Auditor's Public Interest Responsibilities and Audit Quality Report

This report examines the auditor's public interest responsibilities and their impact on audit quality, focusing on Metcash Limited as a case study. It analyzes the effects of material misstatements on various stakeholders, including shareholders, suppliers, staff, and customers. The report delves into the importance of auditor independence and whistleblowing, relating them to APES 110. It draws lessons from the Enron scandal, highlighting the manipulation of accounts and the need for improved audit standards and corporate governance. Furthermore, the report addresses audit quality and steps to address concerns raised by Greg Medcraft, covering topics such as manipulating the books of accounts, enhanced standards, and the importance of peer reviews. The report emphasizes the need for auditors to maintain professional competence and due care in fulfilling their audit obligations and to ensure the integrity of financial reporting.

unning eadR h : T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
uditor s ubli nterest es onsibilities and udit ualitA ’ P c I R p A Q y
a e of t e tudentN m h S :
a e of t e ni ersitN m h U v y:
ut or s oteA h ’ N :
Course ID:

1T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
e uti e u arEx c v S mm y:
T e re ort as fo used on t e anal sis of sta e olders of an listed fir due to ih p h c h y k h ASX m, wh ch
Met as i ited as been ta en into a ount t be o es ro inent t at Met as i ited asc h L m h k cc . I c m p m h c h L m h
arious sta e olders and t e a e different interests in t e organisation f t e finan ialv k h h y h v h . I h c
infor ation of t e o an is not free fro aterial isstate ents t ere ould not be anm h c mp y m m m m , h w y
fa ourable i a t on t eir de ision a ing ro edure instead t e ould be isguided tov mp c h c m k p c ; , h y w m
underta e rong de isions n addition to t is t e on e ts of istleblo ing andk w c . I h , h c c p wh w
inde enden e are t e t o on e ts a ting as barriers to t e illi it ra ti es ado ted b so ep c h w c c p c h c p c c p y m
organisations for ani ulating t eir boo s of a ounts T e olla se of nron is a si ilarm p h k cc . h c p E m
in ident as it as ani ulated its boo s of a ounts b ollaborating it t e auditor to s oc , h m p k cc y c w h h h w
inflated rofit argins to t e sta e olders Fro t is olla se t e auditors a e to learn ap m h k h . m h c p , h h v
nu ber of lessons o ing to i t e s ould ensure rofessional o eten e and due are atm w wh ch h y h p c mp c c
t e ti e of erfor ing t eir audit obligationsh m p m h .

2T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
Table of Contents
ntrodu tionI c :....................................................................................................................................3
ta e older anal sis of Met as i ited and effe t of aterial isstate ents on t eir1. S k h y c h L m c m m m h
de ision a ing ro essc m k p c :.................................................................................................................3
nde enden e and istleblo ing for auditors and t eir relation it2. I p c wh w h w h APES 110:...................5
essons for t e auditors fro t e s andal of nron3. L h m h c E :..................................................................6
udit ualit and ste s to address t e arning state ent of reg Med raft4. A q y p h w m G c :........................10
Con lusionc :....................................................................................................................................13
eferen esR c :....................................................................................................................................15

