Auditing & Professional Practice .

This article discusses the ethical requirements of APES 110 and how they apply to different situations in accounting organizations. It covers topics such as professional behaviour, independence, confidentiality, and objectivity. It also provides guidance on different audit opinions and emphasizes the importance of adhering to accounting standards.

Running head: AUDITING AND PROFESSIONAL PRACTICE
Auditing and Professional Practice
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Introduction:....................................................................................................................................3
Question 1:.......................................................................................................................................3
Part (a):........................................................................................................................................3
Part (b):........................................................................................................................................4
Part (c):........................................................................................................................................4
Part (d):........................................................................................................................................5
Part (e):........................................................................................................................................5
Part (f):.........................................................................................................................................6
Part (g):........................................................................................................................................6
Part (h):........................................................................................................................................7
Question 2:.......................................................................................................................................7
Part (a):........................................................................................................................................7
Part (b):........................................................................................................................................8
Part (c):........................................................................................................................................8
Part (d):........................................................................................................................................9
Part (e):........................................................................................................................................9
Part (f):.......................................................................................................................................10
Part (g):......................................................................................................................................10

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Part (h):......................................................................................................................................11
Conclusion:....................................................................................................................................11
References:....................................................................................................................................12

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Introduction:
The code of ethics gives the precise areas where the overall ethical aspects are conducted
in the professional accounting field. In Australia, “Accounting Professional and Ethical
Standards Board (APESB)” is the independent organisation founded in the year 2006 with the
higher form of initiatives. The primary role of this body is to develop and solve all professional
issues with the ethical standards associated with the public interest that could be applied to the
CPA Australia members. The primary objective of this assignment is to improve the ethical
doctrines about the different situations that occur in the accounting organisations. In addition,
there has been inclusion of different audit opinions, which might be issued on the caused
situation for the relevant cases.
Question 1:
Part (a):
According to the provided information, Ernie Dengate has sold his accounting practice
that constitutes of tax, auditing and bookkeeping services. Even though permission has been
taken for releasing the tax working papers, no approval has been obtained for the other practices.
However, all working papers have been provided to the new accountant without any kind of
approval. In this situation, Ernie Dengate has breached the ethical requirements of APES 110
requiring professional behaviour and integrity. As tax working papers are released without
approval, it means that the individual could not be relied upon with company information.
However, it is extremely crucial for any staff to keep the secrets of the organisation (Akrom and
Firmansyah 2018). According to “Section 100.5(a) of APES 110”, an employee is required to be

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diligent and straightforward in business and professional relationships. On the other hand,
“Section 100.5(e) of APES 110” cites that for ensuring professional behaviour, it is necessary to
adhere to the pertinent laws and regulations along with avoiding any action discrediting the
profession (Apesb.org.au 2018). Thus, violating these two principles would result in conflict of
interest and bias along with misleading information.
Part (b):
In this situation, Fred Nerk has not followed one ethical requirement, which is
professional competence and due care. This principle enforces the obligation on all accountants
to maintain skills and professional knowledge at the needed level for ensuring sound professional
services and act responsibly to comply with applicable professional and technical standards at
the time of providing professional services, as per “Section 100.5(C) of APES 110”
(Apesb.org.au 2018). The case information states that Fred Nerk is a public accountant for which
he has task responsibility, continuing awareness of pertinent business and technical development
for carrying out competently within the aspect of accounting; however, it does not include
auditing or others. In case, he offers other services like auditing, the individual needs to have
suitable training and supervision for avoiding threat to professional competence and due care in
situations, in which audit service is not dependent on identical group of available facts (Cha,
Hwang and Yeo 2016). Moreover, he needs to analyse the importance of any threat along with
applying safeguards, if necessary, to minimise or mitigate them to an acceptable standard.
Part (c):
According to “Section 290(B) of APES 110”, offering accounting and bookkeeping
services result in threats of self-interest and self-review at the time the financial statements of the
same client are audited (Apesb.org.au 2018). However, when there is offering of any technical

