Auditing and Ethics: Case Study on Smith Limited's Financial Statement

This presentation discusses the case of Smith Limited's financial statement audit and the discovery of errors by Adam Brown. It explores the threats to fundamental principles and identification of safeguards. The conclusion suggests that Brown should communicate with the previous auditor through the client to prevent any self-review or familiarity threat.

AUDITING AND ETHICS
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SUMMARY OF THE FACTS
 This presentation reveals that issues in the
financial statement of Smith Limited while
audit was implemented by the member of
the audit firm.
 Adam Brown has discovered some errors as
far as accounts for previous year 2008 and
2009 are concerned. The dilemma is how
Brown should proceed (Chan, & Vasarhelyi,
2018).

CASE IS CONCERNED WITH
 Member in public practice
 The engagement partner in Lew-Jones-Jodie
and have audited the accounts of Smith
Limited for 6 years until he resigned from the
practice 1 year ago.
 Adam Brown discovered errors as far as
accounts for previous year 2008 and 2009
are concerned and showcased that it had
been accompanied with the inherent and
detention risk. (Christensen, et al. 2018).

THREATS TO FUNDAMENTAL
PRINCIPLES
 The threats may arise to these fundamental
principles include:
 Integrity- Involvement in the manipulation of
financial data by Adam.
 Objectivity
 Professional competence and due care- lack
of work effectiveness of Adam.
 Professional behaviour- Not Complying with
the audit and assurance program.

IDENTIFICATION OF SAFEGUARDS
 As per the relevant provisions of law Adam
Brown cannot proceed to communicate with
the previous auditor directly.
 He needs to involve the client and then do
the communication. This shall prevent any
self-review or familiarity threat.
 Further, proper independence needs to be
exercised irrespective of the personal relation
between Brown and previous auditor.

CONCLUSION
 What should Adam Brown Do ?
 Adam Brown must go and ask the
management of Smith Limited to let him
communicate with the previous auditor
regarding the discrepancies observed in the
previously finalised and signed accounts by
the previous auditor.

REFERENCES
 Chan, D. Y., & Vasarhelyi, M. A. (2018). Innovation and practice of
continuous auditing. In Continuous Auditing: Theory and
Application (pp. 271-283). Emerald Publishing Limited.
 Christensen, B. E., Eilifsen, A., Glover, S. M., & Messier, W. F.
(2018). The Effect of Materiality Disclosures on Investors’
Decision Making.
 Heikal, M., Khaddafi, M., & Ummah, A. (2014). Influence analysis
of return on assets (ROA), return on equity (ROE), net profit
margin (NPM), debt to equity ratio (DER), and current ratio (CR),
against corporate profit growth in automotive in Indonesia Stock
Exchange. International Journal of Academic Research in
Business and Social Sciences, 4(12), 101.
 Lakis, V., & Masiulevičius, A. (2017). ACCEPTABLE AUDIT
MATERIALITY FOR USERS OF FINANCIAL STATEMENTS. Journal of
Management, 2(31).
 Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial
accounting for managers. New York: McGraw-Hill/Irwin.