Auditing Standards and Ethical Behaviour in Firms

This assignment delves into the relationship between auditing and reporting standards, and their impact on a firm's ethical behavior. It specifically investigates how national culture can moderate this relationship. Students are expected to analyze existing research and provide insights into the effectiveness of auditing standards in promoting ethical conduct within firms across different cultural contexts.

Running head: AUDITING THEORY AND PRACTICE
AUDITING THEORY AND PRACTICE
Name of the Student
Name of the University
Author’s Note

1AUDITING THEORY AND PRACTICE
Executive Summary
The main evaluations of the study have been able to address the legal and the ethical issues
associated to the audit division at Miller Yates Howarth (MYH). The main considerations of the
study will consider the application of AAA decision model which explains the ethical issues
considered in the study. It various types of the important considerations made in the study has
been taken into account by the use of this model. The latter part of the study has been seen to
apply the appropriate case law with the recommendations of the managing partners of MYH. The
various types of the findings are seen to be based on the “APES 110 Code of Ethics for
Professional Accountants”. The value comparison is considered as per “APES 110 Code of
Ethics for Professional Accountants”, this consideration has been further based on “Section 310
conflicts of interest” vs. “AASB 102 on valuation of inventories”. The application of the case
study has been considered with Esanda Finance Corporation Ltd v Peat Marwick Hungerfords
(1997). The main legal issue has been seen with overvaluation of the inventory as per the income
needs and the gross profit. The overvaluation of the retained earnings has been further
considered as per the statements needed to be valued appropriately.

2AUDITING THEORY AND PRACTICE
Table of Contents
Introduction......................................................................................................................................3
Answer to Question1.......................................................................................................................3
Answer to Question 2......................................................................................................................6
Conclusion.......................................................................................................................................8
References......................................................................................................................................10

3AUDITING THEORY AND PRACTICE
Introduction
“American Accounting Association (AAA)” has been founded in 1916 and is seen to be
having a rich and reputable history for holding premier community of academicians in Australia.
The diversity among the membership has been further able to create environment with
appropriate collaboration and innovation.
The report has intended to address the legal and the ethical issues associated to the audit
division at Miller Yates Howarth (MYH). The main considerations of the study will consider the
application of AAA decision model which explains the ethical issues considered in the study. It
various types of the important considerations made in the study has been taken into account by
the use of this model. The latter part of the study has been seen to apply the appropriate case law
with the recommendations of the managing partners of MYH.
Answer to Question1
AAA Model
Determination of Facts
As per the given study it has been discerned that MYH accounting firm, mainly operates
in NSW and Queensland. Morgan Fertilisers Pty is recognized as a long standing client with the
operations in Tamworth and Toowoomba. Morgan Fertilizers has been seen to recently change
the contractor for waste management for Dumparound Ltd. Jacqui who is one of the senior
auditors is aware of the community activities and local council information for the investigations
made in terms of the Dumparound Ltd. toxic level in one of the sites (Baikovs & Zariņš, 2013).

4AUDITING THEORY AND PRACTICE
Identification of ethical issues
The ethical consideration has been charged based on the Morgan Fertilisers Pty who has
been considered to change its contractor to Dumparound Ltd. for waste management. The ethical
factor has been based on Jacqui Leak, for investigating the local council for toxic level at one off
the sites. The contract between Morgan Fertiliser and Dumparound has been able to specify for
any damages which has not been signed by Dumparound. The contract for this has been further
seen to be held based on 3 years and Jacqui is concerned about the implications (Viegas et al.,
2013).
Identification of major principals and rules, values
The prevailing form of the ethical issues and the main form of the legal issues has been
considered as per the “AASB 102 on valuation of inventories”. The valuation cost has been
further seen to be considered as per the asset needs and the same has been carried forward for
revenue recognition. The main code applicable has been based on “APES 110 Code of Ethics
for Professional Accountants”, this has been further seen to be based on “Section 310 conflicts
of interest”. The main applicability of this rule has been considered as per the legitimate support
of MYH and the various types of the ethical objectives which has been considered as per the
application of appropriate procedure in the company (Sookhaket al., 2014).
Specification of the alternatives
The important specification has been seen to be considered with the adjustment of the
inventories between the inventories and the year ending date along with the appropriate
recording of the physical count. Furthermore, the auditor is needed to analyze the inward and the

