Analyzing FFA: Corporate Governance, Ethics, and Audit Concerns

This case study analysis delves into the corporate governance and ethical issues surrounding Far Faraway Pastoral Limited (FFA), an agricultural company audited by Samway Baker Fitzgerald (SBF). It examines FFA's compliance with ASX Corporate Governance Principles, highlighting breaches related to board independence and disclosure. The analysis further explores ethical dilemmas faced by SBF auditors concerning FFA's revenue calculation methods and potential financial statement misrepresentation, applying the American Accounting Association (AAA) Model to assess these issues. Finally, the report evaluates SBF's duty of care in auditing TRC, a subsidiary of FFA, and its potential liability to McCarran Pastoral, the buyer of TRC, due to misstated financial records. The analysis concludes with recommendations for SBF to rectify the audit discrepancies and mitigate potential legal repercussions.

Running Head: Case Study Analysis
CASE STUDY ANALYSIS

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Case Study Analysis
Table of Contents
Question 1: Advice: ASX Corporate Governance Principles and Recommendations as per the
case study.........................................................................................................................................3
Question 2: With reference to the Code of Ethics for Professional Accountants, use the following
American Accounting Association (AAA) Model..........................................................................4
Question 3: Report...........................................................................................................................5
Reference List..................................................................................................................................8

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Case Study Analysis
Question 1: Advice: ASX Corporate Governance Principles and Recommendations as per
the case study
The concerned agricultural company Far Faraway Pastoral Limited (FFA) has provided
some information regarding its board of directors to Samantha Gabrielle, audit personnel of
Samway Baker Fitzgerald (SBF). Based on the given information, it can be said if FFA has
breached any Corporate Governance Principles and Recommendations as mentioned by the
Australian Stock Exchange (ASX).
Independent Chair of the Board
FFA has three non-executive directors, whose names the company has been provided to
Samantha. Out of them, the person who is holding chair of the board is holding shares in FFA.
However, according to the principles set by ASX, the person-holding chair of the board should
be an independent director and a director being independent becomes doubtful if the person is a
shareholder of that particular company or associated with any shareholder of that company. In
this context, it can be said that it is the prior responsibility of the management of FFA to appoint
an independent chair of the board that is free from any interests and to act accordingly for the
best interest of the concerned company. This is because, an independent chairperson is vital to
contribute to the openness in making various decisions of the concerned company.
Maximum members of the board shall be independent
The board of directors of FFA comprises of the three personals, one of them to hold
shares of the concerned company and other person is a retired farmer who is also a major
supplier to FFA. According to the principles and recommendations provided by ASX, the
majority of the board members should be independent directors. The persons who are either
holding shares in that particular company or are associated with a material type business, such as
being a supplier of that particular company, are in a doubtful position of being independent
directors (Safari, 2017). In this context, it is advised to Samantha in order to Inform FFA that it
should appoint members of its board of directors who are independent, as it will strengthen the
implementation of the decisions made by the board. It will also reflect the clear interests of the
concerned company, and it will not be biased with the interests of the management.
Disclosure of the roles of the members of Board
FFA provided in its annual report for 30 June 2019 the personnel comprising the board of
directors of FFA. However, they have not mentioned the roles of each personnel of the board.

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Case Study Analysis
According to the principles set by ASX, a company should disclose the respective roles and
functions of the members of its board. It should also disclose the matter reserved to the board
that is being delegated by them. In this context, it is advised to Samantha to inform FFA about
the matter as this implies breach of the principles of ASX, which can be sued later on. In order to
avoid that, FFA must highlight the roles and functions of the members of its board.
Question 2: With reference to the Code of Ethics for Professional Accountants, use the
following American Accounting Association (AAA) Model
Facts related to case study
The financial statements of FFA as provided by the company says that the method of
revenue calculation the concerned company is using is questionable as it recorded that the sale of
cattle by the concerned company constituted nearly half of all the revenues. The senior partner of
the FFA audit informed Steve Barker, audit personnel of SBF, which FFA has been using the
method for revenue calculation for many years and hence no change is required in the financial
statement (Lama & Anderson, 2015). The audit personnel of FFA declined a proposal made by
Steve to include a statement of discord in the audit working papers. As mentioned by Steve, the
audit personnel of FFA also made some negative remarks about the audit manager of SBF
regarding his future promotion as a partner.
Ethical issues
It is evident from the behavior of the person that the person is associated with the reports
that are false and misleading. It is clear that the person is trying to hold back some facts that are
being illegally carried on by the company FFA. That is the reason why the person also refused to
provide with a statement of discord in the audit papers. The statement made by the audit
personnel of FFA is not acceptable as this is against the code of ethics of an accountant.
Major principles, rules, and values
According to the code of ethics of the accountants, an accountant should not agree with
and be associated with the financial statements that are misleading and false (Section 110).
According to the code of ethics (Section 120) of the accountants, an accountant should remain
truthful while pursuing his/her work and if the person encounters any type of fraud, the person
may seek legal advice in determining what shall the person do in that case. According to the code

