Auditing Theory and Practice: Analysis of MYH Audit Division's Ethics

This report provides an analysis of the ethical and legal complexities in the audit division of MYH, considering the AAA standard. It addresses issues related to Morgan Fertilisers and Dumparound Ltd, focusing on ethical concerns raised by Jacqui Leak regarding waste management contracts. The report applies APES 110 (Section 310 conflicts of interest) and AASB 102 (valuation of inventories) to evaluate the ethical and legal implications. It presents a model for determining facts, identifying ethical issues, and specifying alternatives, followed by a comparison of values and alternatives. The report further provides recommendations for managing partners of MYH, discussing the overvaluation of inventory, its impact on financial statements, and the auditor's responsibilities. It also addresses potential negligence charges and the importance of proper audit procedures, including internal control reviews and inventory counts. The conclusion emphasizes the importance of considering obsolescence and the limited time frame of audits.

Running head: AUDITING THEORY AND PRACTICE
AUDITING THEORY AND PRACTICE
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The report intended on addressing the different types of the ethical and the legal complexities
which need to be considered in the audit division at MYH. The main consideration for the
recommendations has been implemented with the use of AAA standard. The latter part of the
report has been further able to state on the various types of the concerning issues which areas
seen to be associated to the application of the prepared recommendations for the managing
partners of MYH and based on the relevant case study. The main findings of APES has been
applied with “Section 310 conflicts of interest” and the alternative has been seen to been
evaluated based on the “AASB 102 on valuation of inventories”.

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Table of Contents
Introduction......................................................................................................................................3
Answer to Question1.......................................................................................................................3
Answer to Question 2......................................................................................................................6
Conclusion.......................................................................................................................................8
Reference.........................................................................................................................................9

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Introduction
“American Accounting Association (AAA)” is seen to be having a reputable history for
being a premier community of the accountants in academia. The membership diversity has been
further able to create an environment with the appropriate collaboration and innovation (George
et al., 2014).
The report will be addressing the different types of the ethical and the legal complexities
which need to be considered in the audit division at MYH. The main consideration for the
recommendations has been implemented with the use of AAA standard. The latter part of the
report has been further able to state on the various types of the concerning issues which areas
seen to be associated to the application of the prepared recommendations for the managing
partners of MYH and based on the relevant case study.
Answer to Question1
AAA Model
Determination of Facts
The given study is seen to be based on the MYH accounting firm, which has been seen to
be mainly operating in NSW and Queensland. Morgan Fertilisers has been identified as one of
the reputable client of the company, with the main operations in Tamworth and Toowoomba.
The client has been seen to be changing the contractor for waste management related to
Dumparound Ltd. A senior auditor has been seen to be knowledge of the activities of the
community activities and she is aware of the fact that council are investigating Dumparound Ltd.
in order to determine the toxic waste in one of the sites (Azimi & Naim, 2015).

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Identification of ethical issues
The various types of the ethical issues has been seen with Morgan Fertilisers Pty
changing the contractor to Dumparound Ltd. for the purpose for waste management. The
important consideration of ethics has been further raised by Jacqui Leak, who is aware of the
Dumparound being investigated by the local council for toxic waste level. It has been further that
Morgan Fertiliser and Dumparound contract has not specified for the damages nor signed by
Dumparound. This particular contract is seen to be held for 3 years and Jacqui is substantially
concerned about the implications.
Identification of major principals and rules, values
The prevailing ethical issue and the legal problems have been identified with the “AASB
102 on valuation of inventories”. The various types of the considerations of the valuations
needs to be recognized as per the terms of asset and the same needs to be carried over for the
revenue recognition. The main APES code applicable is “APES 110 Code of Ethics for
Professional Accountants” has been seen to be applicable with “Section 310 conflicts of
interest”. As per this application the members of MYH, they are expected to support the
different types of the activities related to the support the legitimate and the ethical objectives.
This has been seen with the application of the relevant procedure in the organization.
Specification of the alternatives
The primary specification has been considered with the evaluation of whether the
adjustment in the inventories and the inventories between the year ending and the dates
associated to the physical count is seen to be appropriately recorded. Furthermore, the auditor
needs to provide the analysis as per the inward and the outward movement of the stock as per the

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date of cut off and this is done as per the count date. This is established as per the validity of the
date as per the year date.
Comparison of values and alternatives
The values have been further seen to be compared based on the application of “APES 110
Code of Ethics for Professional Accountants”. This particular section is seen to be applicable as
per the “Section 310 conflicts of interest” vs. “AASB 102 on valuation of inventories”. The
alternative APES ruling has been further based on the responsibility of the member to employ
the organization with the particular needs which has been seen to be considered as per the
supporting needs of the organization.
As per the rulings of AASB 102, the important considerations have been based on measuring
of the net realizable cost or value of the asset which is carried forward as per the revenue
recognition. The cost of the inventories has been further seen to be considered as per the
different types of the evaluations which are seen to be relied on the factors which are specific
with making the assets ready for use.
Identification of the alternatives access the consequences
If the value of the inventory is seen to be overvalued, the different types of the considerations
made for the net income needs to be evaluated based on the gross profit of the company. The
overvaluation of the retained earnings is further seen with the need to be overvalued based on the
considerations of the retained earnings. The equity value and the total assets is related to the
current assets and total assets, which may be overvalued based on the retained earnings.
Recommended Decision

