Auditing and Assurance Services: Violation of Ethical Principles

This article discusses different scenarios related to auditing and assurance services and their violation of ethical principles. It covers regulations related to APES 110 and auditor's independence and its threats. The article provides a detailed analysis of each scenario and its connection with the ethical principles of auditing.

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

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Table of Contents
Question 1........................................................................................................................................2
Requirement A.............................................................................................................................2
Requirement B.............................................................................................................................2
Requirement C.............................................................................................................................3
Requirement D.............................................................................................................................4
Requirement E.............................................................................................................................5
Requirement F.............................................................................................................................5
Question 2........................................................................................................................................6
Situation 1....................................................................................................................................6
Situation 2....................................................................................................................................7
References........................................................................................................................................9

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Question 1
Requirement A
According to the given information, Peter Sung has been auditing the Musical Company
Pty Ltd. One can observed from the provided information that Dave Thompson who is the CEO
of the company says to Peter that he would receive 25% discount on the price of the tickets of
the next two concerts in the presence of the longstanding relation between them; and this whole
situation can contribute to the threat of audit principles. According to APES 110, Section 260,
Gifts and Hospitality, if an auditor accepts any kind of gift, hospitality and offer from the audit
client while providing the professional services, it can contribute towards the threat to non-
compliance with the required standards of audit ethics (apesb.org.au 2018). In the presence of
this threat to audit ethics, there is a possibility for the violation of the standard of APES 110,
Section 110, Integrity as it can question the ability of the auditor to be straightforward and
honest while providing the professionals services. Thus, in the presence of the above-discussed
audit guidelines, it can be concluded that there will be the violation of the standard of APES 110,
Section 110, Integrity due to the acceptance of the certain offer from the CEO of the audit client
company (Han Fan, Woodbine and Cheng 2013).
Requirement B
According to the given information, Jana Went has the responsibility to conduct the audit
of Gerroa Company for the first time; but the information indicates towards the fact that Jana has
conducted the audit of other companies in the same industry and for this reason, there is a high
potential for the violation of the general ethical principle of auditing. According to APES 110,
Section 140, Confidentiality, it is a prime responsibility on an auditor not to disclose the private

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business information of the audit client obtained while providing the assurance services to any
outside firm or perform without informing the client; and this regulation has connection with the
provided scenario of Jana (George, Jones and Harvey 2014). The scenario shows that Jana has
been the auditor of other companies in the same industry. At the time of conducting the audit of
those companies, Jana must have confronted with the confidential business information of those
companies. This whole aspect creates the possibility of using the obtained informant of those
other companies for the audit of Gerroa Company by Jana in the presence of some personal
interest in the audit client. For this reason, this aspect can lead to the violation of APES 110,
Section 140, Confidentiality principle of audit ethics (Martinov-Bennie and Mladenovic 2015).
Requirement C
As per the provided scenario of Jack Dack, in order to maintain the production process
along with the records of inventory, the responsibility is on Jack for the installation of a new
computer inventory system within the organization. Jack made the appointment of a computer
inventory consultant for this position due to the fact that he does not possess the required
expertise for the job. After that, Jack provides the approval to install the computer program
without the review of the work of the consultant as there was less time along with highly
technical nature of the job. The guiding principles of APES 110, Section 130, Professional
Competence and Due Care states that the auditor must possess the required knowledge and skill
for providing the professional services related to audit and assurance to the audit client (Van
Akkeren and Tarr 2014). At the same time, this regulation states that the auditors are needed to
act diligently by complying with the required technical standard. Thus, the presence of this
regulation puts the obligation on Jack hat he should have accepted the job in the presence of the
required knowledge and competency. Thus, this aspect leads to the violation of ethical principle

