Auditing and Assurance Services: Case Studies and Opinion Formation

This document is a comprehensive analysis of auditing and assurance services, addressing ethical considerations, professional conduct, and the formation of audit opinions. It begins by examining various case studies illustrating breaches of the principles of integrity, confidentiality, objectivity, and professional behavior. These cases involve scenarios such as breaches of confidentiality by sharing information, conflicts of interest, and failures to maintain professional competence and care. The assignment then transitions to the different types of audit opinions, including unqualified, disclaimer, and adverse opinions, explaining the circumstances under which each is issued. The analysis covers situations where an auditor might issue a clean report, disclaim an opinion due to scope limitations, or issue an adverse opinion due to material misstatements or non-compliance with accounting standards. The document references relevant standards and codes of conduct, providing a practical understanding of the responsibilities and challenges faced by auditors in maintaining the integrity of financial reporting and the importance of ethical behavior in the field of auditing.

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and Assurance Services
Name of Student:
Name of University:
Author’s Note:

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ANSWER 1:
a) The given case is related to the Principle of integrity as well as the Principle of
Confidentiality. The principle of Confidentiality states that the auditor is required to
preserve the secrecy of all the documents which is obtained by him during the course of
the company’s audit. The disclosure or sharing of the verbal materialistic information
with any person should not be performed under any circumstances. These are the sole
property of the client. The auditor needs to be honest in all the functions which he
performs based on the principle of integrity.
The situation which has been provided clearly states that the accounting firm is
responsible for the confidential information to another audit. This is more serious as this
disclosure has been done without any sort of permission from the client. It is clear that
the principle of confidentiality has been breached where the client has not been informed
about the review activity of the peers.
b) Based on the principle of professional behaviour, each member or every auditor of the
Institute of the Certified public accountants is required to follow a particular code of
conduct which the institute has prescribed and under no circumstances is the spirit
followed or maintained.
In case the auditor does not follow the required rules as well as the spirit the
chances for him being held as guilty for misconduct of a professional nature. The
situation which has been provided is related to that of Jan Dungong, who has applied to
the other accounting firms. He resists the contact with the employer in order to contact
and search for the details related to the employer before. This would be related to the
breach of the principle of professional behaviour.

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c) Any auditor on the occasion of not following the objectivity principles he might be liable
for the purpose of professional misconduct. The principle of objectivity states that the
company auditor needs to be careful in the framing of the opinion on the fiscal statements
of the company who cannot be convinced in any manner. This is related to the issue that
he might or might not have received from the particular client (Tsahuridu 2014).
The given case is related to that of Wendal Sailor. He is a Chartered accountant
who is engaged in the auditing services which possesses the business of the insurance as
well as the superannuation. On the occasion of visit to the client for audit purpose, he
resolutely begins the conversation related to the insurance as well as the superannuation.
He also tries to convince the people to get it from him. This way he is responsible for
violating the code of conduct and is bound to be held for misconduct of professional
nature.
d) According to the principle of objectivity, the auditor of the company cannot be in a direct
or indirect connection with the client for whom he is required to conduct the audit and
also frame the opinion of the fiscal statements. This is defined as the code of ethics.
In connection to the code of ethics it can be said that it has been so regarded as the
relation which may have the effect of receiving the economic declarations of the
company which are validated with undue and unfair means.
The given circumstances state that Judith Durham is the partner of the audit firm
who is responsible for the performance of audit conduction. She holds the position of the
director on the firm. However she does not actively take part in the management of the
company affairs. There might be chances that the audit objections are cancelled or routed
due to her board presence. There is also a possibility of cancellation of the conduct of the

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audit. Ever greater amount of manipulations could have occurred. It can safely be
concluded that there has been a breach of the principle of objectivity.
e) The auditor is not required to disclose, share or make known any of the documents or
information which is mentioned in the books or other personal accounts without any sort
of permission from the client who has asked for the services of the auditor. This is in
compliance with the code of conduct related to confidentiality. Documents can be shared
in case it is essential to the law operations.
In the provided case, Enrie Dengate is selling the practice to Jago, the new
accountant who is responsible for ensuring that all the future work is done. After selling
the practice to Jago, permission for the transfer purposes has been received by Enrie.
Only the tax working paper has been excluded and has transferred without getting a
correct amount of permission for it. It clearly shows that the principle of confidentiality
which has been avoided as well as dishonoured in an improper way (CPA Australia
Official Website 2014).
f) A company auditor is not allowed to cater to client with audit services as also the services
of accounting. This is related to the principle of objectivity. It also covers book keeping,
filing returns, management advisory and also the tax services. In case the different forms
of services are provided with the audit services, then the objectivity principle would be
violated. This is because the auditor will not be able to give the true as well as fair
opinion but will rather be posted under Self review threat.
The given situation clearly states that, Fred Nerk is responsible for providing the
services of audit which is also with taxation and management consultancy services. On
the occasion that opinion of the auditor is framed at the time of the audit will be affected

