Auditing and Assurance Services Report - Ethical Considerations

This report, focusing on auditing and assurance services, delves into various ethical scenarios faced by auditors. It examines the implications of business relationships, gifts, and potential conflicts of interest, referencing the APES 110 Code of Ethics for Professional Accountants. The report analyzes cases involving auditor independence, the use of expert opinions, peer reviews, and the provision of additional services. It explores the responsibilities of auditors in situations involving non-compliance with laws and regulations, as well as the importance of objectivity and professional skepticism. Specific scenarios discussed include accepting discounts from clients, receiving gifts, relying on expert work, and the ethical implications of offering additional services like insurance agencies. The report concludes with a discussion on how to respond to threats to auditor independence, such as unpaid fees and offers of hospitality, emphasizing the importance of maintaining ethical conduct and reporting any violations.

Running Head: AUDITING AND ASSURANCE SERVICES
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Auditing and Assurance

AUDITING AND ASSURANCE SERVICES 1
Table of Contents
Part A...........................................................................................................................................2
Answer to Question-1..................................................................................................................2
Answer to Question-2..................................................................................................................2
Answer to Question-3..................................................................................................................3
Answer to Question-4..................................................................................................................3
Answer to question -5..................................................................................................................3
Answer to Question-6..................................................................................................................4
Part B...............................................................................................................................................4
Answer to Question-1..................................................................................................................4
Answer to Question-2..................................................................................................................5
References........................................................................................................................................7

AUDITING AND ASSURANCE SERVICES 2
Part A
Answer to Question-1
As a Senior Auditor of the Panania Cars Pty Limited which is dealing in the selling of new as
well as well as the old cars, she cannot buy the new cars at a discount of 20% on the discounted
sale price.
A close business relationship between a company and the auditor, and the auditor client or its
management arises from a commercial relationship or common financial interests. The example
of one such relationship is distribution or marketing the client’s products or services or client
distributes or promotes the products or services (Accounting Professional & Ethical Standards
Board Limited, 2017). One of the ethical principles of the auditor is the integrity which will be
violated if the client provides the extra discount, as the discount is for the purpose of the
customers and the auditors are not falling under this category.
Unless there is any immateriality in the financial interest or any insignificance associated with
the business or management of the Panania Cars Private Limited company, the deal is not
acceptable. Therefore, in the position of senior auditor she cannot buy the cars at 20% discount
under the fair trade practices. The offer which is given to the established customers can be
accepted on the grounds of client auditor relationship. Beyond the offer, the deal cannot be
accepted and the auditor is violating the rules and the principle of business relationships has been
violated.
Answer to Question-2
As per the ethical standards an auditor of a company and who is closely associated with the
client shall not receive gifts or any kind of hospitality from the clients unless the informed third

AUDITING AND ASSURANCE SERVICES 3
party has not considered the value of the gift so trivial or inconsequential. Therefore Katrina
Wearne the auditor of the Lancom Cosmetics, can accept the gift only if the gift is of trivial
nature. Therefore, Katrina Wearne is not violating the rules as per the international auditing
standards (Dodgson, Agoglia, Bennett & Cohen, 2017).
Answer to Question-3
As per the given case, D.Marron the chartered Accountant, shall not give a go ahead for the
installation of the computer system before reviewing the work of an expert. As per the
international auditing standard SA 620, relying upon the work of an expert, it is the
responsibility of the auditor to evaluate the objectivity of the expert (Ho, 2017) The auditor shall
obtain the appropriate audit evidence to conclude that the computer system has been installed
correctly and in an appropriate manner. The auditor may rely on the work of an expert but cannot
his responsibilities. Therefore, as per the given standard the auditor is violating the practice.
Answer to Question-4
Under the given case as per the international auditing standard the chartered accounting firms
can review the work of other chartered accounting firms under the statement of the peer review
issued by the Australian board of Auditing. The main focus during the exercise or review shall
be on whether the firms have complied with the relevant auditing and technical standards,
whether the reports formed are of qualitative nature, office systems and procedures align with
each other or not and lastly the training programmers and infrastructure facilities have been
reviewed or not (Saputra, 2015) Henceforth, the working papers of the firms can be reviewed
and the auditor is not violating the ethical practices.

