Auditing: Importance of Actual and Perceived Independence

Running head: AUDITING
Auditing
Name of the Student
Name of the University
Author’s Note

1AUDITING
Table of Contents
Answer to Question 1......................................................................................................................2
Requirement a..............................................................................................................................2
Requirement b..............................................................................................................................2
Answer to Question 2......................................................................................................................3
Answer to Question 3......................................................................................................................5
Answer to Question 4......................................................................................................................6
Answer to Question 5......................................................................................................................8
Requirement a..............................................................................................................................8
Requirement b..............................................................................................................................9
References......................................................................................................................................10

2AUDITING
Answer to Question 1
Requirement a
Actual Independence – Actual independence is considered as the independence of the auditors
or the independence of mind. It is concerned with the state of mind of the auditors and ability of
the auditors in acting in specific situations. Actual independence is important for auditing since
auditors who have actual independence can make independent audit decisions. It is crucial for
the overall success of the audit program (Tepalagul and Lin 2015).
Perceived Independence – Perceived independence is what a third party would perceive about
the auditor as being independence so that the auditor can be perceived by others to be
independent. Perceived independence is considered as crucial for the auditors since the presence
of this independence diminishes the possibility for the auditors to have any obligation or interest
in the audit client which is a crucial success factor in audit (Carey, Monroe and Shailer 2014).
Requirement b
i. Bob is responsible for copying the confidential business information of Club Casino
while not providing the appropriate reference and it indicates the absence of proper
approval. This action of Bob violates the Confidentiality principle of auditing which
puts the obligation on the auditor not to disclose the confidential business information of
audit clients acquired in the absence of proper approval (apesb.org.au 2019). As an
alternative action, Bob should have requested the management of Club Casino for using
the information.
ii. Wendy performed the company secretarial duties in Ace Limited in spite of being their
audit engagement partner. As per APES 110, Section 290.147 and 290.148, the works of

3AUDITING
company secretary include administrative duties such as company management and
maintenance of many organizational records which create a close association between the
auditor and the audit client (apesb.org.au 2019). This can breach auditor’s Independence
and can create Self-Review and Advocacy threats. The alternative actions for Wendy
would be to refuse performing the company secretarial duties or to be removed from the
engagement team.
iii. The job of factory foreman includes the supervision of internal business environment of
the businesses and Leo’s responsibility is to test the internal control of cash payments
which has relation with the job of his father. According to APES 110, Section 290.127,
the presence of this personal relationship between Leo and his father can violate audit
Independence and can lead to Self-interest, Familiarity and Intimidation threat
(apesb.org.au 2019). The alternative action would be not to accept the engagement job in
the company by Leo.
iv. Chan & Associates accepts furniture as well as shareholding in an unlisted company
from Classic Reproduction Pty Limited against their due fees. As per APES 110, this
incident directly leads to the violation of auditor’s Independence by creating Self-
Interest threat. The alternative action would be not to accept these gifts against the due
audit fees (apesb.org.au 2019).
Answer to Question 2
According to the provided situation, it is needed for the audit partner to take into account
certain steps and factors before accepting the appointment and they are mentioned below: