Auditing Assignment Question Answer 2022

Running head: AUDITING ASSIGNMENT
Auditing Assignment
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Answer to Question 1a.........................................................................................................2
Answer to Question 1b........................................................................................................2
Answer to Question 1c.........................................................................................................3
Answer to Question 1d........................................................................................................3
Answer to Question 1e.........................................................................................................4
Answer to Question 1f.........................................................................................................5
Answer to Question 2a.........................................................................................................5
Answer to Question 2b........................................................................................................6
Answer to Question 2c.........................................................................................................7
Answer to Question 2d........................................................................................................7
References............................................................................................................................9

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Answer to Question 1a
As per “APES 110 Code of Ethics for Professional Accountants”, the relevant part
applicable for the given situation is seen with “Part B – Members In Public Practice”. This
section informs the clients for writing of commission received and referral fees. Based on the
given situation Alred Jarmon has frequently recommended the clients to take service from
Computer Service Ltd. Moreover, Computer Service Ltd. has decided to pay a commission of
10% as referral leads. This is directly associated to breach of “Section 210 Professional
Appointment”. This section obligates the members in public practice for accepting an
engagement in professional appointment. A similar breach may be inferred in terms of “CPA
Australia’s Client Relationship Guide”. The breach of code of ethics may be also considered
with “Section 280 Objectivity – All Services”. This section states that while providing any
professional service the members in public practice are required for determining whether there is
any instance of threat of compliance. For instance, in this case the threat of objectivity may be
created having a close relationship Computer Service Ltd. with Alfred Jarmon (Barth 2015).
Answer to Question 1b
Based on the fundamental principle of the code of confidentiality, the given issue needs
to be resolved. The principle of confidentiality shows that in order respect the confidentiality of
information, professional and business relationships shall not disclose any information pertaining
to third parties. This cannot be done without approval of an appropriate authority unless
professional or legal guide is involved for disclosing any information for personal advantage
associated to the members of third parties. In the given case it is clearly seen that Wrench and
company allows its clients for using the computers as per their requirement (Yao, Percy and Hu
2015). These clients can be referred as third-party members. The company has also permitted the

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staff from the audit section to assist input of data for such clients. This can be referred with
“Section 350 Inducements” which restricts the members of any business to influence the
judgement or decision making for the purpose of gathering confidential information. The breach
of confidentiality can be further inferred with “Section 220 Conflicts of Interest”. This prevents
the members to manipulate any information for personal gains (Benson et al. 2015).
Answer to Question 1c
Based on APES 110 the relevant section applicable for the given case is seen with section
“Part C – Members in Business”. This section states that even if members in business are
employed in a not-for-profit sector, they are liable to encounter serious threat of breaching
fundamental code of ethics. This part explains that threats may be encountered for safeguarding
the legislation, regulation or the work environment. As per the given case Katrina Ng is a
manager on conducting the audit for not for profit entity (Horngren and Harrison 2015).
Additionally, she is also regarded as a member of the board of directors, due to this she is not
able to involve herself in the management capacity of not-for-profit firm. This is directly
identified as a breach of “Part C – Members in Business” and the correct treatment for this
needs to be proceeded with including her acting in the not-for-profit firm. She may also consider
obtaining of legal advice in case it is believed with adoption of unethical behaviour. Due to the
application of this section she is also take the decision to resign from the employing organization
(Linnenluecke, Birt and Griffiths 2015).
Answer to Question 1d
In the given situation it can be clearly inferred that there has been breach of principle of
integrity. This principle expects the members of the organization to be straightforward and
honest in building professional business relationships. As per APES 110, “Sections 290 And

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291– Independence”, the concept of independence is considered as a fundamental to compliance
of integrity and objectivity principles. Therefore, any instance of threat to independence and
integrity should be evaluated under this norm. This section further evaluates the members in
business practice for taking safeguarding measures for eliminating any possible threat which may
be induced in a business. As per the given situation Peter Beetson is not only a public accountant
providing various types of management advisory services and bookkeeping services but also a
treasurer of Northbridge Joggers Club (Kraal, Yapa and Joshi 2015). The application of
Independence principle is fundamental in the situation for eliminating any possible threat of
members been involved in ethical issue with employment in two organisations. Firstly, the threat
of being employed in two separate organisations is a threat to both businesses. Secondly it needs
to be also seen that there is a significant amount of threat associated to ethical misconduct as a
result having an active role as public accountant and treasurer (Henderson et al. 2015).
Answer to Question 1e
The given scenario can be referred with “Section 250 Marketing Professional Services”.
This particular section states that different types of professional marketing services including
advertising may be posing a significant threat of compliance pertaining to the fundamental
principles. It is the responsibility of members in public practice to ensure that at the time of
marketing their professional service they do not bring into account profession with this repute.
However, in the given situation it can be clearly inferred that The Berowra Accountants have
advertised of always getting highest tax deductions in all the accounting firms in a region. The
company have used bright colourful full-page pictures for claiming of the same. This raises
several questions on the integrity of the organisation and leads to possible threat which may be
associated to compliance with fundamental principles in public practice (Andon, Baxter and
Chua 2015). There is also a possibility that such a claim can bring into account profession into

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disrepute. Moreover, such an eye-catching way of portraying this information can lead to serious
questions on how the accounting firm is able to provide such deductions on tax. As the taxpayers
need to abide by the norms of ATO there is a standard rate at which they should pay their taxes.
Any organisation claiming about tax deductions may raise the possibility of tax evasion (Bamber
and McMeeking 2016).
Answer to Question 1f
The given case can be related with the breach of professional behaviour as per “Part A
General Application of The Code Acting in The Public Interest of Apes 110”. As per this
section it is responsibility of the organisations to comply with the relevant regulations and laws
to prevent any act of discrediting the profession. Based on the given case study the audit fees for
year ended 30 June 2017 was not paid by Olive Limited. It is to be also seen that as per “CPA
Australia’s Client Relationship Guide” theory has been a significant instance of breach of
objectivity. Therefore, the breach of code of ethics may be also considered with “Section 280
Objectivity – All Services”. This section states that while providing any professional service the
members in public practice are required for determining whether there is any instance of threat of
compliance. For instance, in this situation Olive Limited should have avoided any instance of
breach of professional behaviour or objectivity by ensuring payment of audit fees for the year
ended 30 June 2017 (Bryce, Ali and Mather 2015).
Answer to Question 2a
As per the given case it can be seen that the auditor was not able to get confirmation from
four of major customers of the client which were included in the initial sample. However, the
auditor was able to make himself content about the balances of these accounts which were being
used with the audit procedures. In this context, the auditor needs draft a letter for obtaining

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confirmation from the customers before proceeding with the audit. The following case needs to
be investigated with ASA 505 revised standards. This guideline will be conducive for providing
appropriate guidance on the performance of external confirmation of audit procedures with the
third parties for obtaining audit evidence. The external confirmation should be further assessed
with ASA 315 and ASA 330. In addition to this, the application of ASA 500 will ensure that the
external confirmation is obtained as a direct written response in paper form or by electronic
medium. In this case, the confirmation should be proceeded with the positive confirmation
request thereby confirming the party to respond directly to state whether they want to proceed
with audit procedure. The external confirmation should also ensure proper addressing of the
request and entity’s record provided by the confirming party (Louwers et al. 2015).
Answer to Question 2b
In the given situation client restricting the auditor from observing property plant and
equipment should be proceeded with a pervasive scope limitation and explanatory paragraph
describing scope limitation preceding the disclaimer statement. The rational for application of
such treatment is due to the fact that the client is not allowing the auditor for completing the
audit procedures in accordance with professional audit standards. The concept of pervasive scope
limitation refers to client imposing certain restrictions on the auditor and which is preventing him
or her in gathering sufficient evidence form an opinion. In the given situation PPE has a
significant scope of material misstatement and it is the responsibility of the auditor to avoid such
instances going undetected. In case the auditor decides to proceed with audit opinion it is
necessary to clearly mention in the notes to financial statements about the exact treatment for
PPE. This will allow both the company and the auditor to be clear on how serious the
modification has been applied to an audit report. The application of disclaimer of opinion will
further restrict for giving any audit opinion in the first place. As the possible effect of scope for

