Auditing Assignment: Ethical Issues and Actions for MYH - Report

This report provides an analysis of an auditing case involving Miller Yates Howarth (MYH), a regional accounting firm, and one of its clients, Morgan Fertilizers. The case highlights ethical issues, including a questionable waste management contract with Dumparound Ltd. and the overvaluation of inventory at Morgan Fertilizers. The report utilizes the American Accounting Association's (AAA) seven-step ethical decision-making model to assess the situation. It explores the facts of the case, identifies ethical dilemmas, and considers relevant norms, principles, and values. Alternative courses of action are proposed, and the best course of action for the audit senior, Jacqui Leak, is determined, considering the potential consequences of each decision. The report concludes with a final ethical decision and emphasizes the importance of ethical conduct and accurate financial reporting. It also discusses potential legal liabilities and the impact of ethical choices on stakeholders and the auditor's reputation.

Auditing Assignment 1
Auditing Theory and Practice: First Report

Auditing Assignment 2
Executive Summary
Miller Yates Howarth is the second largest regional accounting firm in Australia. Most of
MYH’s audit clients are in agriculture, mining, manufacturing and property industries. Jacqui
Leak is one of the audit seniors at MYH and Morgan Fertilizers Pty Limited is one of MYH’s
long standing clients with operations in both Tamworth and Bathurst in NSW and Toowoomba
in Queensland. During the audit of Morgan fertilizers, Jacqui notices that the company changed
its contractors for waste management to Dumparound. The waste contract is not even signed by
Dumparound and even the amount of waste is not specified. Another ethical issue that the
company is facing is that Morgan fertilizer has reported to carrying overvaluation of inventory.
As per the case, 50% of the company’s inventory is held at the company’s Bathurst facility and it
is the inventory that does not exist. The inventory is being overvalued by 35%. Although MYH
has correctly verified the quantity of Tamworth stock, they accepted management’s valuation,
which did not take account of considerable obsolescence. This report is based on the seven step
model of American Accounting Association about the ethical decision-making to resolve the
ethical issues involved in the case and to suggest Jacqui the best course of action and the
influences of common law on negligence issues.

Auditing Assignment 3
Table of Contents
Introduction......................................................................................................................................4
American Accounting Association ethical decision-making model................................................4
Facts of the Case:.........................................................................................................................4
Ethical issues of the case..............................................................................................................5
Norms, principles and values related to this case........................................................................5
Alternative course of action.........................................................................................................5
Best course of action....................................................................................................................6
Consequences of each possible course of action.........................................................................6
Final Decision..............................................................................................................................6
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

Auditing Assignment 4
To: Berry (Audit Partner of MYH)
Subject: Report on Ethical Issues at MYH and Required Course of Actions
Main Body of Report:
Introduction
American Accounting Association was founded in 1916 as American association of University
Instructors in Accounting. In 1936, its present name was adopted. American Accounting
Association is a voluntary organization of persons interested in accounting education and
research (American Accounting Association, 2016).
American Accounting Association ethical decision-making model
American Accounting Association model suggests seven- step process for decision-making
which takes into account ethical issues.
Facts of the Case:
MYH is an accounting firm. Morgan fertilizer is one of the clients of MYH with operations in
NSW and Queensland. Jacqui Leak is one of the audit seniors and the main concern of Jacqui
was that she noticed that Morgan fertilizers changed its contractor for waste management for the
financial year 2016-2017 to Dumparound ltd, which is already being investigated for the level of
toxic waste at one of its sites. The waste management contract between the two was not being
signed by Dumparound (Ryan, 2016). Jacqui was concerned, because she was very much
interested in environmental issues and therefore was tensed about the toxic dumping. But
Jacqui’s efforts were all in vain, because the Barry, the MYH partner in charge of the audit asked
her to mind her own business and only concentrate on the correctness of the report (Wright,
2015). Oasis filed a case against the company, because according to Oasis, MYH has given