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assistance, these services do not lead to independence threat. In this case, the Allgood Chartered
Accounting firm is involved in maintain various accounting records of the Branch Company on
its computers. In addition, it carries out the audit of the Branch Company as well. This has
breached the independence principle of APES 110, since Section 290 requires independence
when an opinion is issued on the financial statements. However, since the Allgood Chartered
Accounting firm is engaged in maintaining the client’s accounting records, the opinion might not
be neutral owing to the relationship with the client. Therefore, it is not possible for the audit
organisation to provide honest and unbiased opinion on the financial statements (Chandler 2014).
Part (d):
In the provided case, James Jameson, a public accountant, has fought with an individual
in a hotel, for which assault charges have been brought against him along with disorderly
behaviour. As a result, he has been imprisoned for three months. This has violated the
professional behaviour principle, in accordance with “Section 150.1 of APES 110”. This is
because an offence has been committed due to which James was imprisoned and this has created
disrepute to the profession.
Part (e):
This situation has violated the confidentiality principle under APES 110. By
confidentiality, it implies the secrecy of profession and not revealing information to the third
parties without any appropriate authority (Chen, Zhang and Zhou 2017). In this situation,
Mortdale Accounting conduct audits for public firms and Penhurst Accounting obtained the
working reports of the audits. However, Mortdale did not seek approval from its clients before
providing the same. Therefore, the duty of confidentiality has been violated, as the reports were
provided to the third party without approval from the authorised clients. Any employee working

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in an organisation needs to possess the capability of understanding the position in the
organisation and they need to place their profession on top. When any relevant information is
provided to any third party without approval, this has breached ethical duties of APES 110 (Choi
et al. 2018).
Part (f):
This situation has violated the ethical code of conduct of Professional Behaviour, as per
APES 110. In this case, Jan Dungog has applied for the position of public accounting by clearly
mentioning about not to contact her current employer. However, every organisation has certain
regulations that need to be followed at the time of recruiting staffs. This would not be suitable to
the individual to understand that they were not provided with any information about anything
(Davies and Aston 2017). A contract needs to be present between the organisation and the staffs
for working in combination as a team. However, if no chance is provided to an individual, they
might find the same to be disrespectful.
Part (g):
Based on the provided information, this situation has breached ethical code of conduct
related to objectivity under APES 110. Objectivity implies disallowing conflict of interest,
unfairness and unjustified motivation of others for overruling business or professional
judgements (Draeger, Herrmann and Lawson 2016). Wendall Sailor runs insurance and
superannuation business along with carrying out audit work. The individual contacts
organisations frequently for advising regarding his other services in the audit period. Any
organisation has its own sets of regulations and in this case, there is violation of professional
behaviour. There need not be any overrule professional judgement, as no individual has the right

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to pressurise on company selection. Wendall is not permitted to compel anyone for conducting
their work activities.
Part (h):
As mentioned by Duska, Duska and Kury (2018), the auditors are not liable for the
financial statements on which an opinion needs to be provided. The liability for the presentation
of the financial statements remains in the hands of the audited organisation. This clearly implies
that the auditor should not be a management member; instead, he needs to be independent
(Ferrell and Fraedrich 2015). In opposite, there is existence of threat to independence when an
audit team member has close association with an individual working in the Board of Directors.
The reason is that the individual could influence the accounting records or the financial
statements of the client, on which an audit opinion is to be issued. However, Judith Durham is a
member of the Board of Direct of a non-profit organisation and she could be a part of the audit
team by not breaching the ethical code of conduct of APES 110, if certain conditions are
fulfilled. It is necessary to fulfil these conditions for avoiding impairment of the independence of
the auditor (Haji-Abdullah, Othman and Marzuki 2017). The member of Board of Directors
needs to be mentioned clearly in the form of honorary director and the individual should not have
the right to vote or participate in management functions or organisational activities.
Question 2:
Part (a):
In this situation, the auditor is required to issue disclaimer of opinion, as adequate
material information is not provided by the client for carrying out the audit report. According to
Hayes, Gortemaker and Wallage (2014), this type of opinion is used when an auditor is not able

