Auditing and Professional Practices: Ethical Principles and Practices

This assignment delves into the intricacies of auditing and professional practices, focusing on ethical considerations and their practical application. It examines various scenarios, including breaches of confidentiality, professional appointments, and conflicts of interest, referencing the Accounting Professional and Ethical Standards 110 (APES 110). The assignment analyzes situations involving non-audit services, auditor independence, and adherence to accounting standards, such as AASB. It also explores different types of audit opinions (unqualified, qualified, disclaimer, and adverse) based on specific case studies. The analysis covers issues like lack of information, ineffective internal controls, and non-compliance with accounting principles, providing a comprehensive overview of ethical dilemmas and their impact on audit outcomes. The assignment highlights the importance of maintaining ethical conduct and professional integrity in the field of auditing.

Running head: AUDITING AND PROFESSIONAL PRACTICES
Auditing and Professional Practices
Name of the Student
Name of the University
Author’s Note

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Introduction
Auditing refers to the process of inspecting the financial statements of the companies so
that it can be ensured that they are free from material misstatements (William Jr, Glover and
Prawitt 2016). At the time of conducting the audit operations, the auditors are required to comply
with all necessary auditing standards and principles. Non-compliance with these standards can
lead to the breach of ethical principles. The auditors are responsible to provide correct audit
opinion based on the result of audit procedures.
Question 1
Answer to [a]
While conducting different audit procedures in the companies, the obligation is on the
auditors to make compliance with the required ethical standards. Accounting Professional and
Ethical Standards 110 (APES 110) contains all the ethical standards and principles. Among all
these principles, the confidentiality principle is an important part. According to this principle, the
auditors are not allowed to make disclosure of the financial information of the audit client
acquired while performing the audit operation to any third party. The provided situation indicates
the delivery of audit working papers related to the current audit operation to Penshurst
Accountants from Mortdale Accounting firm. While providing this audit information to
Penshurst Accountants, Mortdale Accounting firm did not inform the audit client. Thus,
according to APES 110, Mortdale Accounting has violated the audit ethical principle of
Confidentiality (Martinov-Bennie and Mladenovic 2015).

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Answer to [b]
From the provided situation, it can be seen that Jan Dungog makes a job application for
one of the accountant’s position. What attracts the attention is the job application by Jan Dungog
in a new company for a new position while presently working in a company. Apart from this, he
also asked the local company not to inform his current employer about this application. The local
organization appointed him in their company by accepting his application and they has not
informed his current employer about this. According to APES 110 Section 110, these acts of
both Jan Dungog and the local company lead to the breach of the audit ethical principle of
Professional Appointment. According to this principle, at the time of accepting the engagement
application of the auditors, business organizations are required to determine the existence of any
kind of threat in the appointment process related to compliance. In this particular case, the
breaching of this act can be seen from the act of the company (Ottaway 2014).
Answer to [c]
The provided case indicates towards the existence of two separate situations. First,
Wendal Sailor is an audit professional; second, he is the owner of a business of superannuation
and insurance. In this context, it needs to be mentioned that there is not any breach of auditing
ethical standard due to the fairness of the fact that n auditor can have his/her own business. The
provide case study indicates that Wendal Sailor uses to give advise related to other non-audit
services to his audit clients at the time of providing the audit services to them. According to
Section 290 Provision of Non-assurance Services to Audit Clients principle of APES 110, the
auditors are not supposed to provide any kind of non-audit services to their audit clients while
conducting the audit operations as it creates threat for auditors independence. Moreover, the

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audit agreement does not include anything related to non-audit services due to its illegal nature
for the audit profession (Chapple et al. 2014).
Answer to [d]
According to the ethical principle of auditing, an active member of the audit team do not
have the right to possess any significant position in any other business corporations. From many
instances all over the world, it can be observed that the audit members of the business
organizations work as acting members as the board of directors of other companies. Ethical
principles of auditing consider this act as illegal as it can affect the independence of auditors.
However, difference can be seen in the provided case situation. The provided situation shows
that Judith Durham works as an audit partner of a not-for-profit making organization. At the
same time, he posses the position of honorary member in the board of directors of a company. It
needs to be mentioned that there is not any violation of audit ethical principles due to the
honorary position of him in the board that prohibits him in taking any management related role in
the company (William Jr, Glover and Prawitt 2016).
Answer to [e]
The provided case situation states that Ernie Dengate sells his accounting practices like
bookkeeping, auditing, tax and others. In this situation, he has the permission of selling only the
tax working papers, not others. In spite of this fact, he has sold all the other accounting papers to
a new accountant Jago. In this context, APES 110, Section 250 Marketing Professional Services
has mentioned about the creation of the threat of auditor’s independence from this situation. The
above principle states that the auditors are required to obtain permission from authority before

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selling their professional services. Thus, in this situation, Ernie Dengate has violated the
principle of Marketing Professional Services (Clayton and Staden 2015).
Answer to [f]
In today’s business world, it can be seen that the auditors of the companies use to provide
different types of non-audit services to their audit clients. These non-audit services include
management advices, tax consultation and others. As per the auditing regulations, providing non-
audit services is illegal as they are not included in the audit agreement form and all the details
related to this can be found in APES 110, Section 290.156 Provision of Non-Assurance
Services to Audit Clients. The given situation states that Fred Nerk provides both audit and non-
audit services to his audit clients simultaneously. Due to the delivery of these non-audit services,
it is possible that he accepts non-financial or financial rewards from the audit clients for the non-
audit services that is not included in the audit agreement (Carey 2015). Thus, it can be
understood that Fred Nerk has violated the ethical principle of Provision of Non-assurance
Services to Audit Clients.
Answer to [g]
While conducting the different audit procedures in the client’s organizations, the auditors
are required to deal with different types of financial information of their business. Thus, in the
process of audit procedures, the auditors are required to consider the confidentiality aspect of
client’s financial information. In this process, it is the responsibility of the auditors to maintain
the security of the vital financial information so that non-authorized people cannot access it. The
provided situation states that due to the lack of adequate facility, the company keeps all the
important audit information in another computer. There is a high possibility of ineffective

