Auditing Theory & Practice: Ethical and Opinion Analysis

This auditing assignment solution delves into various scenarios concerning the ethical requirements outlined in APES 110, identifying breaches and specifying the violated ethical principles. It further analyzes different audit scenarios to determine the appropriate type of audit opinion, providin...Read More

AUDITING THEORY
AND PRACTICE
ASSIGNMENT

1
By student name
Professor
University
Date: 25 April 2018.
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Table of Contents
Question 1: Ethical requirements of APES 110............................................................................................3
Question 2: Type of Audit Opinion with reason..........................................................................................4
References...................................................................................................................................................6
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In the given assignment, various situations have been discussed as to whether or not they breach the
ethical requirements of APES 110. In case they do breach the ethical requirements, the ethical principle
being breached has also been mentioned. In the 2nd section of the assignment, the type of audit opinion
that the auditor would have given in the different scenarios has also been given along with the reasons
for the same.
Question 1: Ethical requirements of APES 110
a. In the given case, Ernie Dengate is selling his accounting practice and including the book
keeping, taxation and auditing, He has obtained the consent of the client for the release of the
tax working papers but has not taken the permission for the release of the other information
and the documents and hands over the same to the new accountant (Bumgarner & Vasarhelyi,
2018). Since he does not takes the permission of the client for releasing the other papers, it is a
breach of the principle of objectivity and confidentiality as the same has been shared with the
third party without proper authority and the same may lead to biasness and conflict of interest.
b. In the given case, a public accountant in the small country town named Fred Nerk is providing
various services like those of management advisory, taxation and audit services to the same
clients. Since the different services is being provided by the same person, it may breach the
concept of professional competence and due care which has been stated in the APES 110
(Chron, 2017). It may thus lead to biasness as well as some of the issues in one area may be
ignored in the other ones.
c. The All Good Chartered Accounting Firm is using the computer system at the branch offices i.e.,
at the client system as its computer facilities are found to be inadequate for the same. They
have breached the principles stated in APES 110 which calls for adequate facilities with the
accounting and auditing firm to maintain the client records. This puts the firm and its future in
danger as it may lead to the loss of the data (Werner, 2017).
d. In the given case, James Jameson, a public accountant is involved in the indecent behaviour post
consuming alcohol and drugs at the annual Christmas party of the firm named Balgowlah
Accountants. For assaulting a person and the disorderly behaviour he has been convicted and
sentenced for 3 months and also his license has been cancelled for 1 year. Since he is in the role
of the public servant, he has violated the business ethics which has been stated in the APES 110
(DeZoort & Harrison, 2016). His action and behaviour are wrong which cannot be tolerated at
any cost by the firm which is serious in its job as this is ruining and depleting his image and
reputation as well as that of the firm.
e. In the given case, the Mortdale Accounting Firm had complied with the ethical accounting
norms. The principles laid down in APES 110 focus mainly on the concepts of integrity,
confidentiality, objectivity and other codes of ethics. In the given case the accounting firm which
audited the clients did not disclose the clients that their peer audit is being done which means
that Section 140 on confidentiality of information has been followed (Alexander, 2016). The
peer review can be regarded as one of the confidential information and thus the company has
not breached the law.
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f. In the given case, Jan Dungog, a CPA, is seeking to work with the Chartered Accountants firm
and has intentionally forbidden the current employer to contact with the previous employer for
whom she worked earlier. In terms of professional behaviour, yes, this is a breach of Section 130
and Section 140 of the APES 110. Section 130 states that the employer has the right to take due
care that the professional has due competence for the given job (Raiborn, Butler, & Martin,
2016). Also, section 140 has been disregarded with which shows compliance with the laws and
regulations to avoid discredit to the profession.
g. Wendel Sailor is a chartered accountant who is doing dual businesses over her. He is conducting
audits of the clients as well as doing an insurance and superannuation business. Here section
230, 230(2) and 230(3), all have been breached as he has contacted more than one accountant
and has taken multiple view before giving the final audit opinion. Furthermore, it leads to
integrity issue as well when the client does not opts for the insurance services, the report issued
may be on the other side (Visinescu, Jones, & Sidorova, 2017).
h. Section 210 of the APES 110 states that the professional competence and due care needs to be
exercised by the auditor but in the given case, Judith Durham is not only the partner on the
audit of the NGO but also the Board of Director of the company. Since the role does not involve
performing any management function, it does not leads to the breach of duty or ethics (Sithole,
Chandler, Abeysekera, & Paas, 2017).
Question 2: Type of Audit Opinion with reason
a. In the given case, audit of the new client is being done and even though there is no material
misstatement in the current year there might be a situation when the wrong balances of the
assets and the liabilities may be carried from the last year and thus it is very necessary to check
on the opening balances as it might lead to huge audit risk which the auditor may reflect in his
audit opinion. It may not give a true and fair view of the affairs and thus qualified opinion may
