Auditing Theory and Practices: Analysis of Audit Opinions Report

This report provides a detailed analysis of auditing theory and practices, addressing several key case studies. The report begins by examining ethical breaches, such as guaranteeing tax refunds, and the importance of auditor independence. It then delves into situations involving potential threats to independence, including self-review and intimidation threats. The report also explores various audit opinions, including unqualified, qualified, and disclaimer of opinion, in the context of specific scenarios. The analysis covers the responsibilities of auditors regarding financial statements, material misstatements, and compliance with accounting standards. Overall, the report provides a comprehensive overview of the practical application of auditing principles and ethical considerations.

Running head: AUDITING THEORY AND PRACTICES
Auditing theory and practices
Name of the Student
Name of the University
Author note

1AUDITING THEORY AND PRACTICES
Table of Contents
Question 1 Answers.........................................................................................................................2
1 A...............................................................................................................................................2
1 B................................................................................................................................................2
1 C................................................................................................................................................3
1 D...............................................................................................................................................4
Question 2 Answers.........................................................................................................................4
2 A...............................................................................................................................................4
2 B................................................................................................................................................5
2 C................................................................................................................................................5
Question 3 Answers.........................................................................................................................6
3 A...............................................................................................................................................6
3 B................................................................................................................................................7
3 C................................................................................................................................................7
References........................................................................................................................................9

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Question 1 Answers
1 A
According to the provided situation it is seen that Berowra Accountants are ensuring a
guaranteed tax refund to their respective clients through using various advertising techniques. In
this regard, it can be said that knowing the basic ideas regarding tax refund is important. To
explain matters of tax refund, it can be said that tax refund is the difference between the paid tax
and the tax that is owed (Galit and Metaban 2012). To identify whether a business corporation is
eligible to receive tax refund, it would totally be dependent on the factors like income, profit and
the expenses related to the tax of the business organization. It would be impossible for the
management of the organization to make sure a refund of tax. Not only is that, the chief
responsibility of the auditors to examine the financial accounting of the business and locate the
material misstatement and to check for the compliances. Therefore it can be said that for the
cases of tax refund, it would surely be a non-audit service. Because of this according to APES
110 Code of Ethics for Professional Accountants, Section 130, the act of the accountants of
Berowra has breached the principle of Professional Competence and Due Care (Han Fan,
Woodbine and Cheng 2013). As per this act, the auditors can retain their clients by knowing the
limitations of their professions and in this particular case study the accountants of Berowra failed
to do so.
1 B
According to the provided case study, Jamie Harvey, the auditor of a charter accounting
organization is been asked to take up the responsibility of the treasurer in a nearby club and

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Harvey only performs audit of bigger public organizations. In this regard, it must be mentioned
that in most cases the athletic clubs are considered as non-profit organizations. According to the
APES 110 Professional Appointment, Section 210, when the auditors accept the appointments of
a new client, the auditors should examine whether the appointment will influence the compliance
of the fundamental principles of auditing. In this particular case study, when the proposal of
getting the post of a treasurer gets accepted by the auditor, there was no breach of principles
because of some valid reasons (Ottaway 2014). These reasons are that as Harvey holds the post
of an auditor in public concern and there are no similarity between the operation styles of the
athletic club and the business organization where Harvey is employed. Another major reason is
that no fundamental ethical principle will get influenced because in case of the appointment in
the organizations that is non-profitable (Kuan 2014).
1 C
According to the provided case study, a situation is mentioned where the sum payable to
the auditor is dependent on the opinion of the outcome of the audit which is appropriate to the
audit client Monlec Ltd. It thus discloses that the management of Monlec Ltd is requesting for a
audit report that would be favorable for their organization. In this context, it would be necessary
to mention that the auditors represent the stakeholders and the investors; and not the business
organizations. According to APES 110 Principle of Objectivity, Section 120, the auditors must
not show their business and professional judgment for any types of influence, biasness and any
types of conflict of interest (Athanasiou 2014). It shows that the judgment made by the auditors
should not be influenced by any sort of biasness. According to the case study, the report of the
audit provided by the auditor is somewhat favorable for the Monlec Ltd and there is a act of
committing a breach of principles of auditing. There should not be any types of infringement of