5AUDITING THEORY AND PRACTICE
outward movement of stocks with the date of cutoff until the same has been validated on the
closing year date (Espinosa-Pike & Barrainkua-Aroztegi, 2014).
Comparison of values and alternatives
The value comparison is considered as per “APES 110 Code of Ethics for Professional
Accountants”, this consideration has been further based on “Section 310 conflicts of interest” vs.
“AASB 102 on valuation of inventories”. The APES rulings has been applied based on the
responsibility of the members and needs of the organization with the professional obligations
which will be able to comply with the fundamental principle in conflict. The members of the
business further needs to support the rules among the employer with the appropriate procedure.
The considerations of the AASB 102 have measured the cost of realizable value which
has been carried forward with the revenue recognition. The inventory cost is seen to be capable
of various types of the evaluation which is based on factors like cost in making of an asset ready
for use (Tormo-Carbó et al., 2016).
Identification of the alternatives access the consequences
The inventory value based on the case has overstated the income needs and the gross
profit. The overvaluation of the retained earnings has been further considered as per the
statements needed to be valued appropriately. The equity value and the value of the total assets
have been considered as per the various types of the overvaluation in the retained earnings
(Vosselman, 2013).
Recommended Decision

6AUDITING THEORY AND PRACTICE
Oasis Ltd. needs to bring forward the issue of negligence charges during the conduction
of the audit at MYH. This however, needs to be based on the sole decision of the court to deal
with what MYH may or may not consider the matter related to negligence.
Answer to Question 2
Report for the managing partners of MYH
The various types of the accounting standards needs to be based on “AASB 102 on
valuation of inventories”, the main issue has been seen to be based on recognition of the value
which has been carried forward as per recognition of the revenue. The needs associated to the
inventory have been further seen to be considered based on the realizable cost or the cost
whichever is lower (Zengin Karaibrahimoglu & Guneri Cangarli, 2016). The inventory cost has
been based on purchase cost, conversion cost and the cost in making of asset. The cost of
inventory may or may not be based on the conversion cost, purchase cost and the cost in making
an asset. The cost of inventory may not be recoverable in case the inventory is damaged or
obsolete. The inventory cost has been not expected to recover the various types of the evaluated
expenses and the expenses assessed as per the sales policy. The consideration of the recording of
inventory has been based on the cost of net realizable cost which must not be carried forward
along with the surplus amount from the realization of the sales (Boyce, 2014).
If the inventory is overvalued the net income and gross profit needs to be overstated. The
impact of the overvaluation of the retained earnings has been considered as per the equity of the
stakeholders and total assets. The net income has been also overvalued in case the inventory in
less number with the COGS along with the charges for the revenue. The inflated amount of net
profit has indicated on the equity of the stakeholders and the retained earnings. The

7AUDITING THEORY AND PRACTICE
overvaluation of the inventory in the inventory towards the finishing of the inventory has been
changed to the start of the inventory and the finishing of the accounting period which has been
turned into the accompaniment of the designated time frame. The period for the cost of goods
has been considered as per the COGS and the period of net income has been considered to be too
low (Irawan & Mcintyre-Mills, 2016).
The given case of Morgan Fertilisers, has been able to carry the high amount of inventory
in the balance sheet which has been taken over by Oasis Ltd. However, after two months the
company’s inventory has been overstated. It has been further discerned that more than 50% of
the inventory was considered obsolete and was not included in the valuation count. The main
considerations of the inventories have been further seen to be based on the actual values.
Moreover, MYH needs to value the stock as appropriate by the management (Davidson &
Stevens, 2013).
The physical inventories count has been seen to be main responsibility of management.
The main duty of the management is to build the strategy for checking the inventories once in
every year for establishing the formulation of the financial statement. The auditor should focus
on completing the review with the appropriate techniques which has been considered suitable for
the physical inventory and confirmation of audit (Nawal Kasim, 2013). The auditor further needs
to be ready with the stock report and be able to conduct the survey which has been seen to be
considered as per the recording of the changes pertaining to dependability of such procedures.
The auditor is not allowed to opt for the inventory count which has been seen to be available for
the various types of the alternative measures and the various types of the adjustments which
needs to be made in the inventory and recorded accurately (Chou, 2015).

8AUDITING THEORY AND PRACTICE
The auditor needs to review the different types of the information of the management for
internal control, re-counting, tagging, stock sheets and identification of the obsolete and the
rejected items. It also needs to be considered based on the cut off procedures and the valuation of
the WIP with the movement of the inventory. The general rule of the auditor has been seen in
terms of WIP valuation of the moving inventory. As per the general rule of thumb, the auditor is
not seen to be liable for the third party clients (Ryoo, Rizvi, Aiken, & Kissell, 2014). Some of
the main considerations for the third party clients have been listed below as follows:
 The evaluation of the financial statement is not seen to be true
 The auditor has been seen to be recklessly or intentionally ignored the fact which has
been seen to be untrue
 The errors has been committed in the preparation of the final accounts
 The main form of the negligence has been considered on the part of the auditor’s
employee
 The preparation of the financial statement intentionally taken onto consideration with the
third party taking the appropriate action (Horngren, Datar, & Rajan, 2015).
The application of the case study has been considered with Esanda Finance Corporation Ltd v
Peat Marwick Hungerfords (1997). This has been seen to be based on the money lent by the
corporation and the various considerations of the audit report. The default in the payment for
Esanda was brought forward by the auditors after the issue of the audit report, which has
breached the various types of mandatory accounting standard (British Psychological Society,
2014).