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by Self Review Threat. Therefore the objectivity and the auditor independence of the
auditor will be hurt.
g) Pertaining to the principle of professional independence and also due care, the company
auditor shall have a particular system in place which ensures that the firm has installed
the required system along with the new as well as innovative technologies which are
related to the present work of the nature of accounting, tax and so on. The work is to be
completed with the team of chartered accountants who are well qualified and also the tax
experts. On the occasion that the audit firm does not have a particular system then there
might be a breach of professional competence as well as due care.
In the current situation, the All-good chartered accountants firm is responsible for
the maintenance of the system which involves the audits of the branch company.
However it has been observed by the client that the company does not have the ability to
perform the conversation in an efficient manner and the required infrastructure has not
been available for the work. There is the ultimate breach of the principle of professional
competence as well as care (Bedard 2010).
h) Based on the code of conduct defined in case any chartered accountant is found to be
engaged in any sort of illegal practices, or in the occasion that he has been held in prison
for an elongated period of time. In this situation his license is also suspended temporarily
for a certain number of months or by years by any specific court.
Based on the provided situation, James a public accountant fought in a hotel in a
very rude and ill behaved way in a complete drunken state which is not to be ignored in
the case of the Chartered accountant. Due to this, he has been imprisoned for 3 months

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and his licence has been suspended for 1 year. Therefore under these circumstances, he is
to be held as guilty due to his unprofessional behaviour as well as severe misconduct.
ANSWER 2:
a) Based on the provided case, the auditor will provide a clean report and it will also
provide an unqualified opinion. This is because, despite the fact that the auditor was
incapable of obtaining the confirmations. It was also due to his inability to tally the
customer balance as mentioned in the books of the company accounts with the supported
bills or invoices which have been able to perform the procedures of audit that have
assisted him to get a reasonable amount of assurance that the correct from of accounting
has been made and the fiscal declarations have been made in a true and fair way which
provides a genuine view of the fiscal position and performance of the company. Thus
unqualified opinions will be issued by the auditor.
b) The provided case helps state that the auditor will provide an opinionated disclaimer
while issuing the audit report. This happens on occasions when the client restricts the
objectivity of the auditor by not providing relevant documents or clarifications or
knowledge according to what the auditor requires. This might also involve allowing the
auditor to perform extra procedures. The auditor is restricted by the client to check the
most important item of property plant and equipment. Thus the scope of the auditor is
restricted and hence the disclaimer of opinion is issued by the auditor (AASB Official
Website 2013).
c) The auditor is responsible for issuing the adverse opinion in his audit report. This is due
to the fact that the auditor at the time of framing the audit gives an adverse opinion. This
is issued on his discovery of the fact that material facts have remain undisclosed by the

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company intentionally. This non disclosure results in the suspicions in the auditor’s mind
for further issue of the adverse report. In the given case if contingent liability has not
been mentioned, in the account notes, then there will be an issue with the actual liability.
Keeping this in mind, the adverse report has been issued by the auditor.
d) In the present scenario, the auditor is incapable of verifying the retail sales of the client in
question as the internal control connections for the verification of sales transactions are
very weak in the company. This depicts that cash sales transaction records are not being
made on a regular basis. In such a scenario, the auditor is not left with any techniques
which can be applied to assure oneself about the record of the cash sales which are
recorded in the company books are verifiable and it is easy to verify it along with the sale
invoices. The auditor if restricted will issue the opinion disclaimer.
e) The auditor is incapable of verification of the opening balance of the company. It has
been clearly denied by the client regarding the company provisions of the detail of the
opening balance. Even if the auditor is satisfied with the entries made in the books or
accounts of the company for the present fiscal year under the purpose of audit it has been
found that no material misstatements have occurred. The non availability of the opening
balance and the verifiable documents caused the auditor to issue a report.
f) In the present scenario, the company has operated for the last four years. The company
has not been following the standards of accounting. As the company does not follow any
specific sort of accounting standards, the auditor will issue the adverse opinion on the
fiscal declarations of the company as it has the chance of revision of its fiscal statements
and also for getting the audit report revised with unqualified opinion.

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g) The LIFO method of valuation of inventory is strictly disallowed by the Australian
accounting standard and the international reporting fiscal standards. The utilisation of the
method has a serious impact on the fiscal statements of the company. The auditor issues
the Qualified and Adverse opinion on the fiscal statements of the Company.
h) Though the auditor has not justified any material misstatements which might affect the
fiscal misstatements of the company. There exists a material fact that challenges the fiscal
statements so prepared. The company’s going the concern assumptions will be hampered.
The auditor will issue a qualified opinion.

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References:
Tsahuridu E,(2014), “An Overview of APES 110- Code of Ethics for Professional Accountants”,
available at http://www.apesb.org.au/uploads/meeting/board_meeting/24112014043919_agenda-
item-16-f-cpa-australia-s-overview-of-apes-110.pdf accessed on 24/05/2017
CPA Australia Official Website, (2014), “A guide to Understanding Auditing & Assurance”
available at https://www.cpaaustralia.com.au/~/media/Corporate/AllFiles/Document/
professional-resources/auditing-assurance/guide-understanding-audit-assurance.pdf accessed on
24/05/2017
AASB Official Website, (2013), “Forming and Opinion and Reporting on a Financial Report”
available at
http://www.auasb.gov.au/admin/file/content102/c3/Jul13_Compiled_Auditing_Standard_ASA_7
00.pdf accessed on 24/05/2017
Bedard, J.C., 2010, Audit quality indicators: A status update on possible public disclosures and
insights from audit practice Current Issues in Auditing, 4(1), pp.C12-C19.