University Assignment: Audit Ethics, Independence, and Regulations

This assignment delves into the critical aspects of audit ethics, auditor independence, and professional conduct, exploring real-world scenarios through case studies. It addresses the challenges of maintaining independence, particularly in the context of autonomous auditors and the measurement of perceived independence. The assignment analyzes several cases, including those involving auditor integrity, professional behavior, and compliance with regulations. Furthermore, it examines the ethical, legal, and procedural considerations before accepting an audit appointment, including the impact of management pressure, accountant whistleblowing, and potential legal violations such as fraudulent financial reporting. The document also outlines the steps required to comply with ISA 210, emphasizing the importance of client acceptance, developing an audit strategy, and obtaining a clear understanding with the client. The conclusion highlights the ongoing significance of ethical considerations in audit practice and management.

Q1
An autonomous auditor is known to settle on choices although there is an absence of the
autonomy present. There are lot of problems in finding out whether the evaluator is free or
not since, it is not easy for measuring the mental state of mind of human beings along with
individual uprightness. The perceived independence is not at all factual in nature. People
also think one to be under freedom even though that might not be true. Since the individual’s
objective is unclear in nature, people can be in a comprising situation. It is usually no easy to
measure the perceived independence although it is essential for the auditing company because
it is known to add credibility for the reports of auditing.
b)
Case 1
Integrity – the auditor assistant Bob, is known to have no integrity. As Bob is a trainee, he
should be learning to be ready for making his own financial information that is used for the
assignment which will be preparing him in future. Bob should also be embracing
confidentiality.
Case study 2
Professional behaviour
The Ace Limited is known to go against the professional behaviour of the workers as the
workers had to perform tasks which not present in the contract. This is quite unprofessional
as well as unethical in nature. The company should be stop using Wendy for the role which
is not signed to do. The firm should be finding other employee and also train tem for towards
the work. However if Wendy qualified for the replacement, the firm should be employing
Wendy under a signed contract and pay her according to the work she is exposed to.

Case 3
If Leo is known to compromise the testing of the internal control then as an auditor he should
alert the foreman for enabling him to adjust the roles. As an auditing company, it is very
essential that the points in the roles of Leo results to disturbance for testing the internal
controls. He should also be advised for helping the management of the firm.
Case 4
There are various regulations that needs to be comprised which also includes the payment of
the annual fee by Classic Reproduction Pty. The company should not pay for its service as it
is a breach of contact. The professional accountant are needed for paying the accumulative
fee for their auditing company.
Classic reproduction Pty is known to breach the standards that are usually termed as
professional behaviour by the receiving services which is mainly auditing. Such acts are
unacceptable in nature.
It is crucial to note that Chan &Associate should be pursuing the measures to get their money
rather than mailing the classic company for giving them share. If those measures are to
pursued then they need to be undertaken according the guidance of the experts. The auditing
company should be auditing in order to bring reports that shows the ability of the Classic
Company for paying their bills in future. It is also known to explain why the firm have
known to fail for paying their annual arrears and the measures that needs to be undertaken for
ensuring that it is not repeated again.
Q2.
Introduction

The acceptance decision in case of auditing is essential since those type of engagements are
known to pose threats for objectivity and create risk exposure for the auditing firm that needs
to be evaluated. The International Standard on Auditing requirements makes sure that the
firms establish preconditions for the audit when faced with new audit engagement. These
factors also mean that the acceptance decisions should be handled with care.
The IFAC’ Code of Ethics for Professional Accountants states that before accepting the
relationship of any new customer, the accountant should determine whether there any threat
to compliance with the fundamental principles. Such kind of potential threats can be an issue
that is associated with the client, owners or management. While conforming with a new
client, the firm should be investigating about the client, business activities, owners for
evaluating whether there are any questions over the integrity of the client. This is known to
investigate the actions which are known to be performed through the diligence procedure and
that is carried for complying the regulations with anti money laundering.
Ethical, legal and other factors to be considered before accepting an audit appointment
Auditors should be impartial as well as loyal to the ethical guidelines while reviewing a
company for the purpose of reporting. An accountant is known to encounter ethical issues
regardless of the industry as this can reduce ethical violations.
Ethical factors

