Auditor Independence, Threats, and Audit Report Requirements

This assignment analyzes the threats to auditor independence and the necessary components of an audit report for a public company. It examines specific scenarios, such as the impact of an ex-staff member joining the audit team and the influence of self-interest threats, like bonuses tied to company performance, on auditor objectivity. The analysis references relevant literature, including studies by Church, Jenkins, and Stanley (2014), and Gwilliam and Marnet (2015), to support its conclusions on how these threats can undermine the auditor's ability to provide an unbiased opinion. Furthermore, the assignment details the information required in an audit report of financial statements, including compliance with accounting standards, assurance regarding material misstatements, and adherence to the Corporations Act 2000. It emphasizes the responsibilities of both management and auditors in financial reporting, referencing works by Gaynor, Hackenbrack, and Wu (2014) and Chiu, Chien, and Lin (2017) to highlight the importance of audit planning, assessment of accounting principles, and the ultimate expression of an opinion on the financial statements. The document provides a comprehensive overview of auditor independence and its implications for financial reporting.

THREAT TO INDEPENDENCE

TABLE OF CONTENTS
Question 2..................................................................................................................................3
Part A.....................................................................................................................................3
Part B......................................................................................................................................3
Part C......................................................................................................................................3
References..................................................................................................................................3
Question 3..................................................................................................................................4
Reference....................................................................................................................................4

QUESTION 2
Part A
Code of Ethics B section 290 describes the general provisions which are applied in specified
situations by professional accountants in public. In accordance with study of Church, Jenkins
and Stanley, (2014) an approach has been explained in section 290 that audit engagements
should be made in public interest. Therefore, to comply the same provision it is necessary
that members of audit teams, firm and other organization. In present scenario as Ellen Davis
has accomplished the duty of senior accounts manager and now she is intended to be part of
audit team of Jenkins; the organization of whose accounts are prepared by herself. Thus, in
this case Ex-staff and partner threat will affect the independence of auditor and it will be not
possible for the auditors to provide appropriate for organization.
Part B
Self- Interest Threat: This kind of threat exists in case when an auditor is interested in client’s
performance. In present case as the bonus of senior staff is related to the firm’s profit
performance and it might have effect on his own payments. Thus, due to same self interest
threat might affect the opinion which he would have made in case the payments were not
dependent on the profitability of organization.
Part C
In present scenario, self interest threat affects the independence of audit. As the company has
asked the auditor to visits seconds chocolate shop where defective chocolates are sold at
considerable discount. The auditor might change the opinion on books of accounts after
visiting the shop in case any negative facts are revealed in front of him. Self –interest threat
exist in case when auditor is not able to provide appropriate opinion due to threat regarding
loosing client (Gwilliam and Marnet, 2015). The same situation exists in present case.
REFERENCES
Books and Journal
Gwilliam, D. and Marnet, O. 2015. auditor independence. Wiley Encyclopedia of
Management.

Church, B.K., Jenkins, J.G. and Stanley, J.D., 2014. Auditor independence in fact: Research,
regulatory, and practice implications drawn from experimental and archival research.
Accounting Horizons, 29(1). Pp.217-238.
QUESTION 3
Information to be included in Audit report of Financial Statement of a public company:
It is necessary to provide whether the balance sheet, consolidated income statement, cash
flow and equity statement are in compliance with accounting standards or not. Further, it
should be specified whether reasonable assurance regarding the fact that whether financial
statement are free from material misstatement or not have been obtained or not. It is the
responsibility of auditor to assess whether the financial reports are in accordance with
Chapter 2M of Corporations Act 20001 in case the company is not disclosing entity or
company limited by guarantee. It is to be appropriately reported in the audit report that
preparation of financial statement is responsibility of management and auditors are
responsible for providing opinion on basis of evidence collected through audit (Gaynor,
Hackenbrack and Wu, 2014.). The auditor requires to state that audit is appropriately planned
and performed for obtaining reasonable assurance regarding financial statements that whether
they are free from material misstatement or not. The information that audit comprises
assessment of accounting principles which have been applied in preparing financial
statements and significant estimates made by the management (Chiu, Chien and Lin, 2017).
Lastly, opinion regarding financial statement of company is to be provided in the audit report
by the auditor.
REFERENCE
Books and Journal
Chiu, S.C., Chien, C.C. and Lin, H.C., 2017. Audit Quality Following the Public Company
Accounting Oversight Board’s Operation. Corporate Governance: The International Journal
of Business in Society.
Gaynor, L.M., Hackenbrack, K. and Wu, Y.J., 2014. The Auditing Standards Committee of
the Auditing Section of the American Accounting Association is pleased to provide
comments on the PCAOB Rulemaking Docket Matter No. 029; PCAOB Release No. 2031-

009: Proposed Rule on Improving the Transparency of Audit: Proposed Amendments to
PCAOB Auditing Standards to Provide Disclosure in the Auditor’s Report of Certain
Participants in the Audit.