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limitation is both material and pervasive so auditor may not express to form any opinion
(Camfferman and Zeff 2015).
Answer to Question 2c
In the given situation it can be inferred that management have decided not to include any
contingent liability unless it becomes actual liability thereby having a material effect on the
financial statement. However, based on AASB 137 it is essential to account for contingent
liabilities to be disclosed in the notes for enabling the users in understanding the amount, nature
and timing of such liabilities. Based on the reliable estimation of obligation only in extreme rare
where an appropriate estimate cannot be made, such liabilities need not be recognised in the
financial report (Apesb.org.au. 2019). However, in the given scenario the management has
accurately estimated the amount of contingent liabilities as it has stated that on possibility of this
becoming an actual liability it will have a material impact on the financial report. Despite of not
having any impact on material effect on the financial statement, as per paragraph 89 of AASB
137, there is necessity of disclosing such information as the inflow of economic benefit is
probable in nature. Such information is should be also disclosed as there may be uncertainties
associated with the amount of expenditures incurred by the company (Auasb.gov.au. 2019).
Answer to Question 2d
The given situation can be related to section 9 of ASA 315 under which it is clearly stated
that in case the professional entity decides to use information based on previous accounting
standard the auditor needs to determine the changes in evidence with relevance to the present
accounting procedures. It is also the responsibility of the auditor to look into the nature of
entity’s environment and internal control for evaluating the significant changes pertaining to the
assessed risk area. The auditor is also required for obtaining relevant information to be disclosed

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to compensate the changes to be brought in the control environment. It is also the responsibility
of the auditor is also essential to amend the areas where there have been instances of material
misstatement is in the assets of the company thereby leading to substantial changes in the profit.
The finalised financial statement should also calculate the misstatements which we are proceeded
by following previous accounting standard and bring relevant changes as per the current
accounting standard (Legislation.gov.au. 2019).

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References
Andon, P., Baxter, J. and Chua, W.F., 2015. Accounting for stakeholders and making accounting
useful. Journal of Management Studies, 52(7), pp.986-1002.
Apesb.org.au. 2019. [online] Available at:
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 19 Jan.
2019].
Auasb.gov.au. 2019. [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_505_27-10-09.pdf [Accessed 19 Jan.
2019].
Bamber, M. and McMeeking, K., 2016. An examination of international accounting standard-
setting due process and the implications for legitimacy. The British Accounting Review, 48(1),
pp.59-73.
Barth, M.E., 2015. Financial accounting research, practice, and financial
accountability. Abacus, 51(4), pp.499-510.
Benson, K., Clarkson, P.M., Smith, T. and Tutticci, I., 2015. A review of accounting research in
the Asia Pacific region. Australian Journal of Management, 40(1), pp.36-88.
Bryce, M., Ali, M.J. and Mather, P.R., 2015. Accounting quality in the pre-/post-IFRS adoption
periods and the impact on audit committee effectiveness—Evidence from Australia. Pacific-
Basin Finance Journal, 35, pp.163-181.
Camfferman, K. and Zeff, S.A., 2015. Aiming for global accounting standards: the International
Accounting Standards Board, 2001-2011. Oxford University Press, USA.

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Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Horngren, C. and Harrison, W., 2015. ACCOUNTING: BSB110. Pearson Higher Education AU.
Kraal, D., Yapa, P.W.S. and Joshi, M., 2015. The Adoption of International Accounting Standard
(IAS) 12 Income Taxes: Convergence or Divergence with Local Accounting Standards in
Selected ASEAN Countries?.
Legislation.gov.au. 2019. ASA 315 - Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and Its Environment - October 2009 . [online]
Available at: https://www.legislation.gov.au/Details/F2016C00028 [Accessed 19 Jan. 2019].
Linnenluecke, M.K., Birt, J. and Griffiths, A., 2015. The role of accounting in supporting
adaptation to climate change. Accounting & Finance, 55(3), pp.607-625.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and audit
fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.