Auditing Theory and Practice

This article discusses various scenarios related to APES 110 Code of Ethics for Professional Accountants and provides answers to auditing theory and practice questions. It covers topics such as confidentiality, objectivity, integrity, conflict of interest, and professional behavior. The article also explains the different types of audit opinions that an auditor can issue.

Running head: Auditing Theory and Practice
Auditing Theory and Practice

Auditing Theory and Practice 1
Contents
Answer to Q1.(a).........................................................................................................................................2
Answer to Q1.(b).........................................................................................................................................2
Answer to Q1.(c).........................................................................................................................................2
Answer to Q1.(d).........................................................................................................................................2
Answer to Q1.(e).........................................................................................................................................3
Answer to Q1.(f)..........................................................................................................................................3
Answer to Q1.(g).........................................................................................................................................3
Answer to Q1.(h).........................................................................................................................................3
Answer to Q2.(a).........................................................................................................................................4
Answer to Q2.(b).........................................................................................................................................4
Answer to Q2.(c).........................................................................................................................................4
Answer to Q2.(d).........................................................................................................................................4
Answer to Q2.(e).........................................................................................................................................4
Answer to Q2.(f)..........................................................................................................................................5
Answer to Q2.(g).........................................................................................................................................5
Answer to Q2.(h).........................................................................................................................................5
References...................................................................................................................................................6

Auditing Theory and Practice 2
Answer to Q1.(a)
Mordale Accounting firm has clearly violated the ‘Principle of Confidentiality’ as per Section
140 of APES 110 Code of Ethics for Professional Accountants. This principle states that the
members should restrict themselves from disclosing the professional information outside the firm
or to the third parties without a specific or proper approval from their clients (Martinov-Bennie
and Mladenovic, 2015).
Answer to Q1.(b)
As per the given situation, Jan Dungog a CPA has been appointed by a local accounting firm
without informing her previous employer. As per section 120 ‘Objectivity ‘ of APES 110 Code,
the members should not compromise their business or professional judgment due to bias, undue
influence of others or conflict of interest.
Answer to Q1.(c)
As per the given situation, Wendell Sailor has violated section 110 ‘Integrity’ of APES 110 Code
which imposes the obligations on the members that they should be honest and straightforward in
all their professional and business relationships.
Answer to Q1.(d)
As per the given case, Judith Durham has violated the principles of Section 220 ‘Conflict of
Interest ‘ of Part B of APES 110 Code. It states that the members in public practice should take

Auditing Theory and Practice 3
proper steps to assess the situations which could pose a conflict of interest with the fundamental
principles.
Answer to Q1.(e)
Ernie Dengate has clearly violated the principles of section 110’ Integrity ‘ which imposes an
obligation on its members to be straightforward and honest in all the professional and
commercial dealings.
Answer to Q1.(f)
Fred Nerk should be straightforward and honest in all his professional and commercials dealings.
As he provides audit and non audit services to his clients so he should not knowingly associate
with the reports, communications and returns which contain misleading statements .
Answer to Q1.(g)
Allgood Chartered Accounting firm should maintain confidentiality as per section 140 of the
APES 110 code. They should restrict themselves from disclosing any confidential information
which is acquired through commercial and business relationships (APESB, 2017).
Answer to Q1.(h)
James Jameson has clearly violated the principles of section 150 ‘Professional Behavior’ of
APES 110 code as this principle imposes a condition on all its members to comply with the
applicable laws and regulations. They must avoid any omissions and commissions which would
bring disregard to the profession.

Auditing Theory and Practice 4
Answer to Q2.(a)
In the given case, the auditor should provide a qualified opinion as they were not able to obtain
confirmations from eight consumers of the client.
Answer to Q2.(b)
The auditor would give a disclaimer opinion as he was restricted by the client to verify the
property, plants and equipment which constitute 35% of the total assets. It would be issued due
to the absence of insufficient assistance from the management (Newton et al., 2015).
Answer to Q2.(c)
The auditor would issue an adverse opinion as the management has not included the contingent
liability in its statements. It is a case of gross misstatement and a fraud in preparation of the
financial records of the company.
Answer to Q2.(d)
The auditor would issue a disclaimer opinion as the management has failed to apply any internal
controls for the recording of the cash transactions conducted in the company.
Answer to Q2.(e)
The auditor shall issue an unqualified opinion as the information presented in the financial
statement is free from any errors.

Auditing Theory and Practice 5
Answer to Q2.(f)
The auditors will issue an adverse opinion as the company has not followed the Australian
Accounting Standards for preparation of its financial statements since its inception.
Answer to Q2.(g)
The auditor will issue a qualified opinion as the client has not followed the Australian
Accounting Standards by following the LIFO accounting method of inventory (Tsipouridou and
Spathis, 2014).
Answer to Q2.(h)
The auditor will issue an unqualified opinion along with an ‘other matter’ paragraph which will
explain the reasons for the doubt regarding the continuation of the client as a going concern.

Auditing Theory and Practice 6
References
APESB(2017) Compiled APES 110 Code of Ethics for Professional Accountants[online].
Available from:
https://www.apesb.org.au/uploads/home/20092017152005_Compiled_APES_110_Sept17.pdf
[Accessed 12th October 2018].
Martinov-Bennie, N. and Mladenovic, R.( 2015) Investigation of the impact of an ethical
framework and an integrated ethics education on accounting students’ ethical sensitivity and
judgment. Journal of Business Ethics. 127(1), pp.189-203.
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.
Tsipouridou, M. and Spathis, C.(2014) Audit opinion and earnings management: Evidence from
Greece. In Accounting Forum . 38(1), pp. 38-54.