the self-
interest threat created
would be so significant
that no safeguard can
reduce the threat to an
acceptable level.
The other possibility is
that Andrew shall not
form a part of the team
member doing audit in
Objective Assessment
In this case the
independence will be
compromised if the
ownership held by
Andrew’s wife by way
of merger is not
surrendered.
Since Andrew does not
form part of the team
doing audit in Blue
Steel Limited (BSL),
hence his wife Susan
who recently got
ownership in the BSL,
is not required to
dispose of the share and
the independence of the
report may not be
compromised.
(APES110R521.4)

AUDITING AND ETHICAL PRACTICE4
BSL.
b. Any immediate family
member of the individual, who
is a partner in the audit,
holding shares in the client
company shall create a self-
interest threat (APES
110.R510.4)
An immediate family member,
of an audit team member or an
engagement partner in the
audit firm, which has been
appointed as an auditor of the
client, shall not hold any
shares.
In the given case, Michael
who is an engagement partner
in the ACA, has been
requested to participate in the
current year audit engagement
to be conducted by ACA in
Awesome Ferries limited
(AFL)
As per APES 110R520.4,
if an immediate family
member of the individual,
appointed to participate in
the audit engagement or is
an engagement partner in
the audit firm, is holding
shares in the audit client is
required to dispose of or
forfeits the total share-
holding before the audit
process starts. Or else, the
self-interest threat created
will be so significant that
no safeguard can reduce
the risk to an acceptable
level. The other possibility
is that Michael should
reject the request to
participate in the current
year audit engagement
with AFL
In this case the
independence of the
audit will be
compromised if the
shares held by the
daughter of Michael,
Serena, is not disposed
of or forfeited,
considering that
Michael accepts the
request to participate in
the current year audit
engagement.
However, if Michael
accepts the request to
participate in the audit
engagement then his
daughter is required to
forfeit her share, which
will ensure that audit
independence is not
compromised.