Financial Interpretation: Ethical Obligations and Liabilities

This report examines the ethical obligations and legal liabilities of James Hanson, an engineer, in the context of a financial audit. The analysis focuses on James's failure to adhere to auditing standards, specifically ASA 102 and APES 110, by prioritizing the needs of a client over the public interest. The report details the ethical breaches of integrity and objectivity. Furthermore, it explores the liabilities of James as a director, referencing the Competition and Consumer Act 2010 and the Corporations Act 2001. The report highlights potential consequences, including actions by ASIC, such as disqualification from directorship, imprisonment, and financial penalties, due to his negligence in fulfilling his duties and the provision of unsafe materials. The case underscores the importance of ethical conduct and adherence to legal obligations in financial practice.

Financial interpretation
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Table of Contents
Part 2 (a)......................................................................................................................................................3
Part 2(b).......................................................................................................................................................4
References...................................................................................................................................................6
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Part 2 (a)
In regards to the provided case of James, there are certain ethical obligations, which were needed
to be followed by him while auditing the installed materials by Australian Building Association
(ABA). To elaborate it further, under Auditing Standard ASA 102 Compliance with Ethical
Requirements when Performing Audits, Reviews and Other Assurance Engagements, these
obligations has been clearly mentioned. Under Standard ASA 102 Compliance with Ethical
Requirements when Performing Audits, Reviews and Other Assurance Engagements A1 it
has been mentioned that the assurance practitioner, auditor, firm and engagement quality control
reviewer are to have respect to the appropriate requirement as mentioned under of APES 110
Code of Ethics for Professional Accountants (Auasb.gov.au, 2018). These are to be considered in
deciding if relevant ethical requirements referred in paragraph 6 of this Auditing Standard have
been addressed. In this context, if APES 110 Code of Ethics for Professional Accountants is
taken into consideration it can be noticed under Section 100 of the Code of ethics it has been
stated that it is the responsibility of accountancy professional to act in accordance to public
interest (apesb.org.au, 2010). Hence, it is required on the part of the member to particularly not
address the needs of an employer or a client.
From this context, it can be noticed that section 100 of APES 110 Code of Ethics for
Professional Accountants has not been abided in the provided case of James. The reason being,
in the provided scenario, James, he specifically catered to the needs and requirements of Greg
Burton, the owner and director of Burtons Builders. As a result, of this, he failed in acting as per
his ethical obligations as specified under section 100 of APES 110 Code of Ethics for
Professional Accountants. This made it essential for James to act in favour of public interest,
which made it essential for him to provide with accurate report of the report i.e. the use materials
were highly dangerous.
In order to identify his ethical obligations Auditing Standard ASA 102 Compliance with
Ethical Requirements when Performing Audits, Reviews and Other Assurance
Engagements, requires further consideration. Under the ethical requirements, Para 6 it has been
stated that it is required on the part of the auditor to comply with ethical requirements that has
been mentioned in Para A1-A7, while performing reviews, audits along with other assurance
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engagements (Jade.io, 2018). Under A3 of Auditing Standard ASA 102 Compliance with
Ethical Requirements when Performing Audits, Reviews and Other Assurance
Engagements fundamental principles of professional ethics [as mentioned in APES 110] has
been mentioned. On the part of auditor, while conducting audit, these principles are needed to be
abided. In context to the provided case of James, A3 (a) i.e. integrity may be taken into
consideration. This makes it essential for the auditor to be honest in every professional and
business relationship (Legislation.gov.au, 2019). In regards to the case of James, this principle
can be seen to be not abided, as he was not honest in regards to his responsibility of providing
with honest audit report. It was this ethical obligation to provide with hones audit report.
The principle of objectivity, mentioned under A3 (b) of Auditing Standard ASA 102
Compliance with Ethical Requirements when Performing Audits, Reviews and Other
Assurance Engagements has also not been abided by James, to which, he was obliged to be
followed. This principle makes it essential for the auditor, to not allow, any kind of bias to
influence the professional judgements. This made it obligatory for James to not allow any kind of
bias to impact this his professional judgement.
Thus, based on the above made discussion, the ethical obligations that were needed to be
addressed by James, as per Auditing Standard ASA 102 Compliance with Ethical
Requirements when Performing Audits, Reviews and Other Assurance Engagements are
integrity and objectivity. James, while performing the audit has not effectively abided these
ethical obligations.
Part 2(b)
In this case, James being the director of the company has certain liabilities. In order to identify
the liabilities, there are certain legislations that may be taken into consideration. One of the
mentionable legislation is Competition and Consumer Act 2010 (Eatonhall.com.au, 2017).
