Code of Ethics of Professional Accountant

This document discusses the code of ethics for professional accountants and explores different threats to auditor independence. It provides answers to questions related to auditing and financial statements. The document also includes references for further reading.

Running head: CODE OF ETHICS OF PROFESSIONAL ACCOUNTANT
Code of Ethics of Professional Accountant
Name of Student
Name of the University
Author Note

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CODE OF ETHICS OF PROFESSIONAL ACCOUNTANT
Table of Contents
Answer to question 1..................................................................................................................2
Answer to question 2..................................................................................................................4
Answer to question 3..................................................................................................................5
Referencing..............................................................................................................................10

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Answer to question 1.
Part 1.
This is the case of the intimidation threat, this is because the auditor is being threaten to
remove from his position if he provide a qualified report on the financial statement of the
enterprise. As per the IFAC code of ethics this kind of threat can be given by the organization
either directly or indirectly (Abdul Wahab, Mat Zain & Abdul Rahman2015).
 By the forced cancellation of contract by the client to remove auditor from performing
his duties.
 By threating auditor to drag in the court of law if he issue qualified opinion. This will
hurt the credibility of the professional accountant.
Part 2
This is the case of the familiarity threat. As per IFAC code of ethics this kind arises
when the auditor of a company has monetary interest in the business of the business. Undue
reliance on the total payments of the client, potential employment with the client.
Part 3
This is the case of the self- interest threat. As per the IFAC code of ethics when the
auditor or the associate of the family possesses a shares in the client business. This will
increase indirectly the share of profit of the auditor and his partner.
Part 4
This is the case of the familiarity threat, this happens when the client close friend or
relation is holding a key position in the client business such auditor. The auditor being a part

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of the family member will trust his client work and may not carry out his work as judiciously
as possible.
Part 5
This is the case of the advocacy threat, this situation may arise when auditor promote
a position or view on the lieu of the client. In the given case the auditor is promoting the new
issue of the shares from Client Company (Al Nawaiseh, & Alnawaiseh, 2015).
Part 6
This is the case of the advocacy threat as the auditor is representing the client in the
court of law against the third party. In this circumstances auditor would be prejudiced toward
the protecting his client against the third party law suit. Therefore the decision of the auditor
will not effective and objective as it will be biased in favor of his client.
Part 7
This is the case of intimidation, as per the IFAC code of conduct when a professional
accountant responsibility is being compromised on account of the undue pressure from the
management which is affecting the integrity, objectivity and independence of the auditor.
Part 8
This is the case of self-interest threat, this happens when the client is having the close
business relationship with the client. The client offers the auditor some potential employment
with the client.
Part 9
This is the case of the Self-review audit. Self-review threat happens when a earlier
judgment require to be examined by the professional accountant answerable for that

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judgment. For example a participant of the audit team is a director or officer of the client
(Burnett, Chen, & Gunny 2018).
Part 10
This is the case of self-review audit, in which occurs some previous judgment or
decision need to be reviewed by the auditor to make amendment in line with the professional
accounting. Like finding of an important inaccuracy during re-assessment of the task of the
auditor.
Answer to question 2
In the following case study of ABC firm, the company has thrown a party at the end
of the weekend audit for the auditing team member and the staff. This result in a virtuous
relationship between the auditors and the corporation that creates the audit less formal. This
is celebrated by the company as the money was well spent (Arowoshegbe, Uniamikogbo, &
Atu, 2017).
As per the IFAC code of ethics, professional objectivity of auditing should not be
compromised in any cases. This is the result familiarity threat, which happens when the
professional auditor is too compassionate or credulous of the client because of a intimate
association with client. This may be for the reason that a near-by acquaintance or family of
the auditor works in key role for the client. As a result the assessor may reliance their
acquaintance or relative to not make mistakes and therefore not review their work as
thoroughly as they should and as permit important mistakes to go unobserved in the financial
books of Account. This can rise after an extended relationship with a client. The instances of
familiarity interest identified in the given case study are mentioned below.