3T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
ntrodu tionI c :
uring t e ondu tion of substandard audits and absen e of ade uate as ertain ent ofD h c c c q c m
assuran e t e i ortant sta e olders are rone to a nu ber of ris s and t e are e ident forc , h mp k h p m k h y v
t e auditors as ell T e a er ould fo us on t e anal sis of sta e olders of an listedh w . h p p w c h y k h ASX
fir due to i Met as i ited as been ta en into a ount t is one of t e leadingm, wh ch c h L m h k cc . I h
olesale ar eting and distributions organisations in ustralia it re enue generation ofwh m k A w h v
billion in Met as o T e ain reason t at t e sta e older anal sis is$14 2018 ( c h.c m 2019). h m h h k h y
ondu ted is to find out t e effe t of aterial isstate ents on ea ategor of sta e oldersc c h c m m m ch c y k h ,
if no ro er dis losures are ade T e ne t se tion ould deal it inde enden e andp p c m . h x c w w h p c
istleblo ing for t e auditors and t e asso iation ould be identified bet een t ese t owh w h h c c w h w
as e ts and ubli interest re uire ents laid do n in fter t is t e auditors a e top c p c q m w APES 110. A h , h h v
ta e ertain lessons fro t e nron s andal it s e ial e asis on t e or of rt urk c m h E c w h p c mph h w k A h
ndersen Finall t e a er ould s ed lig t on audit ualit and ste s for addressing t eA . y, h p p w h h q y p h
arning state ent of reg Med raftw m G c .
ta e older anal sis of Met as i ited and effe t of aterial isstate ents on t eir1. S k h y c h L m c m m m h
de ision a ing ro essc m k p c :
Met as i ited as a nu ber of sta e olders and in ase t e finan ial infor ation ofc h L m h m k h c , h c m
t e fir as aterial isstate ents t e i a t ould be unfa ourable on t e sta e oldersh m h m m m , h mp c w v h k h .
T e detailed dis ussion belo ould el in e aluating t e sa eh c w w h p v h m :
are olders and in estors
Sh h
v :

4T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
For ensuring sound o uni ation it t e s are olders Met as i ited arrangesc mm c w h h h h , c h L m
earl general eetings and it as a ointed different ersonnel so t at its s are register ouldy y m h pp p h h c
be anaged effe ti el Moreo er in estor briefings are eld e er ear t i e form c v y. v , v h v y y w c
o uni ating t e alf ear and full ear finan ial out o es T e s are olders and in estorsc mm c h h -y -y c c m . h h h v
of t e o an are interested to no about t e o etition le el in t e industr te ni ueh c mp y k w h c mp v h y, ch q
of a ital allo ation and an signifi ant e ents affe ting its s are ri e T us t e failure of t ec p c y c v c h p c . h , h h
auditor of Met as in identif ing aterial isstate ents ould isguide t e in estors o ingc h y m m m w m h v w
to i t e ould not be able to a e sound in est ent de isions all T ler and ellswh ch h y w m k v m c (B , y W
2015).
u liers
S pp :
ording to t e oli of Met as i ited t e o an fo uses on future out o es bAcc h p cy c h L m , h c mp y c c m y
realising t at sound negotiations ould el in aintaining its sustainabilit as ell as t at ofh w h p m y w h
t e su liers T us if situation arises li e t e de line in rofit argin of t e o an it ig th pp . h , k h c p m h c mp y, m h
not a e t e abilit of learing its s ort ter obligations T erefore t e i a t ould be onh v h y c h - m . h , h mp c w
t e ris of aterial isstate ents li e ategorisation of aluing urrent assets or urrenth k m m m k c v c c
liabilities and as a result t e on erns of t e su liers ould be in reased and o ad a, h c c h pp w c (B y p hy y,
C en and uh Y 2014).
taffs and usto ers
S c m :
Met as ro ides a le o ortunities to its usto ers for a ing onta t it t ec h p v mp pp c m m k c c w h h
o an ia letters tele one alls ails ebsites and ot ers T e feedba s obtained arec mp y v , ph c , m , w h . h ck
ta en seriousl and res onses are ro ided it in t e ini u ossible ti e n addition t ek y p p v w h h m m m p m . I , h

