Auditing: APES 110 Code of Ethics for Professional Accountants

This article discusses the APES 110 Code of Ethics for Professional Accountants and its application in auditing. It covers various requirements and ethical principles related to auditing, including referral fees, confidentiality, audit independence, marketing professional services, and audit fees. The article also provides insights into different types of audit opinions, such as Disclaimer of Opinion, Qualified Audit Opinion, and Adverse Audit Opinion.

Running head: AUDITING
Auditing
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).....................................................................................................................3
Requirement (e)......................................................................................................................4
Requirement (f)......................................................................................................................4
Question 2..................................................................................................................................5
Requirement (a)......................................................................................................................5
Requirement (b).....................................................................................................................5
Requirement (c)......................................................................................................................6
Requirement (d).....................................................................................................................6
References..................................................................................................................................7

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Question 1
Requirement (a)
As per the provided case, when providing bookkeeping, taxation and other services to
Luner Ltd, Alfred Jarmon recommends his clients to buy the computer equipments from
Computer Services as he receives 10% commission from the shop. As per APES 110,
Section 240.5 Referral Fees and Commissions, when an auditor receives commission from a
third party for selling the goods or services of that party, it leads to the creation of Self-
interest threat of audit objectivity and professional services and due care (apesb.org.au 2019).
In the provide situation, there is a development of the self-interest thereat due to the fact that
the Alfred Jarmon has self-interest in his audit client as he wants to earn commission. This
interest can prevent the auditor to perform the audit in the most objective manner (Hossai et
al. 2016). Hence, in this situation, Alfred Jarmon breaches the code of APES 110, Section
240.5 Referral Fees and Commissions while breaching the ethical principles like objectivity
and professional competence and due care.
Requirement (b)
As per the given case, Wrench and Company keeps their audit clients’ information in
their office computer which the clients of the company can use when required. APES 110,
Section 140 Confidentiality puts the obligation on the auditors not to disclose the
confidential business information of the audit clients obtained while providing professional
services to any third party when there is not any proper approval (apesb.org.au 2019). It can
be seen from the provided case that Wrench and Company is providing the access of the
computer which has the confidential business information of their clients to other clients in
the absence of proper approval from the clients (Han Fan, Woodbine and Cheng 2013). Due

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to this aspect, Wrench and Company violates the principle of Confidentiality while
breaching the ethical code of APES 110, Section 140.
Requirement (c)
As per the given case, Katrina Ng is a non-profit entity’s audit manager and the
member of Board of Directors of a not-for-profit entity which is honorary in position. APES
110, Section 290.146 Serving as a Director or Officer of an Audit Client states that in case
an audit manager holds any position in the Board of Directors of another company, it will
create major audit independence threat which requires the application of the safeguard of
removing the audit managers from the assurance team (apesb.org.au 2019). However, in this
case, Katrina Ng is the honorary member of Board of Directors of a not-for-profit company
and members with honorary position neither have any role in the management of the
company nor have any responsibility to audit the financial statements. It implies that Katrina
Ng does not violate any ethical code as well as ethical principle of APES 110 (J. Clout,
Chapple and Gandhi 2013).
Requirement (d)
As per the given case, Peter Beetson provides both audit services and non-audit
services like taxation services, management advisory and others. He is the treasurer of
Northbridge Joggers Club, a not-for-profit organization. Section 290.171 of APES 110 states
that an auditor has the auditory for providing services for preparing financial statements and
accounting record to any not-for-profit organization where the characteristic of the services is
mechanical or routine for the application of safeguards to reduce the self-interest threat to the
satisfactory level (apesb.org.au 2019). According to the provided information, Peter Beetson
provides his services to the club on weekly basis that is in a routine manner. In addition, he
does not have any involvement in the services like preparation of financial statements, taking
care of the payroll, financial transaction recording, posting transactions and others. Hence,

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the actions of Peter Beetson do not involve the violation of any APES 110 ethical principles
(Louwers et al. 2015).
Requirement (e)
It can be seen from the provided scenario that Berowra Accountants are promoting
their audit advisory services through a colourful advertisement that has the picture of their
successful staffs. APES 110, Section 250, Marketing Professional Services states that threat
of non-complying with the fundamental audit principles due to the solicitation of the audit
works through advertisements as it can create self-interest threat of audit independence
(apesb.org.au 2019). Hence, the audit firms must not bring disrespect to the audit profession
by advertising their services. As per the provided information, the colourful advertisement
can create the self-interest threat of audit independence. In addition, it can hamper the
integrity as well as the professional behaviour of the audit associates in the presence of self-
interest threats. In the presence of all these reasons, it can be said that this action of Berowra
Accountants violates the ethical principles of Integrity and Professional Behaviour while
breaching the ethical codes of APES 110, Section 250, Marketing Professional Services
(Okafor and Otalor 2013).
Requirement (f)
It can be seen from the provided information that the fees of David Chatham is due
for providing the audit services for the year ended June 30, 2017 and he has started the audit
for the next year. APES 110, Section 290.233, Fees Overdue states that self-interest threat of
audit independence can be created when the audit fees are due and when the payment is not
made before the issue of audit report (apesb.org.au 2019). In this case, the auditor may not
conduct the audit in the objective manner by complying with the principles and standards of
professional competence and due care. As per the provided situation, even after the
completion of the year’s audit, David Chatham has not received the fees yet. This aspect can

