Auditing Theory and Practice - Desklib .

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
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1AUDITING THEORY AND PRACTICE
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to case A:..................................................................................................................2
Answer to case B:...................................................................................................................2
Answer to case C:...................................................................................................................3
Answer to question B:................................................................................................................3
References:.................................................................................................................................5

2AUDITING THEORY AND PRACTICE
Answer to question 1:
Answer to case A:
When it is noticed that the total fees from the audit client constitute a large portion of
the total fees of the firm stating their audit opinion, the reliance on that client and concerns
relating to losing the client results in self-interest or intimidation threat. The significance
relating to such threat should be assessed and safeguarded when it becomes necessary to
eliminate the threat at the acceptable level (Hayes, Gortemaker and Wallage 2014). A self-
interest or intimidation threat is created by Simpson Co when it refused to agree with the
increase in the audit fees in spite of the increase in the size of firm. This is because the audit
fees produced from the audit client constitute a large portion of the revenue for the Zara Co.
Evidences suggest that Simpson Co ignored the materiality level and did not carried out the
review procedure. This concludes that Simpson Co did not complied with laws and
regulations and the auditor should document as well as discuss the findings with
management. Simson Co did not included the sample of non-current assets for physical
verification which results in the materiality of the financial interest (De Paula 2016). As only
part of population was sampled, it restricts the ability of the audit team towards physical
verification of the assets and ultimately limiting the scope of audit.
Answer to case B:
Outsourcing the work of Simpson Co to overseas office of Zara might require the
third party to make decision on behalf of the client or might create a perception which would
require the service provider to act in capacity of the management (Kumar and Sharma 2015).
If the Zara & Co were to assume this kind of responsibility for the auditing client, then it
would result in threat to objectivity. To avoid the risk of assuming the management
responsibility, Simpson & Co should make sure that Zara & Co has the appropriate procedure