Auditing and Assurance: Application of AAA Model and Due Diligence

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

1AUDITING AND ASSURANCE
Table of Contents
Answer to Question 1......................................................................................................................2
Answer to Question 2......................................................................................................................5
References........................................................................................................................................9

2AUDITING AND ASSURANCE
Answer to Question 1
During the year 1990, Langenderfer and Rockness developed the different concepts of
the American Accounting Association (AAA) model. AAA model provides the auditors with
seven logical steps in order to deal with different ethical situation in auditing (Hope, Thomas &
Vyas, 2013). It needs to be mentioned that the application of the seven-step model of AAA is
required in the provided case of Great Gold Limited (GGL) to provide logical course of actions.
The main area of concern of this case is related with the leasing of apportion of their machinery
from Big Machine Limited (BML) in spite of the fact that there is availability of other machinery
suppliers in the region supplying small portion of the machineries. Apart from this, another
major ethical issue can be seen due to the increase in profit under the directorship of Brent Allen
related with the leasing of significant part of the machinery. In this situation, it is required for the
auditor to apply the seven step model of AAA to get recommended course of action (Yetman &
Yetman, 2012).
Step 1: Facts Identification: This step involves in the identification of major facts with te
concerned cases. In this particular situation, the major unethical case is related with the lease of
large proportion of machinery to GGL by the director of the company in the presence of other
small suppliers of machinery in that region (Kassem & Higson, 2012).
Step 2: Ethical Issues in the Case: In this AAA model, the second step involves in the
identification of major ethical issues related with the provided case. Thus, based on the analysis
of the provided case, an assertion can be presented that shows the motive of the director of GGL
to increase the profit of BML that leads to the creation of an unethical situation (Craft, 2013).

3AUDITING AND ASSURANCE
Step 3: Identification of Norms, Principles and Values Related with the Case: In the provided
case, the norms, values and principles related with the directors of the company indicates
towards the principle of integrity. It is the responsibility of the companies to make sure that there
is compliance between corporate governance principles and ethical code of conducts while
performing the business operations of these two companies. In the provided case study, the main
ethical issue is related with professional integrity at the workplace. There has been major
violation in the principle of integrity due to the intention of the director to increase the profit of
BML with the help of significant lease of machinery. The inability of the auditors to demonstrate
ethical principle and sound moral can also been seen. Thus, the director of the company has
failed to act in fair, honest and ethical manner (Michels,2012).
Another major ethical principle involved in this case is Due Care and Professionalism of
the auditors while executing the audit procedures. It is the requirement of the director of the
company to act in the most ethical manner and discharge legal duties professionally as per the
ethical principle and code of conducts. Hence, the director of the company has shown an
incorrect moral and ethical behavior (Michels, 2012).
Step 4: Determination of Alternative Course of Action: There can be two situation in this case.
In the first situation, one can simply ignore the ethical issues for director and let the profitability
be increased. However, the second option demands the director not to lease the large portion of
machinery to GGL (Ball, 2013).
Step 5: Determination of the Best Course of Action: In this case, the best course of action
according to the norms, principles and values is not to lease the significant part of the machinery
to GGL. In addition, the company is required to lease the small portion of machinery as it will be