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of APES 110, Section 130, Professional Competence and Due Care. Apart from this, the
requirement for Jack was to review the work of the hired consultant that contributes towards the
breach of the general ethical audit principle (Chapple et al. 2014).
Requirement D
It can be seen from the givens scenario that there is a involvement of four chartered
accounting firms in a review program of quality assurance working paper. In this review, there is
analysis and evaluation of the working papers of the other companies with the aim to discuss
both the strengths and weaknesses of audit. This given scenario can lead to the violation fo the
general ethical principle of auditing. It needs to be mentioned that the quality assurance
programs help to improve the audit quality of the companies. However, one should not ignore
the confidentiality aspect in the given scenario of quality assurance program. According to APES
110, Section 140, Confidentiality, it is a prime requirement on an auditor not to disclose the
secret business information of the audit client obtained while providing the assurance services to
any outside firm or perform without informing the client (de Burgh-Woodman et al. 2015). This
particular regulation can be applied in the given scenario. It can be seen from the provide
information that the quality review program involves in the analysis of the audited papers of the
companies and this will provide the companies with the chance to review the confidential
business information that is against the regulation of APES 110. Thus, it can be said in the
presence of this information that there can be the breach of the regulation of APES 110, Section
140, Confidentiality due to the quality assurance review program (Houghton et al. 2013).
Requirement E
The provided scenario indicates towards the fact that Johan Geldens is a chartered
accountant by profession and he has established an insurance agency in order to complement

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different kinds of services like taxation, superannuation and others. Janina Borg takes care of the
business activities of the businesses of Johan due to the presence of his highly competent nature.
For this reason, the responsibility of Janina is the review of the insurance adequacy of the client.
It needs to be mentioned that this situation can lead to the violation of ethical principle of
auditing. According to APES 110, Section 220, Conflicts of Interests, the responsibility is on the
auditor for the identification of the special situation that can contribute towards the development
of conflict of interest in the companies (Townsend 2014). It can be seen from the provided
situation that there is the potential for the development of the conflict of interest due to the fact
that there can be deficiencies in the process of the internal control of the client organizations and
thus, Johan is discussing the adequacy of insurance with Janina. At the same time, it needs to be
mentioned that Johan discloses the crucial financial information of the business of his audit
clients with Janina at the time to discuss about the adequacy of insurance of the clients. APES
110, Section 140, Confidentiality puts the responsibility on the auditors for not disclosing any
private business information. Thus, it can be said in the presence of this regulations that the
actions of Johan can lead to the violation of APES 110, Section 140, Confidentiality (Menzel
2013).
Requirement F
According to the provided scenario, besides providing the audit and assurance related
services, Edith Bailey also provides their customers with different non-audit services like
management advisory services, taxation related services and others. In the presence of only two
accounting and audit firm in the town, Edith Bailey has been providing these services for the last
ten years. The presence of all these facts can lead to the violation of the ethical principles of
audit profession. It needs to be mentioned that the regulation of APES 110 states that it is not the

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accountability of the auditors to provide the non-audit services to the audit clients; and in case
they provide non-audit services, they are needed to consider the extent to which it will not affect
the audit ethical principles. For this reason, the requirement for Edith Bailey is the determination
of the level to which it will not create any negative effect on the ethical principles of audit
profession. As per APES 110, Section 120, Objectivity, auditors must not compromise their
professional judgment and opinion in the presence of any personal interest (Marley and Pedersen
2015). It can be happened in case of Edith Bailey can compromise his professional audit
judgment in order to provide non-audit services. Thus, it can create the violation of APES 110,
Section 120, Objectivity.
Question 2
Situation 1
The provided scenario indicates towards the fact that Keith Barnes is working for
Andrew Capizzi Chartered Accounting firm for the last five years and has been appointed as the
auditor of Maitland Coal Company. As per the scenario, the company is using the most cheap
legally permissible method for the disposal of waste and has not complied with the regulation of
anti-pollution of the government. Due to all of these reasons, some unfavorable articles have
been published about the company.
While providing the professional services in auditing, the auditors are needed to follow
the regulations related to auditor’s independence. There are five types of audit independence
threat; they are Self-interest threat, Self-review threat, Advocacy threat, Familiarity threat and
Intimidation threat. The auditors are needed to be independent from mind and appearance in the
audit profession. It can be observed that the managements of the client organizations often create