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breach the principles of Objectivity and Professional Competence while violating the codes
of APES 110, Section 290.233, Fees Overdue (Tritschler 2013).
Question 2
Requirement (a)
As per the given situation, the auditors are not satisfied with the accounts balances of
four customers in the audit sample as they are unable to confirm from these four customers.
Under the audit procedures, the main responsibility of the auditors is to obtain sufficient
evidences and information about the client’s various financial aspect in order to be satisfied
that whether there is any material misstatements in them or not. When the auditors are unable
to acquire the required information about the selected items, they express Disclaimer of
Opinion as they believe that these aspects can materially misstate the financial statements.
Repetition of this scenario can be seen in the provided scenario as the auditors are unable to
obtain the required information. For this reason, the auditor will express Disclaimer of
Opinion (Tsipouridou and Spathis 2014).
Requirement (b)
As per the given scenario, there is a restriction on the auditors from the audit client to
observe the property, plant and equipment and these assets are composed of 25 percent of the
company’s total assets. One major responsibility of the auditors is to obtain information and
evidence on the material financial aspects of the companies with the aim to make sure they
are free from material misstatements. Hence, in the absence of the information and evidences
of these material financial aspects, the auditors are not able to provide the required assurance
on materiality level of financial statement (Habib 2013). The same aspect can be seen in the
provided scenario as the management of the company has restricted the auditors to observe
the property, plant and equipment so that they can gain required information. Thus, in the

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presence of this restriction, the auditor of the company will express Disclaimer of Opinion
by stating the reason (Farzinfar 2013).
Requirement (c)
According to the provided information, the management has not ensured the
necessary disclosure of a contingent liability and this liability can create material impact on
the financial statement of the company when become real liability. It can be seen that the
auditors express the Qualified Audit Opinion after reaching to the conclusion with proper
substantive and analytical tests that misstatement is there in the financial statements but it
does not materially misstate the financial statements (Stanisic et al. 2014). As per the given
case, the exclusion of the contingent liability from the financial statements by the
management does not have material impact on the financial statements of the company.
Hence, in the presence of this reason, the auditor will express Qualified Audit Opinion by
adding an extra paragraph in the report to state the reason for qualified.
Requirement (d)
It can be seen from the given case that the company does not have any adherence with
the correct accounting standards to prepare the financial statements; and the company has
material misstatements in the assets and profits. In addition, the company has not complied
with the Australian Accounting Standards as they did not amend the financial statements and
calculated the extent of misstatements. Auditors express Adverse Audit Opinion in the
absence of the client’s adherence with the required accounting standards and in the presence
of material misstatements in the financial statements (Newton et al. 2015). The investors are
not required to invest their funds in these kinds of companies. In the provided situation, the
company has not complied with the required standards and its financial statements are
materially misstated. For the presence of all these reasons, the auditor will express Adverse
Audit Opinion.

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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 21 Jan. 2019].
Farzinfar, A., 2013. Investigating the relationship between auditor’s opinion and stock return
in the companies listed at Tehran stock exchange market. Management Science Letters, 3(1),
pp.81-90.
Habib, A., 2013. A meta-analysis of the determinants of modified audit opinion
decisions. Managerial Auditing Journal, 28(3), pp.184-216.
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.
Hossain, S., Monroe, G.S., Wilson, M. and Jubb, C., 2016. The Effect of Networked Clients'
Economic Importance on Audit Quality. Auditing: A Journal of Practice & Theory, 35(4),
pp.79-103.
J. Clout, V., Chapple, L. and Gandhi, N., 2013. The impact of auditor independence
regulations on established and emerging firms. Accounting Research Journal, 26(2), pp.88-
108.
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.

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Okafor, C.A. and Otalor, J.I., 2013. Narrowing the expectation gap in auditing: the role of the
auditing profession. Research Journal of Finance and Accounting, 4(2), pp.43-52.
Stanisic, N., Petrovic, Z., Vicentijevic, K. and Mizdrakovic, V., 2014. Auditor Switching and
Qualified Audit Opinion: Evidence from Serbia.
Tritschler, J., 2013. Audit quality: Association between published reporting errors and audit
firm characteristics. Springer Science & Business Media.
Tsipouridou, M. and Spathis, C., 2014, March. Audit opinion and earnings management:
Evidence from Greece. In Accounting Forum (Vol. 38, No. 1, pp. 38-54). Elsevier.