Auditing Report on Ethical Issues and Recommendations - Auditing 1

This report analyzes several ethical issues encountered in an auditing scenario, referencing APES 110 guidelines. It identifies concerns related to audit fees, confidentiality breaches through outsourcing, potential conflicts of interest involving an audit associate, and the provision of non-audit services. The report meticulously examines each issue, citing relevant sections of APES 110 to support its claims. It then provides specific, actionable recommendations to address each ethical concern. These recommendations include the need for fee revisions, obtaining consent for sharing confidential information, ensuring thorough background checks and exclusion of conflicted personnel, and careful consideration of the level of non-audit services provided. The report effectively outlines the problems and proposes practical solutions to uphold ethical standards and ensure audit integrity.

Running head: AUDITING
Auditing
Name of the Student
Name of the University
Author’s Note

1AUDITING
Table of Contents
Requirement 1..................................................................................................................................2
Requirement 2..................................................................................................................................3
References........................................................................................................................................4

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Requirement 1
First Issue: As per Section 240 of APES 110, Fees and Other Types of Remuneration, self-
interest threat of audit independence can be developed in case the fees of the auditors are low as
compared to the engagement tasks in the companies (apesb.org.au 2018). As per the provided
situation, the audit committee is refused to increase the fees of the auditors; and thus, it affected
the audit quality by increasing the risk of material missstements and others.
Second Issue: As per the provided situation, Zara has been involving in the process to outsource
the audit works of Simpson to the Indian office and this process makes them able in accessing
the confidential information of the company in the absence of their consent. As per Section 140
of APES 110, Confidentiality, the auditors are restricted from disclosing the confidential
information of the audit client to any third party in the absence of their permission. Thus, with
the application of this standard, it can be said that there is an audit ethical risk of breaching
confidentiality in the action of Zara (Martinov-Bennie and Mladenovic 2015).
Third Issue: According to Section 290.125 of APES 110, Business Relationship, in case an audit
associate has considerable amount of share in one of their audit clients, it can lead to the self-
interest threat of audit independence (apesb.org.au 2018). At the same time, an audit associate
cannot use the information obtained from another associate who used to be an employee of the
audit client as it can lead to the threat of audit independence. Thus, from the provide information
of the case, it can be said that there is a threat of self-interest threat of audit independence.
Fourth Issue: According to Section 290.156 of APES 110, Provision of Non-assurance Services
to Audit Clients, there is a possibility of the development of self-review, self-interest and
advocacy threat in case the auditors provide their clients with non-audit services more than set

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level. As per the provided situation of Zara, the auditor is providing non-audit services to the
audit client and it can lead to the independence threat of auditing.
Requirement 2
The recommended actions are as follows:
1. In case of the first issue, it is needed for the audit committee of Simpson to revise the fee
of their auditors that is to increase the fees of the auditors due to the increase in the
business operations and complex financial operations (George, Jones and Harvey 2014).
2. In case of the second issue, the auditors are needed to take the consent of the company
about sharing their confidential financial information with the aim to increase the audit
efficiency. This will eliminate the threat of breaching the confidentiality principles.
3. With the aim to control the third issue, it is needed for Zara to ensure the effective
background check of the auditors before their appointment. At the same time, Zara needs
to ensure the exclusion of Russell from the engagement team (Mladenovic et al. 2017).
4. In case of the fourth issue, it is needed for Zara to ascertain the level of non-audit services
before providing them so that they cannot lead to material misstatement.

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References
Apesb.org.au., 2018. APES 110 Code of Ethics for Professional Accountants. [online] Available
at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 30
Nov. 2018].
George, G., Jones, A. and Harvey, J., 2014. Analysis of the language used within codes of ethical
conduct. Journal of Academic and Business Ethics, 8, p.1.
Martinov-Bennie, N. and Mladenovic, R., 2015. Investigation of the impact of an ethical
framework and an integrated ethics education on accounting students’ ethical sensitivity and
judgment. Journal of Business Ethics, 127(1), pp.189-203.
Mladenovic, R., Martinov-Bennie, N. and Bell, A., 2017. Business students’ insights into their
development of ethical decision-making. Journal of Business Ethics, pp.1-13.