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Answer to question -5
Under the given case, Bill Holland the chartered accountant has set up a casualty and fire
insurance agency as an additional service apart from the auditing and tax services. As per the
principles of the ethics the chartered accountant is not complying with the rules and therefore
there arises a case of conflicts of interests hence the insurance agency running in the name of
Simone Taylor is not correct by the virtue of the standards on auditing (Chen, Liu, Luo &
Suzuki, 2017).
Answer to Question-6
Under the given case, Emma Lawrence the auditor of the small company cannot conduct the
services apart from auditing. If an auditor is giving the auditing services the auditor cannot
provide the following services whether directly or indirectly. Accounting and bookkeeping ,
internal audit, services given as actuarial, investment advisory services, investment banking
services, rendering of outsourced financial services, management services or any other kind of
services. Therefore, Emma Lawrence as an auditor is violating the ethical practices.
Part B
Answer to Question-1
In the present case, where the newly appointed auditor Enid Blyton is aware that the contractor
has a bad reputation and there have been unfavorable articles about him in the local press, so
according to Accounting Professional & Ethical Standards Board Limited (2017) , section 225
‘Responding to Non-Compliance with Laws and Regulations ‘ of the APES110 Code of Ethics

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for Professional Accountants , she shall respond to the noncompliance of the applicable laws and
regulations relating to the disposal of toxic waste (Alexeyeva & Svanström, 2017).
As per Section 225 a member undertaking the audit of a public firm should be made aware of
nonconformity with the applicable laws and regulations during the time in which the accountant
is serving his /her professional services to the firm. It is the accountability of the auditor to
respond to such unethical course of action and report the same to the management.
The noncompliance with the applicable laws and regulations also includes the matters of
corporate governance and the acts of omissions and commissions regarding it. While confronting
such matters, it is the responsibility of the auditors to comply with the provisions and report such
matters to the appropriate authority. It is the obligation of the accountancy profession to act in
public interest .So; Enid Blyton must report the matter to the senior management and appoint a
new contractor in place of this contractor (Saputra, 2015).
Answer to Question-2
In the given case, where Jean Douglas has initiated the audit of the financial statements and came
to know that the company has not paid 30% of the past audit fees but has ensured that the it
would be paid once it is happy with the progress of audit fees and it has also advised the
accounting firm that it should start selecting the audit for the coming years.
Furthermore, the CEO has promised a free trip to Europe to the auditor and his partner after the
successful completion of the audit. In this case , according to section 280 ‘Objectivity –All
Services ‘of the APES110 Code of Ethics for Professional Accountants , the auditors shall
analyze whether there are threats posed to the objectivity . The auditors shall provide

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professional services which are independent of the assurance client. If he has not paid the audit
fees of the previous year then the auditors should refuse to conduct the audit of the current year
(Ye, Simnett and Carson, 2014).
Furthermore, according to Section 280 ‘Gifts and Hospitality’ the auditors shall refuse to accept
any gifts and hospitality from the client as it am pose threat to the compliance of the
professional principles .So, in this case , the auditors shall refuse to accept the proposal of the
foreign trip from the CEO of the company(Nawaiseh and Alnawaiseh,2015).

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References
Accounting Professional & Ethical Standards Board Limited (2017) Compiled APES 110 Code
of Ethics for Professional Accountants[online] Available from:
http://www.apesb.org.au/uploads/standards/apesb_standards/20092017153656_Compiled_APES
_110_Sept17.pdf [Accessed 18th May, 2018].
Alexeyeva, I., & Svanström, T. (2017) Knowledge Spillover and Audit Efficiency: Evidence from
the Joint Provision of Audit and Non-Audit Services, London: Palgrave Macmillan.
Chen, H., Liu, Q., Luo, L., & Suzuki, T. (2017) The consequences of private relationship
between audit partners and their clients. Asia-Pacific Journal of Accounting & Economics 10(3)
pp.25-32
Dodgson, M. K., Agoglia, C. P., Bennett, G. B., & Cohen, J. R. (2017) Managing the Auditor-
Client Relationship Through Partner Rotations: The Experiences of Audit Firm Partners.
Ho, N. (2017) Local Competition and Auditors’ Use of Non-Audit Services, New York: Springer.
Nawaiseh, M.A.L.A. and Alnawaiseh, M. (2015) The Effects of the Threats on the Auditor’s
Independence. International Business Research. 8(8), pp. 141-149.
Saputra, W.(2015) The Impact Of Auditor‘s Independence On Audit Quality: A Theoretical
Approach. International Journal of Scientific & Technology Research .4 (12), pp. 348-353.

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Ye, P., Simnett, R. and Carson, E.(2014) Threats to Auditor Independence: The Impact of
Relationship and Economic Bonds. Auditing: A Journal of Practice and Theory. 30(1), pp. 121-
148.