Auditing Assignment: Ethical Principles, Threats, and Reporting

This auditing assignment delves into the ethical principles that govern the profession, examining scenarios where these principles are either upheld or violated. It references APES section 110 and related subsections to support its analysis of integrity, objectivity, and confidentiality. The assignment further explores threats to auditor independence, categorizing them as self-review, self-interest, intimidation, and familiarity threats, providing specific examples for each. Finally, it outlines the key components of an audit report, including the title, addressee, management and auditor responsibilities, and different types of opinions (unmodified and modified), with a detailed explanation of adverse, qualified, and disclaimer of opinion scenarios. The document concludes by emphasizing the importance of ethical conduct and unbiased reporting in maintaining the credibility of the auditing profession. Desklib provides access to this and many other solved assignments for students.

QUESTION 1.
(a) As per the APES section 110 subsection 114, a member should comply with the
principle of confidentiality at any given circumstances and not disclose information
without client’s permission and unless there is a professional requirement. James
Bromley before retiring provides helpful information to the new accountant Jayne
Godfrey with the permission from his client. Thus, it is not a violation of the ethical
principles. ("Code of Ethics - Institute of Internal Auditors (Australia)", 2019)
(b) An Audit Manager is a highly qualified person who not only has knowledge about the
different accounting standards but also has long-term working experience. Fred
Hingarra is an inexperienced auditor. Thus it is unethical for him to be an Audit
Manager.
(c) According to APES 110 subsection 115 and R115.2, exaggerated claims for the
services offered is not an acceptable professional behaviour and thus the Asquith
Accountants violates the ethical principles by advertising about their work.
(d) Going with the fundamental principle of APES section 110 such as Integrity which
means that Amy Harriss should, at all times, be honest in all her professional activities
and relationships; Objectivity which means Amy should not compromise her
judgement due to any biasness or under any influence; and Confidentiality which
means that she should maintain confidentiality of the information that she has
knowledge about, due to her professional activities. Since Amy’s firm does not audit
the athletic club, Amy can work as a treasurer in the club without violating the ethical
principles if she follows the 3 principles mentioned above. ("APES 110", 2019)
(e) In this case the ethical principles is not violated since the client’s expectation to pay
only after getting an appropriate final report is justified.
(f) David Dale is asked to provide not only new clients but also their information in
return of a commission 5% on each client. This is ethically wrong since he will have
to disclose personal information and thus violates the general ethical principles of
APES section 110 subsection 114. (Kaptein, 1998)

QUESTION 2
(a) Ellen Davis who had worked as an accountant in Jenkins Ltd. will also be a part of the
Audit team for the company. This creates a Self-Review threat since Ellen is aware of
the internal affairs. ("Threat To Auditor Independence Accounting Essay", 2019)
(b) In this case John Dargin is not under any threats of independence.
(c) This is a normal case. The Chocolate Company has invited to visit its second shop
does not cause any threat.
(d) Two kinds of threat to independence occur in this case- Self-Interest Threat and
Intimidation Threat; since The Expert Travel Company advises the auditor to be
flexible. Here the auditor has a fear of loosing his client if he does not obey him.
(Mbwambo, 2019)
(e) This is the case of Familiarity threat since a member of the audit team Elaine Ong is
engaged to the senior account of Elmtree ltd. James Bing.
(f) Diane Polo, senior auditor of the auditing team and Elise Lift, senior accountant from
Ranger Ltd. and few other members play softball in the same team. Thus, they have a
long term association with each other and therefore creates a Familiarity threat.
(Millichamp & Taylor, 2012)

QUESTION 3
Contents of an Audit Report ("What Is Included in Audited Financial Statements?", 2019)
 Title: Should mention ‘Independent Auditor’s Report’.
 Addressee
 Responsibility of the Management for Financial Statements
 Responsibility of the Auditor: to express unbiased opinion
 Opinion: Modified opinion or unmodified opinion
 Other Reporting responsibility
 Signature of Auditor
 Place of Signature
Opinion in Audit Report
Two kinds of opinions are found:
1. Unmodified Opinion (also called Unqualified report): Issued for any audit where the
financial statements show a true view of the operations in an organisation having no
misstatements.
2. Modified Opinion (also called Qualified report): If the auditor concludes that the
financial statements contains misstatements he may issue a Modified Opinion in the
audit report.
There are three kinds of modified opinions which are issued as per circumstances
("Auditor's Report", 2019):
A. Adverse Opinion: Issued when
 The auditor finds out the impact of the misstatements is not so high; or
 The auditor is not able to find sufficient and appropriate evidence yet concludes
indications of material misstatements in the financial statement.
B. Qualified Opinion: It is issued when evidence is obtained that there are material
misstatements in the financial statements with high impact.
C. Disclaimer of Opinion: It is to be issued when the auditor is unable to find
sufficient or appropriate evidences and is unable to form any opinion and so he
disclaims from providing an opinion on the financial statements which has high
impact of material misstatements.

REFERENCES
APES 110. (2019). Retrieved from
https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-
ethical-standards/apes-110-code-of-ethics-for-professional-accountants
Auditor's Report. (2019). Retrieved from
https://www.investopedia.com/terms/a/auditorsreport.asp
Code of Ethics - Institute of Internal Auditors (Australia). (2019). Retrieved from
https://www.iia.org.au/technical-resources/professionalGuidance/codeOfEthics.aspx
Kaptein, M. (1998). Ethics management. Dordrecht: Kluwer Academic Publishers.
Mbwambo, E. (2019). THREATS TO AUDITORS INDEPENDENCE. Retrieved from
http://www.academia.edu/9406967/THREATS_TO_AUDITORS_INDEPENDENCE
Millichamp, A., & Taylor, J. (2012). Auditing. Andover, Hampshire: Cengage Learning
EMEA.
Threat To Auditor Independence Accounting Essay. (2019). Retrieved from
https://www.uniassignment.com/essay-samples/accounting/threat-to-auditor-
independence-accounting-essay.php
What Is Included in Audited Financial Statements?. (2019). Retrieved from
https://smallbusiness.chron.com/included-audited-financial-statements-68881.html