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 A probable threat because of the extended tenure of ten years of the adudit partner
without any rotation.
 Threat arises because of the association of partner existence a personal member as the
CEO of the company. .
Further the audit partner of the company Mr. John is approached by the company to
offer an employment opportunity with the company as director. This has increased the
probability of self-interest threat, as per IFAC code of conduct this happens when the client is
having the close business relationship with the client. The client offers the auditor some
potential employment with the client.
Further the company ask the auditor firm to reduce the auditing fees, in lieu of the
potential employment opportunity. This is a threat of intimidation. As per the IFAC code of
conduct when a professional accountant responsibility is being compromised on account of
the undue pressure from the management which is affecting the integrity, objectivity and
independence of the auditor. This threat has been known as intimidation threat. Which is
necessary to measure and curb.
Answer to question 3
Part (a)
The auditor should issue unqualified report in case the auditor accomplishes that the
books of Account statement provide a true and fair view as per the financial recording
framework used for the creation and demonstration of the business statement (Arowoshegbe,
Uniamikogbo, & Atu, 2017).
In the given situation the auditor was unable to obtain confirmation from eight of the
client’s major customer that were included in the sample. However the auditor was able

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satisfy himself about the balances of these account using other audit procedures. This means
that the auditor should issue an unqualified opinion with an emphasis of matter paragraph.
Part (b)
The auditor shall disclaim an opinion when the auditor believes that he is unable to
obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor
concludes that the possible effects on the financial statement of undetected misstatement ( if
any) could be both material and pervasive.
In the given circumstances the management of the organization is restricting the
auditor of the company to carry out his auditing procedure with regards to the verification of
his property, plant and equipment. This plant comprise of the 35% of the total assets of the
company which is of material importance in the valuation and estimates.
Part (c)
In the given circumstances the auditor shall issue a qualified opinion with an
emphasis on the matter paragraph on the financial statement(Dawuda, Aninanya, & Alnaa,
2015).
A qualified opinion on the financial statement shall be issued when
The auditor having obtained sufficient appropriate audit evidence, concludes that
misstatement, individually or in aggregate, are material but not pervasive to financial
statement.
Emphasis of matter paragraph are issued by the auditor to draw users attention to a
matter presented or disclosed in the financial statements. The matter are of such importance
that is fundamental to the users understanding of the financial statement. The auditor should

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include that management has not given disclosure regarding contingent liability in the
financial statement. This is to be noted that if the contingent liability becomes actual liability
this will have material effect on the financial statement.
Part (d)
The auditor shall disclaim an opinion when the auditor believes that he is unable to
obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor
concludes that the possible effects on the financial statement of undetected misstatement ( if
any) could be both material and pervasive.
In the given circumstances the auditor finds that the internal control existing within
the system is inadequate and the internal controls are inadequate and the value of these
cannot be verified. There are no other audit procedure to verify the gentility of the
transaction.
Part (e)
The auditor should issue unqualified opinion on the financial statement of an
enterprise if the concludes that the financial statement give a true and fair view in accordance
with the financial
Reporting framework used for the preparation and presentation of the financial
statements(Okaro, & Okafor, 2014).
An unqualified opinion indicates that:
 The financial statement have been prepared using the generally accepted accounting
principles, which have been consistently applied.
 The financial statement comply with relevant statutory requirement and regulation

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 There is adequate disclosure of all material matters relevant to the proper presentation
of the financial information, subject to statutory requirement.
In the given circumstances the auditor concludes the there is no material misstatement in
the current financial statement of the entity this means the auditor can issue an unqualified
opinion on the financial statement.
Part (f)
An auditor shall express an adverse opinion when the auditor, having obtained
sufficient appropriate audit evidence, concludes that misstatement are both material and
pervasive to the financial statement (Dawuda, Aninanya, & Alnaa, 2015). Whenever the
auditor articulates a judgment except the unqualified opinion, then a strong explanation of all
the applicable details must be incorporated in the report. In conditions where it is unfeasible
to enumerate the effects of modification made in the audit report precisely, the auditor may
do so on the foundation of the approximations made by the organization after resonant out
such audit test as are probable.
In the given circumstances the auditor should, issue an adverse report. This is because
the business of the company is in operation for the last four years and the company has not
been following the Australian accounting standard despite is is operating its business from
the last four year.
This is completely against the applicable reporting framework and not in compliance
with the relevant accounting standard. The company operation can deemed to be involved in
the fraud (Okaro, & Okafor, 2014).

