Auditing and Assurance in Australia: Case Study Solution

This case study analyzes ethical issues within the context of auditing and assurance in Australia, focusing on the firm Sharadha & Co. The assignment examines three specific scenarios: the provision of non-assurance services (management consultancy and tax planning) to an audit client, the implications of a former audit manager joining an audit client as a financial controller, and the receipt of marketing fees from a software company for recommending its products to audit clients. The analysis identifies potential threats to audit independence, including self-review, familiarity, and self-interest threats, referencing APES 110 guidelines. The solution proposes safeguards such as using non-audit team members for certain services, modifying audit plans, and eliminating conflicts of interest to mitigate these threats and maintain ethical standards. The assignment highlights the importance of professional skepticism and independence in the auditing process.

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and Assurance in Australia
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Case (a).......................................................................................................................................2
Case (b)......................................................................................................................................2
Case (c).......................................................................................................................................3
References..................................................................................................................................5

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Case (a)
1. As per the provided case, Shar provides certain additional non-assurance services to
Marina apart from the audit of financial statements; they are management consultancy
and tax planning. As per Paragraph 290.164, providing consultancy services to the
management is not considers as management responsibility and this does not violate
any auditing principle (apesb.org.au 2019). As per Paragraph 290.182 of APES 110,
providing taxation services can contribute to the generation of self-review and
advocacy threat of audit independence (apesb.org.au 2019). Moreover, Shar is
involved in providing consultancy services to Marina that includes the introduction of
internal control system. This contributes to the formation of self-review threat because
of the possibility the results of the internal audit services will be used by Shar in the
absence of appropriate evaluation of the results or without employing the same extent
of professional scepticism as would be employed by the individuals in the procedures
of internal audit.
2. In case of tax planning, the safeguards available are to use the professionals that are
not member of the audit team for performing the audit, to have a tax professional who
does not have any inclusion in providing the tax planning services, to acquire advice
from an outside tax professional and to obtain pre-clearance or advice from tax
authorities. In case of providing internal control related services, the safeguard is to
use the professionals who are not the part of the audit team for performing the internal
audit services (cpaaustralia.com.au 2019).
Case (b)
1. Shar has a long-standing relationship with Carter, but there is not any kind of threat or
ethical issue as there has been constant change in the senior audit manager. However,

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it can be seen that an ex audit manager of Shar, Maria, has joined Carter as the
Financial Controller. As per Paragraph 290.134 of APES 110, there can be the
creation of familiarity or intimidation threats because significant connection will be
there between Shar and Maria(apesb.org.au 2019). In this situation, the extent of
familiarity or intimidation threat in Shar would be so significant that it would not be
possible to apply any safeguards for reducing the threat. In this situation, it would be
considered that audit independence would be believed to be negotiated because the
former member of Shar that is Maria has joined the audit client in such a crucial
position that can majorly influence the development of the accounting records of
Carter (apesb.org.au 2019).
2. There are certain actions that can be engaged in case of the above issue. First, it is
needed for Shar to ensure adequate modification in the audit plan so that Maria does
not know the audit plan of the present audit. Second, it is recommended to Shar to
assign such individuals in the audit team of Carter who are adequately experienced in
relation to Maria (cpaaustralia.com.au 2019). Third, it is recommended to Shar to
ensure the inclusion of a member in the audit team responsible for reviewing the work
of the previous member of the audit team that is Maria (cpaaustralia.com.au 2019).
Case (c)
1. It can be seen from the provided case that Shar has received marketing fees in apart
from the audit fees from ForbSoftware for recommending two of its software that is
MYO500 and Q&B300 to the other audit clients of Shar. According to Paragraph
290.124 of APES 110, this indicates towards a close business relationship between
Shar and ForbSoftware that generates from commercial relationship (apesb.org.au
2019). This particular commercial or business relationship can contribute towards the
development of self-interest threat of audit independence. This can be considered as

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arranging the products of ForbSoftware to other clients of Shar through
recommendation. In addition, the reporting of this expense in the draft financial
statement in the name of Shar’s referral fees paid or payable for recommending
software make this financial interest more material and this makes the threat to
significant that no safeguard could be applied for reducing the same to an acceptable
level(apesb.org.au 2019).
2. There are certain courses of actions that can be recommended regarding the issue.
First, Shar need to stop entering into this kind of business relationship with
ForbSoftware. Second, it is recommended to Shar ensure the elimination or reduction
in the magnitude of the transaction with ForbSoftware (cpaaustralia.com.au 2019).
Third, it is recommended to remove the individuals in Shar’s audit team for
ForbSoftware with the aim to terminate these types of business relationships with the
audit clients. These safeguards would help in reducing the threat to an acceptable
level (cpaaustralia.com.au 2019).

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References
Apesb.org.au. 2019.APES 110 Code of Ethics for Professional Accountants. [online]
Available at:
https://www.apesb.org.au/uploads/standards/apesb_standards/23072019055710_APES_110_
Code_of_Ethics_for_Professional_Accountants_December_2010_-_Final.pdf [Accessed 14
Dec. 2019].
Cpaaustralia.com.au. 2019. APES 110. [online] Available at:
https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-ethical-
standards/apes-110-code-of-ethics-for-professional-accountants [Accessed 14 Dec. 2019].