5T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
e lo ee base of t e organisation is and t e are ro ided it t e o ortunit tomp y h 6,000 h y p v w h h pp y
arti i ate in t e de ision a ing ro ess and o uni ation is ade t roug ails sur e sp c p h c m k p c c mm c m h h m , v y ,
ersonal o uni ation and ot ers Met as o T erefore if a nu ber of ite s getp c mm c h ( c h.c m 2019). h , m m
o erstated o ing to aterial isstate ents in finan ial re orts t e i a t ould be ad ersev w m m m c p , h mp c w v
on t eir de ision a ing ro essh c m k p c .
nde enden e and istleblo ing for auditors and t eir relation it2. I p c wh w h w h APES 110:
udit inde enden e is defined as t e inde enden e of t e e ternal auditors T eA p c h p c h x . h
integrit and ob e ti it a roa es assist in ara terising t e inde enden e on e t T isy j c v y pp ch ch c h p c c c p . h
on e t needs t e auditors in arr ing out t eir obligations it out outside inter ention forc c p h c y h w h v
fulfilling t e rin i le of ob e ti it o e signifi ant attributes of t e rofession in ludeh p c p j c v y. S m c h p c
istleblo ing te ni ue and audit inde enden e and t e for a riti al art of t e et i s inwh w ch q p c h y m c c p h h c
a ounting t at go ern t e rofession of a ounting s er audit inde enden e t e auditorscc h v h p cc . A p p c , h
are re uired to re ort iolations and isstate ents in t e finan ial re orts at t e ti e ofq p v m m h c p h m
identifi ation en e one of t e signifi ant ara teristi s of et i al and rofessional liabilit inc . H c , h c ch c c h c p y
audit is re resented b t e inde enden e o it entp y h p c c mm m .
T e o it ent of inde enden e as ositi e and dire t i a t on istleblo ingh c mm m p c h p v c mp c wh w
oti es a ong t e inde endent auditors T e reason is t at t e s o e of t e o it ent ofm v m h p . h h h c p h c mm m
inde enden e ossessed b t e auditors dire tl influen es t e oti es of istleblo ing t isp c p y h c y c h m v wh w . I
to be borne in ind t at istleblo ing ta es into a ount a nu ber of oli ies enabling t em h wh w k cc m p c h
e lo ees of t e o anies in re orting illi it ra ti es if an s o ented b ellmp y h c mp p c p c c , y. A c mm y B ,
Caus olli and ne el istleblo ers are generall ersons t at re eal an al ra ti eh K ch (2015), wh w y p h v y m p c c

6T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
or in orre t finan ial infor ation irres e ti e of t e nature and ind of t e fir T is assists inc c c m p c v h k h m. h
t e for ulation of a sense of o it ent as ell as lo alt to ards t e fir s along ith m c mm m w y y w h m w h
des ri tions of t e obsc p h j .
T e ounting rofessional and t i al tandards oard as designedh “Acc P E h c S B (APESB)” h “
APES
Code of t i s for rofessional ountants
110 E h c P
Acc t is ro inent fro”. I p m m “
aragra
of
P ph 210.11.1
APES 110 t at t e auditor osen after no ination ould see er ission fro t e lient so” h h ch m w k p m m h c
t at it ould engage in o uni ating it t e re ious auditor esb org au T eh c c mm c w h h p v (Ap . . 2019). h
auditor as t e rig t to re e t t e no ination if t e lient does not ro ide su er issionh h h j c h m , h c p v ch p m .
o e er en er ission is granted t e auditor as t e o tion of o uni ating it t eH w v , wh p m , h h h p c mm c w h h
ast auditor in riting about t e needed infor ation so t at t e final no ination de isionp w h m h h m c
ould be ta en s a result rote tion ould be gi en to t e istleblo ers engaged it t ec k . A , p c w v h wh w w h h
go ern ent along it re ealing is ondu t related to t e agen n addition it is essential tov m w h v m c c h cy. I ,
assure t e s ee of freedo for t e staffs as ell as t e ontra tors T e istleblo ers ouldh p ch m h w h c c . h wh w c
file o laints freel i a e iolated t e et i al rin i les b gat ering ne essarc mp y, wh ch h v v h h c p c p y h c y
e iden es in a ordan e itv c cc c w h “
aragra
of
P ph 100.1 APES 110 T e iolations ould be in t e”. h v c h
for of drainage of gross funds iolation of nor s al ra ti es and aterial t reats to t em , v m , m p c c m h h
sta e oldersk h .
essons for t e auditors fro t e s andal of nron3. L h m h c E :
T e s andal of nron is dee ed to be one of t e biggest international s andals ih c E m h c , wh ch
e entuall led to t e do nfall of t e fir T is in ident ontains a nu ber of lessons t at t ev y h w h m. h c c m h h