Under this legislation, Schedule 2 it has been stated that it is the liability of manufacturers of
goods, when issues with safety defects like product information and safety, unconscionable
conduct, unfair practices, and safety defect occurs. Hence, under the mentioned schedule of
Competition and Consumer Act 2010, it is the obligation of director to provide with safe
products and avoid any kind of unfair practices (accc.gov.au, 2019). Thus, under Schedule 2
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Competition and Consumer Act 2010 James have the liability to provide with safe products,
which can be seen to be not abided on the part of James, being, the director of the company.
Another mentionable legislation in this context is Corporations Act 2001. Section 180 of
Corporations Act 2001 it has been stated that it is the civil obligation of directors for Care and
diligence. It further states that an organization’s director or other officer are obliged to exercise
their power and perform their duties with care and diligence, which is expected from a
reasonable individual, in the position of director (Legislation.gov.au, 2019). Thus, James has the
liability under Section 180 of Corporations Act 2001 to exercise his power with care and
diligence. Considering his position in the company, it is his obligation to take necessary actions
for preventing such, losses i.e. damage due to fire cause by the materials provided by the
company.
In case of breach of individual duties, as a director of a company, there are certain actions that
can be taken by ASIC. To elaborate it further, lack of fulfilment of obligations, in the position of
director may result in serious actions been taken by ASIC that includes, upto 5 years of
imprisonment, penalties amounting upto $200,000, disqualification from the authority to manage
a company and individual responsibilities to pay the debt of the company (legalvision.com.au,
2019). It has been stated under Chapter 7(7.2) of ASIC, when an organization faces
insolvencies because of illegal activities, an association between insolvency and criminal or civil
misconduct is present, ASIC has the authority of disqualifying the directorship (Aph.gov.au,
2019). In this context, if the case of James is considered, it can be noticed that class action has
been initiated against the company due to loss caused because of the material it had provided. In
case, the legal action succeeds, the company will face significant losses which, may result in
insolvency. The reason of this insolvency would be criminal misconduct i.e. knowingly using
materials, which are dangerous, and inflammable that resulted in the loss, would result in the
action of ASIC to disqualify James from the position of director of the company. Considering the
severity of the situation, as there has been negligence of the duties of director as well as
negligence of individual duties by James, ASIC may even taken the initiative of his
imprisonment of 5 years and penalty of $ 200,000 to be paid by him.
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Thus, in case of James, negligence of both personal duties being the auditor and negligence of
duties in the position of director of company i.e. no delivering with safe materials would result in
significant actions being taken by ASIC against him.
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References
accc.gov.au. (2019). Australian Competition & Consumer Commission. [online] Available at:
https://www.accc.gov.au/about-us/australian-competition-consumer-commission/legislation
[Accessed 2 Apr. 2019].
apesb.org.au. (2010). APES 110 Code of Ethics for Professional Accountants. [online] Available
at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 2 Apr.
2019].
Aph.gov.au. (2019). Chapter 7 – Parliament of Australia. [online] Available at:
https://www.aph.gov.au/parliamentary_business/committees/senate/economics/
insolvency_construction/Report/c07 [Accessed 2 Apr. 2019].
Auasb.gov.au. (2018). Auditing Standard ASA 102 Compliance with Ethical Requirements when
Performing Audits, Reviews and Other Assurance Engagements. [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_102_Auditing_Standard_FRLI.pdf
[Accessed 2 Apr. 2019].
Eatonhall.com.au. (2017). Personal liability of Australian company directors. [online] Available
at: https://www.eatonhall.com.au/news/personal-liability-australian-company-directors
[Accessed 2 Apr. 2019].
Jade.io. (2018). Compliance with Ethical Requirements when Performing Audits, Reviews and
Other Assurance Engagements. [online] Available at: https://jade.io/article/576075 [Accessed 2
Apr. 2019].
legalvision.com.au. (2019). Consequences for Breaching Directors Duties. [online] Available at:
https://legalvision.com.au/consequences-for-breaching-directors-duties/ [Accessed 2 Apr. 2019].
Legislation.gov.au. (2019). Auditing Standard ASA 102 Compliance with Ethical Requirements
when Performing Audits, Reviews and Other Assurance Engagements. [online] Available at:
https://www.legislation.gov.au/Details/F2018L00434 [Accessed 2 Apr. 2019].
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Legislation.gov.au. (2019). Corporations Act 2001. [online] Available at:
https://www.legislation.gov.au/Details/C2018C00424 [Accessed 2 Apr. 2019].
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