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the ethical principles regarding auditing when the auditors provide an opinion that is not biased
(Trung 2015).
1 D
According to the case study, it is seen that Winton Accountants has showen all the reports
and papers of Motoring Services to the Chadwick Chartered Accountants. Chadwick Chartered
Accountants have the task of reviewing the quality of the audit performed by Winton
Accountants. This shows that Chadwick Chartered Accountants have to perform various tests
and processes to check the quality of auditing by the Winston Accountants. According to APES
110 Principles of Confidentiality, Section 140, the auditors have the obligations to maintain the
confidentiality if the attained information related to the auditing clients. It explains that the
auditors should not reveal the gathered information of the audit clients to any third party.
According to the case study, the Winton accountants have revealed all the information and vital
data related to the Motoring services to Chadwick Chartered Accountants by giving them all the
documents of audits (Carey, Monroe and Shailer 2014). Hence, it can be said that Winton
Accountants have broken the principles of the trade regarding the auditing with their stipulated
actions.
Question 2 Answers
2 A
According to the provided situation, it is seen that Thornleigh Accountants have replaced
Leona Ng with Jane Davis to finish the audit work of Jenkins Ltd due to illness of Leona. The
provided situation is that the Thornleigh Accountant’s management wants to take in Jane Davis
in the Audit team to perform the audit works of Jenkins Ltd from the mid weeks of July. This

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situation increases the fear of interdependence of audit for Thornleigh Accountants. According to
APES 110, Self-review Threat, Section 100.12, no member of an audit team can have the right to
use the results of an audit work performed by any other member of the same team of audit. Not
only that, the act also describes that results of a previous work of audit done by a member of the
audit team; cannot be used by any other member of the same audit team. The same rule is
applicable to the Thornleigh Accountants as the business organization is planning to utilize the
judgment of the performed audit by Jane Davis who has the knowledge of the accounts of the
organization (DeFond and Zhang 2014).
2 B
As per the provided case study it is seen that John Darrow is responsible for performing
the audit works of Winmale Ltd. Winmale Ltd has given all the necessary documents and
computer files related to the company’s net valuation at that time. In this process the person who
performs the audit work has to have all the necessary documents regarding the company’s assets
to accurately perform the task. In this situation, the auditor should not use the documents
provided by the client and in this case the client company has provided all the documents. In this
situation the auditor might feel pressurized by this act of the management of the Winmale Ltd as
they might have provided the documents to get a judgment in their favor. Thus, in this context it
can be said that according to APES 110, Section 200.8, this condition might generate
Intimidation Threat of the auditor’s independence (Ojo 2013).
2 C
According to the provided case study, it is seen that the Chocolate company has
requested the auditors to visit the second chocolate show and also requested them to visit the
social club of the firm. It requiredto be stated that the auditors must not comprise any sort of

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entertaining activities with the audit clients. As per APES 110, Self-interest Threat, Section
100.12, there might be a threat to independence of the auditor in case any kind of financial or
non-financial concern of the auditor’s influence the audit opinion (Deumes et al. 2012).
According to the case, it can be perceived that the chocolate company might be intending to
influence the auditors by tempting them to the entertaining activities with a motive to get
favorable audit opinion. Thus, in case, if the auditors accept the invitation of the business
organization to attend the social club, they would produce the self-interest threat to the auditor’s
independence.
Question 3 Answers
3 A
The key concern of the auditors is to scrutinize the financial statements of the business
organizations in order to confirm that all the financial statements of the firms are free from any
type of material misstatements and they have been arranged by obeying all obligatory
regulations. Apart from that, the auditors do not have the accountability to comment on the client
organization’s financial position if there is no kind of fraudulent activities. In case of Connor
Company, it is seen that the organization is severely reliant on the bank overdraft in order to pay
off their loans, as they does not have any other option left in this regard. Not only that, the bank
requests reimbursement within one month’s time. It displays that the weak economic condition
of Connor Company. Nonetheless, this facet has not formed any consequence on the materiality.
The auditor has not come across any type of material misstatement in any financial statements of
Connor Company. It suggests that the Connor Company has not influenced their financial