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to accumulate adequate audit evidence based on which audit opinion would be provided. In
addition, it is inferred that the probable effects on the financial reports of the unidentified
misstatements, if any, could be pervasive as well as material. For this case, the client has not
provided information about the beginning balances of accounts at the initiation of the financial
year. Even though the auditor is convinced regarding the absence of any material misstatement,
the client has not provided considerable information for audit work. Thus, in this case, a
disclaimer of opinion would be used.
Part (b):
In this case, it is evident that the Australian Accounting Standards have not been
followed by the client since its inception four years back. This implies the non-adherence to
appropriate rules and regulations in accordance with the requirements of the government of
Australia (Knechel and Salterio 2016). Although the auditor has obtained the accurate
information from the organisation, correct standards have not been applied due to which
qualified opinion needs to be issued. In this regard, it is noteworthy to state that an audit report
contains a qualified opinion at the time an organisation is not complying with the accurate
accounting standards (Louwers et al. 2015). Thus, it is not possible to gather true and fair view in
the financial statements by having adequate or accurate information. Instead, there needs to be
the application of accurate norms and regulations depending on the requirement of the reports in
order to ensure its accuracy.
Part (c):
In accordance with the provided information, the organisation has been involved in using
the LIFO method due to which there has been misstatement in the value of inventory. Initially,
the organisation has violated the standards of accounting, since LIFO method could not be used

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for inventory valuation. Secondly, such usage has resulted in wrong figures in the financial
statements, which are deemed to be important for the users in order to undertake effective
decisions (Newton et al. 2015). This implies the presence of misstatement and at the same time,
the report does not conform to the accounting standard. Therefore, the auditor needs to provide
adverse opinion in this situation.
Part (d):
In this situation, the report of the organisation is perfectly fine. There is absence of any
misstatement and the financial reports have adhered to the appropriate standards of accounting.
This implies that the auditor should issue unmodified audit opinion. Such opinion is used at the
time the auditors are fully satisfied in all the material aspects (Simnett and Trotman 2018). The
unmodified report does not require any modifications, as the actual source is deemed to be fine.
The overall financial reports do not contain material misstatements owing to errors or ethics. The
reports are developed by complying with the requirement of the applicable framework for
financial reporting. Thus, a fair presentation is accomplished by conforming to the Corporations
Act 2001 (Simnett, Carson and Vanstraelen 2016). However, in this case, as a major client of
Numark is on the verge of bankruptcy, the going concern of the organisation is in question. As a
result, there would be emphasis of matter. This is provided when the audit report of the
organisation is dependent on unmodified opinion; however, going concern issue is evident.
Part (e):
Based on the provided information, the auditor needs to express disclaimer of opinion.
This is expressed in such situations, in which the auditor fails to gather adequate information or
evidence associated with the case (Hayes, Gortemaker and Wallage 2014). The same situation is
applicable, since the auditor did not manage to gather the confirmations from the major clients,

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which imply that adequate information was not gathered about the balances of the major clients.
Despite the fact that other audit procedures used have satisfied the requirements of the auditor;
they might not have adhered to the accounting standards. Thus, misstatements might be present
in the financial reports for which it is necessary to express disclaimer opinion.
Part (f):
This situation clearly demands the issuance of disclaimer of opinion. This is because the
auditor is restricted by the client to examine the account associated with property, plant and
equipment and therefore, the methods of verifying the accounts have been restricted. If the
auditor is prohibited in observing the stock take, which includes property, plant and equipment, it
might result in failure to obtain adequate information that guide in the form of supportive
evidence. In opposition, it could have been used in the method of identifying whether the
accounts are prepared in compliance with the accounting standards (Tsipouridou and Spathis
2014). The extent of materiality associated with the account has been 35% based on the provided
information. Therefore, by considering all the above-stated aspects, there would be issuance of
disclaimer of opinion until the client provides relevant information about the account to the
auditor so that the opinion could be withdrawn.
Part (g):
In the words of Wealleans (2017), contingent liabilities could be defined as those
liabilities that an organisation might incur based on the results of uncertain future events. This
kind of liability has major effect on the organisation. Therefore, the disclosure of liability is the
significant part, as the investors and other users undertake decisions depending on investments.
Therefore, in order to prepare financial information free from errors, it is necessary to make
adequate disclosure of contingent liabilities. If there is no such disclosure, the auditor needs to