Pressure From Management
The ethical issues of the accountant is to maintain true reporting of the company assets,
liabilities and profits without giving in to the pressure placed on them by management or
corporate officers. The unethical accountants can easily change the records and also
manipulate numbers for printing false pictures for the company’s success. This can result to
short term prosperity and will change the financial records .
Accountant as Whistleblower
An accountant is known to face any kind of ethical dilemma for reporting the discovered
violations of the Financial Accounting Standards Board. The dilemma usually takes place
due to ramifications of the reporting. The bad press or the review of the government of the
financial records of the company can cause the decline of the company which might lead to
the layoff of lot of workers.
The Effects of Greed
An accountant can never let the desire for earning a better living for acquiring more
possessions which et in the way of ensuring that she follows ethical guidelines in case of
financial reporting. The accountant who is known to keep eyes on the bank account more
than the balance sheet of the firm will become a liability of the company and might also lead
to accounting violations.
Omission of Financial Records
A corporate officer can ask the accountant for leaving out some of the financial figures from
the balance sheet that might bring the business in the bad light. Omissions might not be a
significant breach of the accounting ethics since it is not involved with the direct
manipulation of the numbers and therefore the accountant should be vigilant for avoiding
falling into such kind of trap.

Legal factors
Fraudulent Financial Reporting
Most of the scandals related to accounting is known to be centered on the fraud financial
reporting. This type of reporting is the misstatement of the financial statements by the
management of the firm. This is known to be carried out with the misleading investors and
maintain the share price of the company. The misleading financial reporting can boost the
stock price of the company in the short run. This short-term focus on company finances is
sometimes known as "myopic management."
Disclosure
The disclosure violations of the fraudulent financial reporting are the mistakes of the ethical
omissions. The failure to disclose the information to the investors to the investors can change
their decisions of investing in the company which is known to be considered as fraudulent
financial reporting. It is crucial for the management for protecting the proprietary information
of the company.
Penalties
The penalties for the violations of the accounting ethics laws is known to increase with the
passage of the Sarbanes-Oxley Act of 2002. This particular legislations is known to impose
harsh penalties for manipulation f he financial records, interfere with the investigation,
destroy information and also provide legal protection for the whistle blowers. The chief
executive will be criminally liable if they misreports of their company. The accounting ethics
are essential to be considered.
Steps that need to be taken prior to the appointment
Everyone should be complying with the requirements of ISA 210.

ISA 210 states the pre conditions for the audit. The use by management of an acceptable
financial reporting framework in the preparation of the financial statements and the
agreement of management and, where appropriate, those charged with governance to the
premise on which an audit is conducted’
The auditor then should be determining he acceptability of the framework of financial
reporting which is applied for preparing e financial statements.
In various cases, this will be confirming with the client hat the financial statements needs o
be prepared under International Financial Reporting Standards.
The auditor should be obtaining the agreement of management which it acknowledges and
understands the responsibility for preparing the financial statements according to the
applicable framework of financial framework. It is also applicable for internal control which
will enable preparation of financial statements that are free from any kind of material
misstatements.
The important activities which are involved in the initial planning of audit are:
 It is essential for determining reason for the audit. The auditor should be brining out
the reason for audit. The remainder of the planning activities might be affected by the
customer’s reason for requesting audit.
 Client acceptance. When there is new client,, the auditor should be detrmining
whether he is the perfect client for associating.
 Developing an overall strategy for audit. The strategy should be considering the
reasons for the audit. It also includes areas where there will be huge risk of the
significant misstatements. When strategies are set it will help the auditor for
determining the resources require for engagement.

 Obtain an understanding with the client. The understanding wis crucial in order to
avoid misunderstandings. The auditors are known to obtain an understanding with the
clients that needs to be written.
CONCLUSION
Evaluating new engagements is an important part for successful practice management. The
present debate over the acceptability of the auditors who provide non audit service states that
ethical matters will be continuing to play a vita role in acceptance decisions.

References
1. Johnstone, K. M. (2000). Client-acceptance decisions: Simultaneous effects of client
business risk, audit risk, auditor business risk, and risk adaptation. Auditing: A Journal of
Practice & Theory, 19(1), 1-25.
2. Dye, R. A. (1993). Auditing standards, legal liability, and auditor wealth. Journal of
political Economy, 887-914
3. Jackling, B., Cooper, B. J., Leung, P., & Dellaportas, S. (2007). Professional accounting
bodies' perceptions of ethical issues, causes of ethical failure and ethics
education. Managerial Auditing Journal, 22(9), 928-944.
4. Johnstone, K. M. (2000). Client-acceptance decisions: Simultaneous effects of client
business risk, audit risk, auditor business risk, and risk adaptation. Auditing: A Journal of
Practice & Theory, 19(1), 1-25.