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security system in the new computer and it can lead to theft of information. At the same time,
theft of information may affect the independence of the auditors. Thus, according to APES 110,
Section 280 Objectivity, this incident violates the objectivity principle of auditing (Trung 2015).
Answer to [h]
While conducting the audit procedures in the companies, the auditors have the obligation
of complying with the audit ethical code of conducts. Thus, as per the principles, the auditors are
needed to be honest and to maintain integrity. The provided case study shows the involvement of
James Jameson in different activates like consumption of drug and alcohol, fighting, reckless
driving and others that affect the integrity and professionalism of the audit profession. Apart
from this, he was sentenced for jail for three months. It implies that the he failed to act properly
and professionally in front of everyone. Hence, according to APES 110, Ethical Principles,
these acts of James Jameson are against the ethics of audit profession (George, Jones and Harvey
2014).
Question 2
Answer to [a]
While conducting the audit operations of the business organizations, the auditors require
all the necessary information of the audit clients. To obtain correct and relevant information has
large role to play in the delivery of fare and correct audit judgment. From the provided situation,
it can be seen that the auditors of the organization are unable to get any confirmation of eight
major customers of the organization. However, with the assistance of other relevant information,
it was possible for the auditors to judge the fairness of the account balances. Due to this, the

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auditors would provide Unqualified Audit Opinion with proper explanation (Tsipouridou and
Spathis 2014).
Answer to [b]
It is the prime responsibility of the management of the companies to provide the auditors
with every authorization to access all the required and relevant information so that the audit
operations can be conducted in the smooth manner. In the provided situation, it can be seen that
the auditors of the company has got restriction from the side of the company’s management on
the required procedures for the verification of account balances of property, plant and equipment.
It is vital to verify these accounts as they contributes 35% of the total assets and it is an obstacle
to determine the actual financial position of the company. Thus, the auditor will provide
Disclaimer Audit Opinion along with proper explanation (Xu et al. 2013).
Answer to [c]
This case is almost similar to the above situation. It is one of the major responsibilities of
the companies to provide the auditors with all the necessary information of their financial
statements. In the determination of the correct financial position of the businesses, the
importance of the determination of contingent liability cannot be ignored. From the provided
case study, it can be seen that the management of the company has not included a majority
portion of contingent liability in the financial statements and it can has a material impact on the
financial statements of the company. Thus, the auditor will provide Disclaimer Audit Opinion in
the absence of required information (Habib 2013).

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Answer to [d]
It is the obligation of the ASX listed Australian companies to follow the accounting
principles and standards of AASB. According to the principles of AASB, in order to maintain all
the required financial transactions, internal control of the companies is required to be effective.
Loss of important financial information has major negative impact on both the financial position
of the companies and the audit opinions. In the provided situation, lack of effective internal
control leads to the lost of crucial business information related with large amount of cash sales
and it has left the company with no option for verification. Due to this, the auditor will provide
Adverse Audit Opinion (Stewart, Kent and Routledge 2015).
Answer to [e]
The provided situation indicates towards the satisfaction of the auditors with the
information of the financial statements and they become ensure that the financial statements are
free from material misstatements, as they have not found any kind of material missstements in
the financial statements. At the same time, the company has not provided the opening balance for
the financial year. Hence, the auditor would provide Qualified Audit Opinion along with sharing
the fact on the absence of opening balance (Ittonen 2012).
Answer to [f]
It is the responsibility of the business organizations in the area of accounting is to comply
with all the necessary accounting standards and principles. In this provided situation, it is
required for the company to comply with the accounting standards of Australian Accounting
Standard Board (AASB). The analysis of the provide situating states that the company has not
complying with the principles of AASB for last four years. Due to this reason, the auditors of the

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company will issue Adverse Audit Opinion along with mentioning the fact that the company has
not followed the required accounting standard (Tepalagul and Lin 2015).
Answer to [g]
There are two processes of stock valuation; they are Last In First Out (LIFO) and First In
First Out (FIFO). In this context, it needs to be mentioned that the companies are required to
comply with the accounting standards and principles of AASB. As per the provided case, the
company is using the method of LIFO that is disallowed by AASB. For this reason, the auditors
will issues Adverse Audit Opinion due to the non-compliance of the company with the standards
of AASB (Miglani, Ahmed and Henry 2015).
Answer to [h]
It is the prime responsibility of the auditors to conduct proper investigation for analyzing
different financial accounts of the companies so that proper audit opinion can be provided. In the
provided situation, after conducting required investigation and analysis, the auditor has provided
confirmation on the fact that all the financial statements are free from material misstatements and
the accountants have prepared them in accordance with AASB principle and standards. However,
the auditors have doubt regarding the going concern status of the company. For all these reasons,
the auditor will issue Unqualified Audit Opinion by mentioning the going concern issue
(Sultana et al. 2015).
Conclusion
In the above discussion, the results of different cases shows that the breach of auditing
ethical principles can pose different auditing threats like non-assurance threat, threat of

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professional judgment and others. On the other hand, the auditors issue different kinds of audit
opinions like unqualified audit opinion, adverse audit opinion, qualified audit opinion and others.

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