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provide adverse opinion. Therefore, as the management has not included the disclosure
associated with contingent liabilities from the financial reports, the auditor is required to issue
audit report, which is qualified in nature.
Part (h):
It is necessary to maintain cash in sales properly and prepare the same in a timely manner
in the books of accounts of the organisation. In case, it is not prepared timely, the auditor would
not be able to carry out the auditing procedure (Zhang, Ge and Su 2018). In this situation, there
is absence of any audit test that could ensure the accuracy of sales on cash or such sales are
recorded correctly. Due to the absence of such confirmation, it is not possible for the auditor to
initiate the audit work. Therefore, by taking into account these aspects, no opinion could be
expressed by the auditor in this situation.
Conclusion:
Based on the above discussion, it could be inferred that the auditing firms are required to
emphasise on the accounting standards, which are prevalent in the nation. This is because
violation of these standards might have adverse impact on their business operations. Finally, it
has been evaluated that there are different types of audit opinions as well as ethical requirements
in accordance with APES 110 on various accounting organisations.

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References:
Akrom, J. and Firmansyah, A., 2018. The Moderating Effect of Audit Opinion on The Local
Government Financial Performances and The Disclosure Compliance of Financial
Information. AFEBI Accounting Review, 2(02), pp.25-42.
Apesb.org.au., 2018. [online] Available at:
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 27 Nov.
2018].
Cha, M., Hwang, K. and Yeo, Y., 2016. Relationship Between Audit Opinion And Credit Rating:
Evidence From Korea. Journal of Applied Business Research, 32(2), p.621.
Chandler, R., 2014. Auditing and assurance. London School of Economics. London.
Chen, T.T., Zhang, F. and Zhou, G., 2017. Secrecy culture and audit opinion: Some international
evidence. Journal of International Financial Management & Accounting, 28(3), pp.274-307.
Choi, J.H., Chung, H., Sonu, C.H. and Zang, Y., 2018. Opinion Shopping to Avoid a Going
Concern Audit Opinion and Subsequent Audit Quality. Auditing: A Journal of Practice and
Theory, 34(7), pp.801-834.
Davies, M. and Aston, J., 2017. Auditing fundamentals. Pearson Higher Ed.
Draeger, M., Herrmann, D. and Lawson, B.P., 2016. Changes in Audit Quality under Auditing
Standard No. 5. Accounting and the Public Interest, 16(1), pp.57-83.
Duska, R.F., Duska, B.S. and Kury, K.W., 2018. Accounting ethics. Wiley-Blackwell.

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Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases. Nelson
Education.
Haji-Abdullah, N.M., Othman, R. and Marzuki, M.M., 2017. Non-Audit Services, Audit
Opinion, Cultural, Affiliated Directors and Fraudulent Financial Reporting: Evidence from
Malaysia. Advanced Science Letters, 23(1), pp.665-669.
Hayes, R.S., Gortemaker, H. and Wallage, P., 2014. Principles of auditing: an introduction to
international standards on auditing. Prentice Hall, Financial Times.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.
Newton, N.J., Persellin, J.S., Wang, D. and Wilkins, M.S., 2015. Internal control opinion
shopping and audit market competition. The Accounting Review, 91(2), pp.603-623.
Simnett, R. and Trotman, K.T., 2018. Twenty-five Year Overview of Experimental Auditing
Research: Trends and Links to Audit Quality. Behavioural Research in Accounting, 24(7), pp.51-
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Simnett, R., Carson, E. and Vanstraelen, A., 2016. International archival auditing and assurance
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Theory, 35(3), pp.1-32.
Tsipouridou, M. and Spathis, C., 2014, March. Audit opinion and earnings management:
Evidence from Greece. In Accounting Forum, 38(1), pp. 38-54.

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Wealleans, D., 2017. The quality audit for ISO 9001: 2000: a practical guide. Gower.
Zhang, L., Ge, C. and Su, W.H., 2018. Auditing Quality, Investor Sentiment and Earnings
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