9AUDITING THEORY AND PRACTICE
Conclusion
The given case has been associated to the auditor of MYH for the correct verification of the
stock and accepting of the valuation which has been not considered for the obsolescence of the
stock. Oasis Ltd. has been under considerable pressure for the audit completion process and in
the limited time period within one month from the fate given in the balance sheet. It has been
further discerned that Oasis Ltd. has been able to get under significant pressure from the clients
for the completion of audit with the limited time period and date given in the balance sheet.
Oasis Ltd. has been able to bring forward the various issues associated to the negligence charges
for the audit of MYH.

10AUDITING THEORY AND PRACTICE
References
Baikovs1, A., & Zariņš2, I. (2013). (3) PHILOSOPHICAL, LEGAL AND GENERAL
THEORETICAL ISSUES OF LEGAL LIABILITY. Journal of Entrepreneurship and
Sustainability Issues, 1(11), 23–36. https://doi.org/10.9770/jesi.2013.1.1(3)
Boyce, G. (2014). Accounting, ethics and human existence: Lightly unbearable, heavily kitsch.
Critical Perspectives on Accounting, 25(3), 197–209.
https://doi.org/10.1016/j.cpa.2013.10.001
British Psychological Society. (2014). Code of Human Research Ethics. British Psychological
Society, 1(1), 1–44. https://doi.org/180/12.2014
Chou, D. C. (2015). Cloud Computing Risk and Audit Issues. Computer Standards & Interfaces,
42, 137–142. https://doi.org/10.1016/j.csi.2015.06.005
Davidson, B. I., & Stevens, D. E. (2013). Can a code of ethics improve manager behavior and
investor confidence? An experimental study. Accounting Review, 88(1), 51–74.
https://doi.org/10.2308/accr-50272
Espinosa-Pike, M., & Barrainkua-Aroztegi, I. (2014). A Universal Code of Ethics for
Professional Accountants: Religious Restrictions. Procedia - Social and Behavioral
Sciences, 143, 1126–1132. https://doi.org/10.1016/j.sbspro.2014.07.565
Horngren, C. T., Datar, S. M., & Rajan, M. V. (2015). Cost Accounting: A Managerial
Emphasis. Issues in Accounting Education (Vol. 25).
https://doi.org/10.2308/iace.2010.25.4.789

11AUDITING THEORY AND PRACTICE
Irawan, A. B., & Mcintyre-Mills, J. (2016). Application of Critical Systems Thinking to
Performance Auditing Practice at the Indonesian Supreme Audit Institution: Issues and
Challenges. Systems Research and Behavioral Science, 33(1), 24–44.
https://doi.org/10.1002/sres.2325
Nawal Kasim, Z. M. S. (2013). Emerging issues for auditing in Islamic Financial Institutions :
Empirical evidence from Malaysia. Journal of Business and Managment, 8(5), 10–17.
Ryoo, J., Rizvi, S., Aiken, W., & Kissell, J. (2014). Cloud Security Auditing: Challenges and
Emerging Approaches. IEEE Security & Privacy, 12(6), 68–74.
https://doi.org/10.1109/MSP.2013.132
Sookhak, M., Talebian, H., Ahmed, E., Gani, A., & Khan, M. K. (2014). A review on remote
data auditing in single cloud server: Taxonomy and open issues. Journal of Network and
Computer Applications. https://doi.org/10.1016/j.jnca.2014.04.011
Tormo-Carbó, G., Seguí-Mas, E., & Oltra, V. (2016). Accounting Ethics in Unfriendly
Environments: The Educational Challenge. Journal of Business Ethics, 135(1), 161–175.
https://doi.org/10.1007/s10551-014-2455-6
Viegas, C. V., Bond, A., Duarte Ribeiro, J. L., & Selig, P. M. (2013). A review of environmental
monitoring and auditing in the context of risk: Unveiling the extent of a confused
relationship. Journal of Cleaner Production, 47, 165–173.
https://doi.org/10.1016/j.jclepro.2012.12.041
Vosselman, E. G. J. (2013). Accounting, Accountability, and Ethics in Public Sector
Organizations: Toward a Duality Between Instrumental Accountability and Relational

12AUDITING THEORY AND PRACTICE
Response-Ability. Administration & Society, 1–26.
https://doi.org/10.1177/0095399713514844
Zengin Karaibrahimoglu, Y., & Guneri Cangarli, B. (2016). Do Auditing and Reporting
Standards Affect Firms’ Ethical Behaviours? The Moderating Role of National Culture.
Journal of Business Ethics, 139(1), 55–75. https://doi.org/10.1007/s10551-015-2571-y