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Part (g)
In the given circumstances, the client has been following LIFO method of accounting
in the valuation of inventory in their enterprise. This methods has been prohibited by the
Australian accounting standard, this means that the client has violated the norm of the
regularity authority in the valuation of the inventory. This is completely against the
applicable reporting framework. Therefore the auditor should issue adverse report while
reporting on the financial statement of the enterprise. A report is considered adverse when the
auditor, having obtained sufficient appropriate audit evidence, concludes that misstatement
are both material and pervasive to the financial statement.
Whenever the auditor expresses an opinion that is other than the unqualified opinion,
then a clear description of all the substantive reasons should be included in the report. In
situations where it is impractical to quantify the effects of modification made in the audit
report accurately, the auditor may do so on the basis of the estimates made by the
management after carrying out such audit test as are conceivable.
Part (h)
In the given case the auditor finds no material misstatement in the while auditing the
financial statement of the Numark enterprise. The financial statement of the entity displays
true and reasonable view about the financial situation of the business of the company.
Therefore auditor should issue an unqualified opinion on the financial statement of the
company.
This is to be noted the auditor has been appointed by the company to express an
opinion on books of account, whether they has been organized in agreement with the relevant

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accounting standard and comply with the rules and regulation. However it is not the
responsibility of the auditor to liable about the going concern assumption.
In the given circumstances, the auditor should express unqualified opinion on the financial
statement.
An unqualified opinion represents that:
 The books of account have been made by means of the generally accepted accounting
principles, which have been steadily followed.
 The books of account conform with necessary statutory requirement and regulation
 There is proper revelation of all important substances applicable to the proper
exhibition of the financial information, subject to statutory prerequisite.
Referencing
Abdul Wahab, E. A., Mat Zain, M., & Abdul Rahman, R. (2015). Political connections: a
threat to auditor independence?. Journal of Accounting in Emerging Economies, 5(2),
222-246.
Al Nawaiseh, M. A. L., & Alnawaiseh, M. (2015). The Effects of the Threats on the Auditor's
Independence. International Business Research, 8(8), 141.
Arowoshegbe, A. O., Uniamikogbo, E., & Atu, G. (2017). Accounting Ethics and Audit
Quality in Nigeria. Asian J Econ, Bus and Acc, 4(2), 1-15.
Arowoshegbe, A. O., Uniamikogbo, E., & Atu, G. (2017). Accounting Ethics and Audit
Quality in Nigeria. Asian J Econ, Bus and Acc, 4(2), 1-15.

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Burnett, B., Chen, H., & Gunny, K. (2018). Auditor-provided lobbying service and audit
quality. Journal of Accounting, Auditing & Finance, 33(3), 402-434.
Carey, P. J., Monroe, G. S., & Shailer, G. (2014). Review of Post‐CLERP 9 Australian
Auditor Independence Research. Australian Accounting Review, 24(4), 370-380.
Chiang, C. (2016). Conceptualising the linkage between professional scepticism and auditor
independence. Pacific Accounting Review, 28(2), 180-200.
Dawuda, A., Aninanya, G. O., & Alnaa, S. E. (2015). The Organizational Independence of
Internal Auditors in Ghana: Empirical Evidence from Local Government. Asian
Journal of Economic Modelling, 3(2), 33-45.
Han Fan, Y., Woodbine, G., & Cheng, W. (2013). A study of Australian and Chinese
accountants’ attitudes towards independence issues and the impact on ethical
judgements. Asian Review of Accounting, 21(3), 205-222.
Johari, R. J., Sanusi, Z. M., Rahman, R. A., & Omar, N. (2013). Auditors’ Independence,
Experience and Ethical Judgments: The Case of Malaysia. Journal of Business and
Policy Research, 8(1), 100-119.
Ojo, M. (2015). Audits, audit quality and signalling mechanisms: concentrated ownership
structures. American Research Journal of Humanities and Social Sciences, 1(2).
Okaro, S. C., & Okafor, G. O. (2014). Joint Provision of Audit and Non-Audit Services in
Nigeria: An Empirical Study. IUP Journal of Accounting Research & Audit
Practices, 13(1).
Quick, R., & Warming‐Rasmussen, B. (2015). An experimental analysis of the effects of
non‐audit services on auditor independence in appearance in the European Union:

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Evidence from Germany. Journal of International Financial Management &
Accounting, 26(2), 150-187.
Samsonova-Taddei, A., & Siddiqui, J. (2016). Regulation and the promotion of audit ethics:
Analysis of the content of the EU’s policy. Journal of business ethics, 139(1), 183-
195.
Tahir, F. A., Idris, K. M., & Ariffin, Z. Z. (2014). Measuring Nigerian Stakeholders'
Perceptions of Auditor Independence: A Proposed Framework. Asian Social
Science, 10(14), 81.
Turley, S. (2015). Developments in the framework of auditing regulation in the United
Kingdom. In Auditing, Trust and Governance (pp. 223-240). Routledge.
Velte, P., & Stiglbauer, M. (2013). EC Proposal of Audit-Only Firms: Discussing the
Potential Effects of Breaking the Audit Oligopoly'on Accounting and Audit
Quality. China-USA Business Review, 12(4).