ACCT3000 Case Study: Auditing and Assurance - Independence and Ethics

This case study analyzes five scenarios related to auditing and assurance, focusing on the application of APES 110 (Code of Ethics for Professional Accountants). The scenarios involve potential threats to auditor independence, including self-interest and familiarity threats, arising from family...Read More

Running head: AUDITING AND ASSURANCE
Auditing and assurance
Name of the student
Name of the student
Student ID
Author note

1AUDITING AND ASSURANCE
Table of Contents
Answer to question 1 and 2.............................................................................................................2
Reference.........................................................................................................................................5

2AUDITING AND ASSURANCE
Answer to question 1 and 2
Answer Threats Safeguards Assessment of objectives
(a) Self interest threat –
as the close family
member of that is
wife of Andrew
who is the partner-
in-charge for SCA,
the auditor, for
providing non-audit
services
In accordance with Para 290.105
of APES 110, if any close family
member of the member of audit
team has direct financial interest
or material indirect financial
interest in audit client, it will
create self-interest threat.
Safeguards those can be applied
in this situation are –
1.Disposing of the financial
interest immediately by the close
family member
2.Reviewing the work of audit
team member
3. Removing the particular
individual from audit team
(Martinov-Bennie and
Mladenovic 2015).
Given the relationship of
husband – wife between
Andrew and Michelle and
planning of purchasing
shares by Michelle are in
significant numbers, the
threat will be considered as
material. Independence in
this situation can be
achieved through –
1.Not purchasing the shares
in Andrew’s client company
2. work of Andrew shall be
reviewed by another
member
3. Andrew shall be removed
from the audit team
(Martinov-Bennie and
Mladenovic 2015).
(b) Self interest threat –
as the auditor
receiving
significant fees
from one particular
client for 2
consecutive years
In accordance with Para 290.222
if the audit team is receiving
significant fees that is more than
15% of total fees from all the
client from one particular client
for 2 consecutive years it creates
self interest threat. Safeguards
those can be applied in this case
are –
1.prior to issuance of 2nd year’s
financial statement any member
from outside the firm shall
express opinion on financial
statement through performing
the Engagement quality control
review of the engagement or any
professional regulatory body
as SCA receiving significant
fees from DML that is more
around 20% of total fees
from all the client from one
particular client for 2
consecutive years the threat
is significant. Independence
in this situation can be
achieved through –
1.review of 2nd years
financial statement by any
member from outside the
firm through performing the
Engagement quality control
review of the engagement or
by any professional
regulatory body

3AUDITING AND ASSURANCE
shall review the engagement
2.after issuance of audit opinion
on 2nd year’s financial statement
and before issuance of opinion
on 3rd year’s financial statement
any member from outside the
firm shall express opinion on
financial statement through
performing the Engagement
quality control review of the
engagement or any professional
regulatory body shall review the
engagement (Clayton and van
Staden 2015)
2. after issuance of audit
opinion on 2nd year’s
financial statement and
before issuance of opinion
on 3rd year’s financial
statement any member from
outside the firm shall
express opinion on financial
statement through
performing the Engagement
quality control review of the
engagement or any
professional regulatory body
shall review the engagement
(Clayton and van Staden
2015)
(c) Self interest threat –
as fees remained
unpaid
In accordance with Para 290.223
self interest threat will be created
if fees from the audit client
remain unpaid for long times.
Safeguards those can be applied
in this case are –
1.Take legal actions against the
client
2.Not carrying out further audit
for the client (Jaber and Fadda
2016)
As the fees remain unpaid
for 3 years the threat is
significant. Independence in
this situation can be
achieved through –
1.taking legal actions
against client
2.Resigning from the audit
(Jaber and Fadda 2016)
(d) familiarity threat –
as the wife of audit
team member
prepares client’s
financial report
In accordance with Para 200.7 of
APES 110, familiarity threat will
be created if member of audit
team have immediate or close
family member who is in a
position to apply significant
influence on subject matter of
the engagement. Safeguards
those can be applied here are –
1.Removing Gregory from audit
team
2.Resigning from the post by his
wife, Christina (Mah 2018)
As wife of the audit team
member is engaged in
preparation of client’s
financial statement, threat is
material. Independence in
this situation can be
achieved through –
1.Removing Gregory from
audit team
2.Resigning from the post
by his wife, Christina (Mah
2018)

4AUDITING AND ASSURANCE
(e) Familiarity threat -
as the wife of audit
team member
works as financial
accountant in client
company
In accordance with Para 200.7 of
APES 110, familiarity threat will
be created if member of audit
team have immediate or close
family member who is in a
position to apply significant
influence on subject matter of
the engagement. Safeguards
those can be applied here are –
1.Not including Robert Durand
in the audit team
2.Resigning from her post by
Robert’s wife, Rebecca (King
2018)
As wife of the audit team
member is financial
accountant of client
company, threat can be
material. However, as the
particular team member that
is Robert is not included in
audit of Yummy Donuts
where his wife Rebecca is
working as financial
accountant, threat to
independence is not
significant (King 2018)

5AUDITING AND ASSURANCE
Reference
Clayton, Bruce M., and Chris J. van Staden. "The impact of social influence pressure on the
ethical decision making of professional accountants: Australian and New Zealand
evidence." Australian Accounting Review 25, no. 4 (2015): 372-388.
Jaber, Raed Jameel, and Marwan Mohammad Abu Fadda. "Awareness Level of Professional
Independence Requirements, through Assimilation of Fundamental Principles of Professional
Ethics, by Jordanian CPA Auditors, in Auditing Process: Field Study." International Journal of
Economics and Finance 8, no. 9 (2016): 11-25.
King, Agnes. "NOCLAR: What it means for you." Australian Restructuring Insolvency &
Turnaround Association Journal30, no. 1 (2018): 20.
Mah, S. "Understanding the public and private interest roles of professional accounting bodies’
disciplinary processes: a review of the Australian experience." (2018).
Martinov-Bennie, Nonna, and Rosina Mladenovic. "Investigation of the impact of an ethical
framework and an integrated ethics education on accounting students’ ethical sensitivity and
judgment." Journal of Business Ethics 127, no. 1 (2015): 189-203.