Management Accounting: Ethical Breaches and Audit Opinion Analysis

This report examines ethical requirements within management accounting, specifically focusing on the Australian Professional and Ethical Standards (APES) 110. The analysis involves several case studies illustrating breaches of professional conduct, integrity, objectivity, and confidentiality. The report identifies instances where auditors and accountants failed to meet the required standards, resulting in violations of APES 110. The report also classifies various audit opinions, including disclaimer, qualified, adverse, and unqualified opinions, based on specific scenarios. The cases highlight the importance of adherence to ethical guidelines, transparency, and maintaining professional competence within the accounting and auditing fields. The report emphasizes the need for auditors to express their opinions at the end of each audit exercise, ensuring integrity in the field. The report also references key literature related to accounting ethics and auditing practices.

Management Accounting1
MANAGEMENT ACCOUNTING
Student by (Name)
Professor’s (Name)
College
Course
Date

Management Accounting2
MANAGEMENT ACCOUNTING
Introduction
There are various ethical requirements outlined within APES 110 which provides moral
base for auditing and accounting practices. Auditors and accountants therefore, have an
obligation to adhere to the required standard by meeting the ethical requirements of APES 110.
N some instances various accountants and auditors fail to meet the set standards leading to a
breach of the APES 110 ethical requirements. The content of this paper analyses various
situations provided as case study in relation to the ethical requirements of APES 110. The
content therefore identifies each situation as a breach of the codes of conduct set by APES 110 or
determines the situation as a standard situation without a breach of the codes of conducts. The
breach to be determined is also known as failure to meet the set principals as discussed below.
Question 1
Ethical requirements of APES 110
Auditors and accountants are required to observe professional ethics and uphold various
principles prescribed by APES 110. In this first situation, it is evident that the team of auditors
involved breached the professional ethical requirements of APES 110. The Mortdale Accounting
firm according to the prescribed ethics was supposed to provide information and audit services
on various audit reviews (Martinov-Bennie and Mladenovic 2015). The Mortdale accounting
firm before handing over the documents to the firm performing reviews, was supposed to offer
advice to its clients of these reviews. The principle breached in this case is the principle of
professional behavior which demands that members should comply with the law and avoid any

Management Accounting3
omission which may bring discredit to the profession. The third party should be reasonably
involved and informed and in this case the firm should have informed both the client and the
firm conducting the reviews.
The second situation as provided within the case study indicates a breach of the codes of
conduct. An accountant is required to be transparent in every action he or she takes, Jan
Dungog,a CPA was therefore, required by section 110.1 to be transparent to both employees.
The principle breached in this case is the principle of integrity, which according to section 110.1
of APES 110 requirement is mandatory for every accountant (Han Fan, Woodbine and Cheng
2013). Principle of integrity requires all members to be honest and truthful in every action they
take, and failure to adhere to this obligation results to a breach of ethics of conduct.
In this situation Wendal Sailor is in breach of the APES 110 ethical requirements as their
interest in offering other services may compromise their audit judgment since they have not
issued their final opinion to the client firm. The principle breached in this situation is the
principle of objectivity in section 120 (Han Fan, Woodbine and Cheng 2013). The principle of
objectivity imposes a mandate on all members not to be involved in situations which may result
into conflict of interest as witnessed in this situation.
Since Judith Durham is the partner on a nonprofit making audit charitable organization
and She is also a member of the Board of Directors whose position is honorary and does not
involve her performingany management function, there is no breach of APES 110 ethical
requirement since there is lack of personal interest or gain by her while conducting the exercise.
Ernie Dengate has in this case breached the professional requirements of APES 110 by
selling his accounting practice which includes bookkeeping, tax as well as information obtained

Management Accounting4
from other firms without permission. He releases all the working papers containing information
from client functions to the new accountant, Jago, who hasbought the practice. The fundamental
principle breached in this case is the principle of confidentiality.
The case of Fred Nerk is not a each of the ethical requirements of 110 so long as he
works or operates under the fundamental principles of accounting. An auditor is allowed to offer
both non audit and auditing services but with a scrutiny of an external auditor. It is therefore
evident that the case does not present any conflict of interest thus no breach of professional
ethics even though alternation of auditors is recommended (Akkeren and Tarr 2014).
In the case of Allgood Chartered Accounting firm storing some of the documents in one
of the company branches is a breach of ethical conduct as it defiles the confidentiality principle.
Relocation of information to another company may lead to compromise of landing of that
information to unauthorized parties leading to loss of confidence and objectivity.
James Jameson in this case has breached the professional codes of conduct by not
meeting the obligations set by the principle of integrity as well as professional competence and
due care (Akkeren and Tarr 2014). He takes long time on holidays and also spent a lot of time in
jail thus presents a likelihood of not completing the tasks within the required time span. An
auditor should be competent and able to meet all obligations and requirements of APES 110.
Question 2
Audit opinions
There are four types of audit opinions as reviled by various scholars and audit experts.
The following situations represent various types of opinions as indicted below.
(a) Disclaimer opinion