7T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
auditors s ould learn so t at su in idents are not re eated in future and t e lessons areh h ch c p h
e lained briefl as follo sxp y w :
Mani ulating t e boo s of a ounts
p h k cc :
T e boo s of a ounts are t e ri ar re uire ent so t at an effe ti e a ital ar et ish k cc h p m y q m h c v c p m k
ensured a ro riatel o lin obson and ier e Fro t e ie oint of rt urpp p y (B w , H P c y 2015). m h v wp A h
ndersen i as t e auditor of nron during t at eriod t e olla se of t e fir isA , wh ch w h E h p , h c p h m
indi ati e of t e entire rofession e ifi all t e ista es of t e auditor are t e ri arc v h p . Sp c c y, h m k h h p m y
reason t at t is de line too la e s o asing t e fault re ords and en e in estigation ash h c k p c h wc h y c h c , v w
re uired T e audit failure as due to t e business relations i s i a e been idenedq . h w h h p , wh ch h v w
furt er be ause of t e onfli ts of interest and er erse in enti es Fro t e t eoreti alh c h c c p v c v . m h h c
ers e ti e t e auditors are a ointed b t e s are olders and t e for er is liable to re ortp p c v , h pp y h h h h m p
signifi ant in idents to t e for er Caus olli C a bers and a ne o e er t is is notc c h m ( h , h m P y 2014). H w v , h
so in realit as t e to e e uti es of t e o an sele t t e auditors and t e latter be o ey, h p x c v h c mp y c h h c m
liable to t e for er T e o anies are obser ed to obtain onsulting ser i es fro t e audith m . h c mp v c v c m h
lients and it as been e en itnessed t at so e e ternal auditor are ro ided it ig erc h v w h m x p v w h h h -
le el obs in t e organisation T is el s t e o anies to use t e fear of t e e ternal auditorsv j h . h h p h c mp h h x ,
as t e latter fears losing t eir audit or s a result o ro ise is ade in audit ualith h w k. A , c mp m m q y
under su ir u stan es si go auch c c m c (A c. v. 2019).
T erefore for dealing it t is issue t e go ern ent agen ies ould need toh , w h h , h v m c w
underta e audit res onsibilities fro t e ri ate fir s o e er su ariation is et tok p m h p v m ; h w v , ch v y
be o e ru ial o e er e en if go ern ent agen ies are used for audit or t e auditc m c c . H w v , v v m c w k, h

8T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
ualit ig t ontain in erent ris and it is not ossible to assure t at t e ould not a e t eq y m h c h k p h h y w m k h
si ilar ista es li e t e ri ate fir s as ell as engaging in onfli ts of interest gem m k k h p v m w c c (E 2014).
T erefore in order to ensure s ort ter goals t e to le el e e uti es of t e organisationsh , h - m , h p v x c v h
need not oose t e e ternal auditors nstead t e go ern ent agen ies ould be entrustedch h x . I , h v m c c
it t is res onsibilit of sele ting t e e ternal auditors for t e audit lients after arefullw h h p y c h x h c c y
anal sing t e na es ro ided in t e list b t e latter T e onl dut of t e audit lients ouldy h m p v h y h . h y y h c w
be to lear t e audit fees of t e e ternal auditorsc h h x .
Moreo er t ere needs to be ore string statutor regulations to en an e t e ualit ofv , h m y h c h q y
t e audit rofession and t is s ould ta e into onsideration t e dis i linar o ers T eh p h h k c h c p y p w . h
auditors a e anaged to flee a a fro t e self regulation fi tion b see ing assistan e froh v m w y m h - c y k c m
rofessional grou s and eer re ie t at t e do inate Furt er ore t e ri ate e ternalp p p v w h h y m . h m , h p v x
auditors need to be li ited in ro iding ad isor and onsulting ser i es to t e audit lientsm p v v y c v c h c
a and i nett not er ste ould be anging t e audit artner in ea four ear so(G y S m 2017). A h p w ch h p ch y
t at t e auditors are not o er o itted to t e lients en a o an atte ts to re ieh h v c mm h c . Wh c mp y mp v w
t e boo s of a ounts of t e rede essor it is ne essar to arr out suitable eer re ieh k cc h p c , c y c y p v w
lein an in and al on T is as andated t e need for t e ustralian e urities(K m , L P m 2014). h h m h h “A S c
and n est ents Co ission C in enfor ing restri tions on t e o anies a ointingI v m mm (ASI )” c c h c mp pp
internal auditors and anagers fro t e ri ate e ternal auditorsm m h p v x .
oo ing for en an ed standards
L k
h c
:
T e a ounting standards la a ru ial role t at e entuall led to t e do nfall of nronh cc p y c c h v y h w E .
Fro t e be a iours of t e o anies it as been found t at in ertain areas es e iall t em h h v h c mp , h h c , p c y h