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statements in order to hide their weak debt-paying circumstance. Therefore, the auditor shall
issue Unqualified Audit Opinion for Connor Company (Tsipouridou and Spathis 2014).
3 B
It should be the responsibility of the firms to arrange and present their financial
statements regarding the standards of generally accepted accounting principles. Apart from that
the, companies needs to fulfill the accounting protocols of the nation in which they are working.
In the situation provided, it is seen that the concern should follow FIFO technique for counting
the valuation of inventory, but they are actually following LIFO method like their parent
company in America uses it. Due to this reason, the discrepancy’s effect between the
implementation of FIFO and LIFO has affected the assessment of the valuation of the inventory
that backs up the material misstatement. Therefore, in this particular area of concern, the auditor
has the right to issue adverse opinion, because there are mutually compliance issues and material
misstatements present. Nevertheless, except the inventory, there is no sign of any other material
misstatement in any of the statements of the business organization and there are no compliance
issues. Due to reason, the auditor can issue Qualified Audit Opinion. Qualified audit opinion is
quite similar to Unqualified Audit Opinion; On the other hand, in Qualified Audit Opinion, the
auditor has to increase another paragraph highlights the motive for which the statement is not
unqualified (Rahimian, Tavakolnia and Karamlou 2014).
3 C
It is needed for the business organizations to measure the valuation of their net assets
counting on things like land, plant, machineries, buildings and others regularly because of the
changes in market price. In the case of Victorian Manufacturing Company, it is perceived that
they did not measure the valuation of their factory located in Melbourne for last five years as the

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directors consider that there are no significant changes in the market value of that factory. Hence,
the directors are taking a huge risk that might not possibly be right and can produce a major
material misstatement. At the time of piloting the operations of audit, the auditors will require
the current value of land and buildings and in the absence of this, the auditors would not be able
to deliver accurate audit opinion as it confines their process of scrutiny. Due to this, the auditor
will have to issue Disclaimer of Opinion, as they will fail to perform an accurate audit report
(Kachelmeier, Schmidt and Valentine 2016).

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References
Athanasiou, A., 2014. Avoiding client persuasion. Taxation in Australia, 48(10), p.601.
Athanasiou, A., 2014. Boy, you're gonna carry that weight a long time!. Taxation in
Australia, 49(2), p.106.
Carey, P.J., Monroe, G.S. and Shailer, G., 2014. Review of Post‐CLERP 9 Australian Auditor
Independence Research. Australian Accounting Review, 24(4), pp.370-380.
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting
and Economics, 58(2), pp.275-326.
Deumes, R., Schelleman, C., Vander Bauwhede, H. and Vanstraelen, A., 2012. Audit firm
governance: Do transparency reports reveal audit quality?. Auditing: A Journal of Practice &
Theory, 31(4), pp.193-214.
Galit, S.H. and Sorbe, T., Metabank, 2012. Computerized extension of credit to existing demand
deposit accounts, prepaid cards and lines of credit based on expected tax refund proceeds,
associated systems and computer program products. U.S. Patent 8,090,649.
Han Fan, Y., Woodbine, G. and Cheng, W., 2013. A study of Australian and Chinese
accountants’ attitudes towards independence issues and the impact on ethical judgements. Asian
Review of Accounting, 21(3), pp.205-222.
Kachelmeier, S.J., Schmidt, J.J. and Valentine, K., 2016. The disclaimer effect of disclosing
critical audit matters in the auditor’s report.

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Kuan, K.T.C., 2014. Auditor independence: an analysis of the adequacy of selected provisions in
CLERP 9 (Doctoral dissertation, Queensland University of Technology).
Ojo, M., 2013. Audits, audit quality and signalling mechanisms: concentrated ownership
structures.
Ottaway, J., 2014. IMPROVING AUDITOR INDEPENDENCE IN AUSTRALIA: IS
‘MANDATORY AUDIT FIRM ROTATION’THE BEST OPTION?.
RAHIMIAN, N., TAVAKOLNIA, E. and KARAMLOU, M., 2014. Qualified Audit Opinion and
Debt Maturity Structure.
Trung, N.K., 2015. Ethics Education In The University. International Journal of Scientific &
Technology Research, 4(8), pp.5-10.
Tsipouridou, M. and Spathis, C., 2014, March. Audit opinion and earnings management:
Evidence from Greece. In Accounting Forum (Vol. 38, No. 1, pp. 38-54). Elsevier.