Ethical Principles and Threats in Auditing and Assurance Assignment

This assignment solution examines several ethical violations and threats within the context of auditing and assurance. It begins by addressing a violation of the objectivity principle where an auditor's independence could be compromised due to client influence regarding payment terms. The solution then analyzes a breach of professional behavior where an accountant is offered a commission for client referrals, highlighting the importance of maintaining integrity. The assignment further explores self-review threats, exemplified by an auditor who was previously employed by the client, potentially affecting the impartiality of the audit. Finally, it discusses a self-interest threat where an audit manager might be influenced by the client's presentation of financial information, potentially leading to biased reporting. The solution references relevant academic sources to support the analysis.

AUDITING & ASSURANCE

Auditing
a. Non-violation
The principle of objectivity needs the professional to be unbiased in the opinion or a conflict
of interest should not arise or the opinion should not be influenced by any situation. It implies
that the decision should be independent without falling under any undue influence (Church et.
al, 2008).
The Audit services of Simtec Ltd was managed by the Gordan Accountants from July 7th to
2nd September 2016 and it was stated by Simtec that the final payment will be based upon the
receipt of the final report. If the terms and condition of the client are agreed upon by the
Gordan Accountant then it would have been a violation of the principle of objectivity because
then it would have been an undue influence from the client.
b. Non violation
As per the ethical principle of the professional behavior, it must be ensured by the
professional that the necessary regulations must comply any activity that tarnishes the image
of the profession must be avoided.
In this scenario, David Dale is a local accountant and is asked by the Insurance Company to
share the details of the client and even offered a 5% commission for every new client. In this
case, if David accepts the condition laid down by the Insurance Company then it will be a
huge disrespect to the Insurance Company as a professional is not expected to accept any
commission from an outside body. Therefore, if David accepts the terms and conditions then
it will breach the professional conduct and bring disrespect (Elder et.al, 2010).
c. Self-Review Threat
It is a threat that happens when a work or a judgment is required to be ascertained by the
person who did that work. In this case, Ellen Davis is appointed as a Senior Account
Manager for a span of 4 years in Jenkins Ltd, the firm Thornleigh Accountants appointed for
the purpose of the audit. If there is an inclusion of Ellen in the audit team then it is a self-
review threat because she has already been a part of this particular client firm and is well
acquainted with all the facts and figures (Matthew, 2015). Further, she would not change the
facts and figures and the review that has already been submitted. Hence, it will lead to a pre-
defined action that will spoil the very nature of the process of accounting.
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Auditing
d. Self-Interest threat
In the provided case, John Dargin the audit manager has taken receipt of the accounts from
the client Winmalee Ltd. In such accounts, the company has treated the expenditure
development as a capital expenditure and did not include in intangible assets. The client has
even provided details that were acquired and were sympathetic in their approach while doing
the assets valuation. The preparation of reports has been done by the senior staff that has an
interest in the profits scenario of the company (Gay & Simnet, 2015). The auditor is
provided with all the relevant details by the client company that can show the treatment of
development expenditure is correct. It can be best described as a self-interest threat as the
auditor has a fear that he will lose the client if all the points are not met as per the client’s
specification.
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Auditing
References
Church, B, Davis, S & McCracken, S 2008, ‘The auditor’s reporting model: A literature
overview and research synthesis’, Accounting Horizons vol. 22, no. 1, pp. 69-90.
Elder, J. R, Beasley S. M.& Arens A. A 2010, Auditing and Assurance Services, Person
Education, New Jersey: USA
Gay, G & Simnet, R 2015, Auditing and Assurance Services, McGraw Hill
Matthew S. E 2015, ‘ Does Internal Audit Function Quality Deter Management
Misconduct?’, The Accounting Review, vol. 90, no. 2, pp. 495-527
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