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Oasis Ltd can bring forward the negligence charged in terms of the audit of MYH. However,
this needs to be considered as per the various types of the consideration which has been seen to
be based on the evaluation made as per the sole decision taken by the company to deal with the
given case.
Answer to Question 2
Report for the managing partners of MYH
The various types of the consideration made with the APEs and the AASB 102 has been seen
to be based on the various types of the consideration which has been seen to be related to the
error in the valuation of the inventory and the cost of the recognition of the assets, which has
been carried forward with the revenue recognition. The various requirements of the inventory
need to be measured as per the realizable value or cost, whichever is lower. The main cost
associated to the inventory has been further seen to be related to the conversion cost, purchase
cost and the various types of the cost which has been related to the making the asset as per the
specified purpose. It further noted that the inventory cost is not expected to be recovered as per
the evaluated expenses for the completion of the assessed expenses to the various types of sales
policy. The important assumption for the recording of the inventories has been based on the
realizable amount is considered to be reliable in nature. This amount should not be carried in
terms of the excess amount realized from the sales amount.
In case of the overvaluation of the inventory the gross profit needs to be overstated. The
primary impact needs to be overvalued with the retained earnings, equity of stockholder and the
retained earnings. The net income has been seen to be considered for overvaluation of inventory
with lower amount of the cost of goods sold which is charged for the revenue. The inflated

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amount of the net profit has been indicated with the equity of the retained earnings and
stakeholders. Due to the overvaluation of the accounting period and the inventory, the
accounting period has been changed with the starting of the inventory with the finishing of the
accounting period. This has been further seen to be taken into consideration with the starting of
the inventory towards the completion of the accounting period and has been further considered in
the beginning of the inventory. This has been achieved in the given time frame. The main period
of the cost associated to the goods needs to be considered for COGS. As this value is seen to be
too high, this will be too high, this will be able to bring the period of the net income considered
with the low amount of gross profit.
Based on the given case of Morgan Fertilisers, they has been identified to be carrying high
value in the inventory and the same has been reflected in the balance sheet of the company after
being taken over by Oasis Ltd. Despite of this, two months later the inventory of the company
has been seen to be overstated. It has been further discerned that more than 50% of the inventory
was obsolete and this was not supposed to be included in the valuation count as per the
inventory. The different considerations of the inventory are based on the actual value.
Furthermore, MYH needs to consider the valuation of the stock with the valuation of the
management.
The confirmation of the physical count of the inventory is responsibility of the management
for the entity. The main duty of the management has been further based on the strategy of
checking of the inventory, once in every year for establishing the financial statement. The auditor
needs to do a complete review for the technique get the proper and suitable consideration of the
audit confirmation and tallying of the same with the physical inventory. In addition to this, the
auditor needs to be present to inspect and make a survey around the management for recording of

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the changes as per the dependability of these procedures. The auditor is not allowed to opt for the
inventory count which is seen to available for the alternative measures and the adjustment made
in the inventory.
The auditor needs to review on the different types of the internal control and management
information to do internal control and recounting, tagging, stock sheets and the identification of
the various types of non-moving and obsolete items. He also needs to account for the procedures
for the valuation based on the WIP along with the inventory movement. The general rule of the
auditor has been seen with liability towards the third party and the clients. The third party
considerations have been stated below as follows:
 The truthfulness of the financial statement has not been depicted
 The auditor may has recklessly or intentionally ignored the facts, which is een to be
untrue
 The errors has been committee in the preparation of the final accounts
As per Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997), case the
corporation lent the money based on audit report. However, there has been default of the
payment which has been further identified as the breach of mandatory accounting standard.
Conclusion
Based on the study although MYH verified the stock correctly, it accepted the valuation, but
the management did not consider this due to obsolescence of the stock. The evidence of Oasis
Ltd. has significantly considered under pressure and the completion of the audit in the limited
time period.

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Reference
Azimi, D., & Naim, M. (2015). Impact of Organization Internal Factors on Ethical Intensity of
Accountants in Afghanistan.
Clayton, B. M., & Staden, C. J. (2015). The Impact of Social Influence Pressure on the Ethical
Decision Making of Professional Accountants: Australian and New Zealand
Evidence. Australian Accounting Review, 25(4), 372-388.
George, G., Jones, A., & Harvey, J. (2014). Analysis of the language used within codes of ethical
conduct. Journal of Academic and Business Ethics, 8, 1.
Martinov-Bennie, N., & 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), 189-203.