be given in this case (Gooley, 2016).
b. The company under audit has not been following the Australian Accounting Standards for the
last 4 years since the time it has been operating and thus the form and correctness of the
accounting standards used by the company needs to be evaluated. The auditor may give an
adverse or qualified opinion here as the requirement of the law and accounting standards is not
being followed for accounting and reporting (Heminway, 2017).
c. In the given case, the company has been using LIFO method of inventory accounting which has
been disallowed in the Australian Accounting Standards. Though the extent of error might have
a material impact on the financial statements but currently the same is limited to the effect on
inventory value only. It will give inappropriate and unfair view of the inventory in the financial
statements and hence qualified opinion will be given by auditor in this particular case (Dumay &
Baard, 2017).
d. The auditor of Numark has completed the audit of the client in the given case and found non
material misstatements in the financial statements but there is doubt on the going concern
status of the entity as one of its major clients or the customer has gone into liquidation and it is
quite unlikely that the other available customers would take its place due to the specialised
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nature of company’s products. In the given case, the company can give a detailed disclosure in
the financial statements regarding the doubt on the going concern of the entity and then
conclude on the audit opinion with its impact on the liquidity and operational status of the
company (Linden & Freeman, 2017). The audit opinion here would be qualified or unqualified
opinion based on the circumstances.
e. In the given case, the auditor has not be able to get the balance confirmation from the major
customers of the company they applied the alternative audit procedures and were able to
satisfy themselves with the audit evidences obtained. The auditor in this case would be giving
the unqualified or the clear opinion as the sufficient and appropriate audit evidences to satisfy
the requirements has been obtained using alternative audit procedures (Knechel & Salterio,
2016).
f. The property, plant and equipment of any company comprises one of the major portfolio of the
assets of the company and in the given case as well, the same amounts to 35% of the total
assets but the client has not allowed the auditor to carry out the audit procedures to verify the
same. The auditor in such a circumstance would not be able to form an opinion on the financial
statements due to restrictions being imposed by the management of the company and thus
disclaimer of opinion would be given by the auditor (Appelbaum, Kogan, & Vasarhelyi, 2018).
g. Management has excluded or deleted one of the important and critical disclosure regarding the
contingent liability of the company. In case the same turns out or gets converted to the actual
liability of the company, it would have a material effect on the financial statements and thus it
leads to not giving true and fair view of the accounts to the shareholders and thus leads to
falsified information. The auditor would be giving the qualified opinion in such a scenario
(Lessambo, 2018).
h. In the given case, the company makes a significant portion of the sales in cash but since the
internal control is weak, the value of the same cannot be verified. Even the audit tests cannot be
done to get an assurance on the correctness of the value of the cash sales recorded. There is a
high risk of manipulative accounting and there also lies the liquidity risk due to which the
auditor would be giving the disclaimer of opinion (Kew & Stredwick, 2017).
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References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Appelbaum, D., Kogan, A., & Vasarhelyi, M. (2018). Analytical procedures in external auditing: A
comprehensive literature survey and framework for external audit analytics. . Journal of
Accounting Literature, 40(1), 83-101.
Bumgarner, N., & Vasarhelyi, M. (2018). Continuous auditing—a new view. Continuous Auditing: Theory
and Application, 20(1), 7-51.
Chron. (2017). five-common-features-internal-control-system-business. Retrieved december 07, 2017,
from http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
DeZoort, F., & Harrison, P. (2016). Understanding Auditors sense of Responsibility for detecting fraud
within organization. Journal of Business Ethics, 1-18.
Dumay, J., & Baard, V. (2017). An introduction to interventionist research in accounting. The Routledge
Companion to Qualitative Accounting Research Methods, 265. Retrieved from
https://books.google.co.in/books?
hl=en&lr=&id=PzQlDwAAQBAJ&oi=fnd&pg=PA265&dq=Dumay,+J.,+%26+Baard,+V.+(2017).
+An+introduction+to+interventionist+research+in+accounting.
+The+Routledge+Companion+to+Qualitative+Accounting+Research+Methods,
+265.&ots=ta1isTHB
Gooley, J. (2016). Principles of Australian Contract Law. Australia: Lexis Nexis.
Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, 1-35.
Kew, J., & Stredwick, J. (2017). Business Environment: Managing in a Strategic Context (second ed.).
London: Chartered Institute of Personnel and Development.
Knechel, W., & Salterio, S. (2016). Auditing:Assurance and Risk (fourth ed.). New York: Routledge.
Lessambo, F. (2018). Audit Risks: Identification and Procedures. Auditing, Assurance Services, and
Forensics, 3(1), 183-202.
Linden, B., & Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making. Business
Ethics Quarterly, 27(3), 353-379. Retrieved from https://doi.org/10.1017/beq.2017.1
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Raiborn, C., Butler, J., & Martin, K. (2016). The internal audit function: A prerequisite for Good
Governance. Journal of Corporate Accounting and Finance, 28(2), 10-21.
Sithole, S., Chandler, P., Abeysekera, I., & Paas, F. (2017). Benefits of guided self-management of
attention on learning accounting. Journal of Educational Psychology, 109(2), 220. Retrieved from
http://psycnet.apa.org/buy/2016-21263-001
Visinescu, L., Jones, M., & Sidorova, A. (2017). Improving Decision Quality: The Role of Business
Intelligence. Journal of Computer Information Systems, 57(1), 58-66.
Werner, M. (2017). Financial process mining - Accounting data structure dependent control flow
inference. International Journal of Accounting Information Systems, 25(1), 57-80.
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