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direct or indirect pressure on the auditors so that they cannot conduct the audit in the most
objective manner. The analysis of the provided situation shows that the management of the client
organizations has not put any kinds of pressure on Keith Barnes that stops him from acting
objectively (Sarwoko and Agoes 2014).
It needs to be mentioned in this context that analysis and inspection of the financial
statements of the companies with the aim to find any kind of material missstements is the main
responsibility of the auditors; and the same rule is also applicable for Keith Barnes. Thus, it
needs to be mentioned that it is not his responsibility to provide the client with the advice in the
aspects of illegal waste disposal and non-compliance with environmental law. For this reason,
this situation does not involve the violation of auditor’s independence (Gul, Wu and Yang 2013).
Situation 2
It can be seen from the provide scenario that there are some major violence of auditor’s
independence. The scenario states that Kirk Wilson who is the CEO of Moonies has made 20%
of the previous year’s audit fee due because he has not received his fees. This scenario indicates
towards the intention of the CEO to create indirect pressure on Ken Smith by not paying the
whole audit fee and the intention can be to obtain sympathetic audit result from the auditor.
According to APES 110, Section 100.12, Threats and Safeguards, there can be the progress of
the threat of audit independence in case the auditors fail to act in the objective manner due to any
personal interest or any pressure (Ball, Tyler and Wells 2015). As per this regulation, the above
discussed situation has the potential for the threat of Self-interest threat of audit independence.
The provide case study also shows the situation of Emma Feeney. As per APES 110,
Section 100.12, there can be the development of Self-review threat of audit independence in case

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an auditor does not involve in the appropriate evaluation of the working papers and audit results
of the previous audit partner. For this reason, the situation of Emma can lead to the self-review
threat of audit independence in case Emma does not properly evaluate the audit results of the
previous audit partner (Carey, Monroe and Shailer 2014).
Moreover, the provided situation also indicates towards the situation of Teena Dean. In
this context, there can be the development of Familiarity Threat of Audit Intendance when the
audit partner has any relationship with the audit client; and thus the situation of Teena Dean can
lead to the auditor’s independence threat. It can also be seen from the provided information that
the company is not complying with the required standard for inventory valuation and reserahgc;
and this can lead to the violation of Self-interest Threat of Audit Independence as per APES
110, Section 100.12 (Clout, Chapple and Gandhi 2013).

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References
Apesb.org.au. (2018). APES 110 Code of Ethics for Professional Accountants. [online] Available
at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 17
Sep. 2018]
Ball, F., Tyler, J. and Wells, P., 2015. Is audit quality impacted by auditor
relationships?. Journal of Contemporary Accounting & Economics, 11(2), pp.166-181.
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.
Chapple, L., Crofts, P., Ferguson, C. and Hronsky, J., 2014. Professional independence and
attachment bias: an exploratory study.
de Burgh-Woodman, H., Saha, A., Somasundram, K. and Torrisi, A., 2015. Sowing the Seeds for
Ethical Business Leadership through Business Education. In Business Law and Ethics: Concepts,
Methodologies, Tools, and Applications (pp. 57-79). IGI Global.
George, G., Jones, A. and Harvey, J., 2014. Analysis of the language used within codes of ethical
conduct. Journal of Academic and Business Ethics, 8, p.1.
Gul, F.A., Wu, D. and Yang, Z., 2013. Do individual auditors affect audit quality? Evidence
from archival data. The Accounting Review, 88(6), pp.1993-2023.
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.

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Houghton, K., Ng, J., Jubb, C. and Kend, M., 2013. The future of audit: Keeping capital markets
efficient (p. 700). ANU Press.
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Townsend, S.R., 2014. The regulation of auditor ethical behaviour in Australia: the problem of
conflicts of interest and proposal for structural reform.
Van Akkeren, J. and Tarr, J.A., 2014. Regulation, compliance and the Australian forensic
accounting profession. Journal of Forensic and Investigative Accounting, 6(3), pp.1-26.