9T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
treat ent of off balan e s eet ite s t e a ounting regulations do not ensure unifor itm - c h m ; h US cc m y.
Moreo er t e standards are sub e ti e in nature be ause of t e broader do trines ould not bev , h j c v c h c c
anal sed raub uosig and ul T e strident lobb ing as i osed restri tion on t ey (K , Q k Z ch 2014). h y h mp c h
Finan ial ounting tandards oard in i ro ing t e standards of a ounting in erent in“ c Acc S B ” mp v h cc h
ue to t is it be o es riti al to i le ent rigorous a ounting standards t at ustUSA. D h , c m c c mp m cc h m
onstitute of sound rin i les instead of sub e ti e ro edures T erefore t e auditors a e toc p c p j c v p c . h , h h v
onsider t e globall a e ted standards for aintaining o lian e it t e ne essarc h y cc p m c mp c w h h c y
regulations.
T e de line of nron as fo used on t e ineffe ti e oli ies of or orate go ernan e ofh c E h c h c v p c c p v c
big ultinational organisations it t e assage of ti e t ere s ould be introdu tion ofm . W h h p m , h h c
arious balan es and erifi ations for t e leaders in ser ing t e agent fun tions for t eirv c v c h v h c h
s are olders to ensure su essful ondu tion of t e ro ess o e er t e ief e e uti esh h cc c c h p c . H w v , h ch x c v
a e t e ulti ate o er in ee ing su e s aside t roug aintenan e of t e a i uh v h m p w k p ch ch ck h h m c h m x m m
ossible sto o tions ris nan ris nan and ongp ck p (K h , K h S 2016).
T us realigning t e s ste ould el t e o anies to erfor t eir obligations forh , h y m w h p h c mp p m h
fulfilling t e e e tations of t e s are olders t is ne essar for t e fir s to ensure t eh xp c h h h . I c y h m h
resen e of s illed non e e uti e ersonnel effe ti e a ent b ro iding ne essarp c k - x c v p , c v p ym y p v c y
attention to t e obs a urate inde endent re uneration audit o ittees and orh j , cc p m , c mm w k
segregation of t e ief e e uti es and t e air ersons T erefore t e auditors as ell as t eh ch x c v h ch p . h , h w h
organisations are obliged to assure effe ti e go ernan e and audit i ould aid in assuringc v v c , wh ch w
stead flo of its business o erationsy w p .