Management Accounting5
The first situation represents a disclaimer opinion since the auditor was not able to obtain
information from the management. In a situation where an auditor is not able to provide enough
and sufficient audit evidence as in this case, the type of opinion present is a disclaimer opinion
which comes as a result of scope limitation (Krishnan and Wang 2014).
(b) Disclaimer opinion
The second situation of the task is a disclaimer opinion since the auditor is not able to
finish the whole exercise since the management has denied them access to 35% of the general
company assets (Krishnan and Wang 2014). An auditor is therefore required to attach this
opinion indicating the scope of limitation from which has prevented the completion of the
exercise.
(c) Qualified opinion
The third situation of the case study also presents various aspects of situation which fits
the recommendation for the auditor to comment a qualified opinion (Tsipouridou and Spathis
2014). Very large part of the documents supporting the audit has not been disclosed leading to
scope of limitation as in situation (a) and (b) leading to liability.
(d) Adverse opinion
The situation presents a large margin of company receipts embezzlement. In situations
where there is a suspicion of fraud, the auditor is required to provide a paragraph indicating that
there is a likelihood of fraud (Tsipouridou and Spathis 2014). The adverse opinion therefore fits
this situation since a misstatement has been witnessed.
(e) Unqualified or adverse opinion

Management Accounting6
The auditors in this case present an audit assumption that the audits were cleaning. The
auditor reports are considered unqualified but not qualified if the financial statement is presumed
to be free from material misstatements (Howieson et.al 2014). The current audits conducted by
the auditor is clean but the auditor is concerned and suspicious that the manager is hiding some
misstatements from the previous accounts whose closing accounts an openings have not been
provided.
Situation (f) and (g) Qualified opinion
The situations (f) and (g) indicate operation or conduction of audit exercise without
consideration of various Australian audit standards. Both situations indicate that the companies’
financial records have not been following the Australian accounting standards.
(h) Unqualified opinion
Unqualified opinion is the opinion which should be attaché by the auditor since he has
determined material uncertainty which exists within the company financial statements and has
confirmed that the entity may not continue as a going concern (Howieson et.al 2014). An
adequate disclosure has yet been identified and made off the financial statements making the
opinion unqualified rather than adverse.
Conclusion
An APE 110 as seen in the discussion above provides various important ethical
requirements which should be followed by all members in order to ensure integrity in the field of
accounting and auditing. Auditors and accountants are therefore required to meet the set
standards in Australia. The auditors are also required in section of the paper to express their
opinions at every end of each audit exercise.

Management Accounting7
References
Han Fan, Y., Woodbine, G. and Cheng, W., 2013. A study of Australian and Chinese
accountants’ attitudes towards independence issues and the impact on ethical judgements. Asian
Review of Accounting, 21(3), pp.205-222.
Howieson, B., Hancock, P., Segal, N., Kavanagh, M., Tempone, I. and Kent, J., 2014. Who
should teach what? Australian perceptions of the roles of universities and practice in the
education of professional accountants. Journal of Accounting Education, 32(3), pp.259-275.
Krishnan, G.V. and Wang, C., 2014. The relation between managerial ability and audit fees and
going concern opinions. Auditing: A Journal of Practice & Theory, 34(3), pp.139-160.
Martinov-Bennie, N. and 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), pp.189-203.
Tsipouridou, M. and Spathis, C., 2014, March. Audit opinion and earnings management:
Evidence from Greece. In Accounting Forum (Vol. 38, No. 1, pp. 38-54). Elsevier.
Van Akkeren, J. and Tarr, J.A., 2014. Regulation, compliance and the Australian forensic
accounting profession. Journal of Forensic and Investigative Accounting, 6(3), pp.1-26.

Management Accounting8