Auditing Assignment: Independence, Situations, Weaknesses

Auditing ASSIGNMENT
Student Name
[Email address]

Table of Contents
Question 1...................................................................................................................................................2
Question 2...................................................................................................................................................3
Question 3...................................................................................................................................................4
Question 4...................................................................................................................................................5
Question 5...................................................................................................................................................6
References...................................................................................................................................................8

Question 1
a) In general the term independence means freedom from interference. Auditor independence
refers to the freedom of the auditors whether internal or external, in the course of their audit of
the financial statements of any client from the influence of any third party who might have
interest financially or of any other kind in the business of such client, so as to provide
independent view on the financials of the client. APES 110 on Code of Ethics on Professional
Accountants define the term auditor independence in detail. The main aim of auditor
independence is the application of integrity and objectivity in performing the audit process by
the auditor in order to provide audit opinion freely (Alieid, 2016). The auditor independence has
two aspects, namely, real independence – independence which is in fact and the other is
perceived independence – independence which is in appearance. For the purpose of obtaining
the objective of independence, the presence of both the independence is necessary. The real
independence refers to the independence which is present in the auditor’s mind and which is
used by him in dealing with specific situations during the course of audit. The determination of
the true independence of auditor is not easy and comprises of many difficulties, the reason
being aspects like integrity of the auditor, mental attitude and there might also exist
circumstances which demands for compromising attitude by the key managerial persons of the
company. It is not possible to measure the independence of the auditor or guarantee the same.
Even if the auditor is independent but has some factors which indicates otherwise, the public
might preclude that the audit opinion is not independent and the financial report does not
provide true and fair view as required. Hence, it is very important that the auditor’s
independence is reflected in appearance as well so that the credibility of the audit report gets
enhanced (Alexander, 2016).
b) The answers to the independent situations are as follows:
i. In the given situation, Bob is the audit assistant of Club Casino who is undertaking
university studies. He is currently engaged in the audit of the books of Club Casino and
has used the financial information obtained in the course of audit of Club Casino for the
purpose of his university assignment without obtaining the prior approval of the client.
This is clearly the violation of the principle of confidentiality (para 140 of APES 110 on
the Code of Ethics for Professional Accountants) according to which no information of
the client is allowed to be disclosed to any third party, moreover the same also cannot
be used for personal benefits of the auditor. Alternatively, Bob could have instead
discussed the same with his client and taken his prior approval for using the client’s
financial information for the purpose of his university assignment (Arnott, et al., 2017).
ii. In the given situation, Wendy is the engagement partner for the company named ACE
Limited who has managed the internal control of the client company for a period of six
months because of the unavailability of the Company Secretary at the company. This
situation might lead to breach of auditor independence due to the conflict of interest.
The other possible course of action would have been to intimate the management of
the company and should have denied to accept the above role. Moreover, she should
have withdrawn for the audit engagement (Bumgarner & Vasarhelyi, 2018).
iii. In the given situation, Leo has been assigned the audit of Precision Machinery Limited
which comprises of testing of internal controls of the cash payment even though he is
the eldest son of the factory foreman of one of the auditor firm’s major client’s. In an