10T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
e a iour of rt ur ndersen
B h v A h A :
t t e ti e rt ur ndersen as arried out t e audit fun tion of nron t e for er asA h m A h A h c h c E , h m w
t e se ond oldest audit fir t as t e obligation of ensuring a ura in t e finan ialh c m. I h h cc cy h c
infor ation of t e o an as ell as its internal boo ee ing Fro t e audit re ort of rt urm h c mp y w kk p . m h p A h
ndersen in est ent de isions ere underta en b t e s are olders of nron as t eA , v m c w k y h h h E , h y
belie ed t at t e finan ial re orts of t e o an did not ontain an aterial figures as ellv h h c p h c mp y c y m w
as a ounting errors t as been identified t at rt ur ndersen and nron ere businesscc . I h h A h A E w
artners during t at ti efra e i as in erent after so e e e uti es of rt ur ndersenp h m m , wh ch w h m x c v A h A
a e ted obs in nron ue to su e lo ent rt ur ndersen deliberatel o erloo ed t ecc p j E . D ch mp ym , A h A y v k h
artners i ter s en it o es to orre t anal sis of t e finan ial infor ation of nronp h p m wh c m c c y h c m E .
Moreo er t e auditor as destro ed so e ru ial a ounting do u ents in Mar ofv , h h y m c c cc c m ch 2002
nron and t us it ould be eld liable be ind t e olla se of nron not er fa t t at ould beE h , c h h h c p E . A h c h c
identified fro t is in ident is t at rt ur ndersen as not a ted rofessionall and et i allm h c h A h A h c p y h c y
due to t e fa t t at nron offered uge a ount of one as audit fees to t e for er onh c h E h m m y h m (Kw ,
i and i nettL m S m 2014).
udit ualit and ste s to address t e arning state ent of reg Med raft4. A q y p h w m G c :
udit ualit as no a e table global definition et For assuring ualit in e ternalA q y h cc p y . q y x
audit a ti ities t ere needs to be rigorous a ounting ro edures in luding rofessionalc v , h cc p c c p
s e ti is to be arried out in a ordan e it t e ne essar guidelines and regulationsc p c m c cc c w h h c y .
o e er ertain ot er o onents are in luded in audit ualit as ell T ese in lude riti alH w v , c h c mp c q y w . h c c c
insig t of t e se tor no ledge t e and degree of riti al udge ents obser ations ta ingh h c k w , yp c c j m , v k

11T C T T T T TAUDI OR’S PUBLI IN ERES RESPONSIBILI IES AND AUDI QUALI Y
la e fro t e audit ro esses or abilit to ensure effe ti e ser i e oordination fro differentp c m h p c y c v v c c m
global lo ations ittc (L
et al. 2014).
s er t e state ent of reg Med raft ustralian auditors need to learn lessons froA p h m G c , A m
t e ase of nron unless ade uate a tions are underta en b t e to four audit fir s inh c E q c k y h p m
en an ing t e o erall auditing standards C e s en e t is andates t eh c h v (AB N w 2017). H c , h m h
a ounting boo s of t e o anies to enfor e a ro riate auditing standards so t at t erecc k h c mp c pp p h h
ould be no finan ial risis in futurec c c .
n ase t e audit or is not arried out effe ti el t e robabilit of o urren e ofI c , h w k c c v y, h p y cc c
in idents su as nron ig t in rease n order to ensure sound audit or t e auditors arec ch E m h c . I w k, h
e e ted to erfor t eir duties diligentl b ro iding assuran e t at no aterialxp c p m h y y p v c h m
isstate ents are resent in t e ublis ed finan ial infor ation of t e o anies and t em m p h p h c m h c mp h y
ontain a urate alues ang u and ao n o lian e itc cc v (W , Y Zh 2014). I c mp c w h “
aragra of
P ph 2 APES
110 t e auditors a e to ro ide t e assuran e t at t e finan ial state ents do not ontain”, h h v p v h c h h c m c
aterial alues t at ig t a er t e de ision a ing ro ess of t e users reg Med raft asm v h m h h mp h c m k p c h . G c h
orre tl identified t at nron as fallen be ause of t e failure of audit ondu ted b rt urc c y h E h c h c c y A h
ndersen and t e de line as added to t e global finan ial risis T erefore t e a ountabilitA h c h h c c . h , h cc y
of t e auditors needs to be in reased so t at t e ould ro ide error free finan ial infor ationh c h h y c p v - c m
to t e sta e olders of t e lients along it arr ing out t eir duties a ro riatel Marounh k h h c w h c y h pp p y (
and t insA k 2014).
fter areful assess ent of t e ne s arti le C olle ted arious audit sa les for aA c m h w c , ASI c c v mp
eriod of ont s it in e e ber T ese sa les in lude t e audit or of t e top 18 m h w h D c m 2016. h mp c h w k h p