Auditing Assignment 5
misstatement in their financial statements when takeover offer was made by Oasis Ltd. Oasis
discovered this overvaluation of inventory after two months of the takeover.
Ethical issues of the case: One of the ethical issues in this case is that the company has changed
its waste management contract to Dumparound Ltd. And this waste management contract does
not specify the damages. Another ethical issue is related to legal liability. After two months of
takeover made by Oasis ltd., it is discovered that Morgan fertilizers’ is showing overvalued
inventories in the audited balance sheet (Townsend and MacBeath, 2011). After detailed
investigation, it is identified that 50 % of company’s inventory is held at the company’s Bathurst
facility and the Tamworth based inventory is determined to have been overvalued by 35%. MYH
does not have any evidence of this misstatement.
Norms, principles and values related to this case: This step is based on the assumption that
stakeholders and any other person related with the company that the company will provide a true
and fair view of its financial accounts (Dutton, 2017; and Gay and Simnett, 2015). This step is
based on the auditor, because the auditors of the company are assessing its accounts and if any
misstatement is being conveyed to the stakeholders, then it means it is the failure of the auditor’s
duty to stakeholders.
Alternative course of action:
Option 1:
The first option is to specify the exact amount of toxic waste and sign a legal contract with
Dumparound and to evaluate the previous year’s accounts to identify the misstatements.
Option 2:
Another option is to prove that there is no excessive waste in the company and there is no
misstatement in the accounts.

Auditing Assignment 6
Best course of action: The best course of action for Jacqui is to completely evaluate the previous
year records and try to find out the reason behind the misstatement and the amount of waste.
Because if current years balance sheet is made as per previous records, then the same issue will
be faced by Jacqui year by year, as the mistake is being carry forward. The balance sheet is
formed by carrying forward the previous balance, so in this way the company will also carry
forward the overvaluation of inventories (McCarthy, 2013). If Jacqui does not find out the
amount of toxic, then heavy fines will be charged from the company. As an auditor, it is the
responsibility of Jacqui to analyze the company’s financial records.
Consequences of each possible course of action:
Consequences of Option 1:
The auditor would accept the excessive dumping of toxic and the misstatement of inventories
made in the financial statements.
Consequences of Option 2:
The auditor would refuse the waste management and the misstatement. This will raise a number
of unfortunate consequences for the client and for the future of the client-auditor relationship.
But this will maintain the reputation and social standing of auditors, public confidence in audit
and will serve the best interested of the shareholders.
Final Decision:
The ethical decision is option 1. If Jacqui choose option 2, then it will be profitable for a very
short period of time, because by the end of time, the shareholders come to know about the
mistakes done in the valuation of inventories. So it is better that Jacqui will disclose the faults
now and suggest some ways to overcome the mistakes done. This will maintain the shareholders
trust, because the auditor herself is disclosing everything instead of hiding it. We cannot run a

Auditing Assignment 7
company with mistakes in its accounts for a long time (Ryan, 2016). If at any point of time deep
evaluation of accounts will be done, then there will be chances that shareholders may come to
know about these faults. By disclosing it now at least the confidence of stakeholders towards the
auditors can be maintained and the auditors can maintain the shareholders. The word ethical
means true and fair decision (Frasier-Kolligs, 2016). So if we talk about ethical decision, then
there is no sense of thinking about option 1. The first and foremost aim of every company is to
run business legally. So if the company wants to run legally, then it is must to adopt option 1.

Auditing Assignment 8
Conclusion
This report consists of AAA seven-step ethical decision making model. Every company is
required to make decision by keeping in mind its long-term vision. This report is concluded by
giving a best ethical decision which is most appropriate for MYH. By showing overvaluation of
assets the company is indirectly making a loss. If the investor’s will purchase inventory on the
basis of current financial position of the company, then later it will result in a loss to the
company then the investor has a right to sue the company. So, ethically as discussed above,
option 1 is beneficial for the company presently and in the future also. Option 2 is beneficial for
the company presently, but this option will not benefit the company in the near future.

Auditing Assignment 9
References
American Accounting Association (2016). Thought Leaders in Accounting. Retrieved from:
http://aaahq.org/
Dutton, J.A. (2017). A Seven Step Process for Making Ethical Decisions. Retrieved from:
https://www.e-education.psu.edu/emsc302/node/170
Frasier-Kolligs, K. (2016). California Civil Procedure Before Trial. 4d. USA: Continuing
Education of the Bar-California.
Gay, G. E. and Simnett, R. (2015). Auditing and assurance services in Australia (6th ed.).
Roseville: McGraw.
McCarthy, M. (2013). The Oasis: A Novel. USA: Melville House.
Ryan, F. X. (2016). Revolutionizing Accounting for Decision Making: Combining the Disciplines
of Lean with Activity Based Costing. USA: Xlibris Corporation LLC.
Townsend, T. and MacBeath, J. (2011). International Handbook of Leadership for Learning.
Germany: Springer Science & Business Media.
Wright, D.M. (2015). Common Law in the Age of Statutes: The Equity of the Statute. UK:
LexisNexis Butterworths.