Ethical Breaches and Qualified Opinions in Auditing Theory and Practice

Auditing Theory and Practice

Answer 1
(a)The present situation relates to a breach in the ethical requirements for the professional
accountants as per the APES 110. As per the fundamental principles of professional ethics
established by the APES 110, the principle of integrity implies to all the professional accountants
to be honest and maintain transparency in their all business relationships (Compiled APES 110
Code of Ethics for Professional Accountants, 2013). Thus, as per the integrity principle, the
Mortdale Accounting firm should maintain fair and trustable relationships with their clients and
thus should disclose the reviews of the Penshurst Accountants to them without hiding any
materialistic facts and figures.
(b)The given situation also depicts a non-compliance with the APES 110 ethical standards. The
APES standards advocate professional appointment of the accountants. The standard has
maintained that before acceptance of a new client relationship, it should be ensured by the
appointing firm that the professional accountant should not involve in any illegal activities or
dishonest practices. This is essential because potential threats to professional behavior can be
created if the client is associated with the questionable issues.
(c)The given situation also presents a breach of ethical standards of APES 110. The APES 110
ethical standard has stated that the members in public practice should not provide second opinion
to the client besides the major services provided as it may pose a threat to professional
competence. The auditing firm should render its services to only one client at a time and
therefore the Wendal Sailor is breaching the ethical standard of APES 110 (Compiled APES 110
Code of Ethics for Professional Accountants, 2013).
(d)The situation in the present case is also a breach of ethical requirements for professional
accountants as per the APES 110. The confidentiality standard of APES 110 has stated that the
professional accountants should maintain the confidentiality of the information and should not
use the business information for any personal benefit. However, in the given situation John
Durham is also an audit partner in one firm and also a member of Board of Directors in another
firm which can pose a threat to the confidentiality of information of both the firms.
(e)In the given scenario, the professional accountant has breached the ethical standard of
confidentiality of APES 110. As per the standard, the member in practice is liable to maintain the

confidentiality of information of the client and should not disclose any relevant information to an
outside party without adequate approval and permission. Thus, Ernie Dengate before selling his
accounting practice to the new accountants should obtain proper permission from the client.
(f)The given situation also presents a breach of ethical standard of conflict of interest of APES
110. The conflict of interest may arise in the situations where a professional accountant provides
advice regarding multiple services to same clients or giving advice to two clients at the same
time. As such, there is conflict of interest in the present situation also because Fred Nerk, a
public accountant, is involved in providing multiple services such as tax and advisory services to
the same client and performing auditing for the same. This type of conflict of interest can pose a
threat of objectivity and therefore represent a breach of ethical standard (Compiled APES 110
Code of Ethics for Professional Accountants, 2013).
(g)The given situation is also a breach of ethical standards of APES 110. The APES 110 ethical
standard of custody of client assets states that holding of certain assets of a client without the
permission represents a threat to self-interest and objectivity to the professional behavior (CCH
Australia Limited, 2009).The members in public practice should keep such assets separately
from their personal use and can only avail their use for achieving a specific purpose on obtaining
adequate permission from the client. As such, the Allgood Chartered Accounting firm should not
maintain the accounting records of its client Brach Company on its computers without the
permission of the latter.
(h)The situation in the present case also represents an ethical breach of professional behavior as
per APES 110. As per the principle of professional behavior of APES 110, the member of
practice should not involve in any such actions that can result in discredit of the profession
(International Monetary Fund, 2012). In the given scenario, James Jameson, a public accountant
is involved in drinking and consuming drugs. Besides this, he is also found guilty of involving in
fights and behaving disorderly in the hotel. As such, he has conducted such activities that
represent an ethical breach to the professional standards of accountants and thus sentenced to a
period of 3 month jail as well as having suspension of his license for 1 year.
Answer 2