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Case Study Analysis
of ethics (Section 150), an accountant shall not make any type of negative statement or false
comparisons to the profession and work of others.
Specify the alternatives
The person should be honest in professional relationships and deal with them truthfully
(Simunic & Biddle, 2019). The accountant shall determine the appropriate actions required for
the identified ethical issues. The professional accountants must not associate with any type of
actions that bring disrepute to the person’s profession (Chandrakumara, McCarthy& Glynn,
2018). A professional accountant shall always conduct themselves with modesty towards all the
people with whom the person comes into contact with while performing his/her work, the
violation of which may lead to severe penalties (Sonnerfeldt & Loft 2018).
Values and alternatives
In case these issues remain unsolved, the accountant should if possible avoid to be
associated with those matters that create these issues or consult with those persons within the
company who are appropriate to give resolution (Samsonova-Tadde & Siddiqui, 2016). In cases
of conflict within a company, the person shall consult with the governing bodies of the company.
Decision for each issues along with Consequences
The audit personnel Steve should warn about this matter to the auditor of FFA that it
would lead to discrepancies in the financial statements. It is advised to Steve to inform and warn
the audit personnel of FFA that in case the code of ethics is violated, the auditor of the concerned
company shall be subject to penalties by the authority of the accountants (Coyne, Coyne &
Walker, 2016).Steve must have warned the auditor of FFA to avoid doing such statements
further, or the person may get suspended from his/her registration.
Question 3: Report
Introduction
The report is based on the analysis of the conditions and opportunities of the accounting
firm SBF; its client firm FFA, the subsidiary of the client firm TRC and its buyer firm McCarran
Pastoral. The case study in this report focuses on whether SBF has undertaken correct auditing
measures for TRC, whether FFA is guilty of not properly disclosing its financial statements and
whether SBF owns any type of duty of care to McCarran Pastoral.
Finding and analysis

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Case Study Analysis
SBF failed to exercise ‘due care’ in the audit of TRC
In the case study, it is evident that SBF has failed to exercise due care in doing the audit
work of TRC. As observed by Dickins et al. (2018), for exercising due care, the SBF should
have to use an acceptable and proper technical knowledge or skill while providing the audit work
to TRC. It also implies that SBF should take necessary actions to avoid any type of loss while
providing TRC with the service. From the case study, it is seen that SBF had appointed an
independent auditor to perform the audit work of TRC. However, the case study highlights that
TRC had been making losses for the past two years and suddenly it has upgraded its accounting
systems. The financial condition of the firm highlighted a significant improvement within a year
(William, Glover & Prawitt, 2016). The independent auditor appointed by SBF also concluded
that the accounting system of TRC was reliable. This means that either TRC provided with
wrong information or the auditor was negligent in his work. So, from the end of SBF there was
negligence in exercising due care.
FFA is guilty of contributory negligence
From the case study, it can be learnt that FFA has been providing with wrong and false
financial statements to SBF. The concerned company has misled SBF with wrong revenue
calculations for the accounting year 2019 and has confirmed about the false statements. As
mentioned by Payne et al. (2018), the audit a personnel of FFA has been reluctant in providing
with correct financial statements and avoiding any type of actions that may reveal the illegal
proceedings of FFA. Though questioned by SBF audit personnel, the auditor of FFA said that no
adjustments are needed in the statements and they are correct from all aspects. The person was
also reluctant to provide a statement of discord for the false statements when they were asked to
be given by the audit personnel of SBF. Hence, it can be said that FFA was guilty of contributory
negligence.
SBF owes a duty of care to McCarran Pastoral
As per the provided case study, it can be seen that SBF is directly related with McCarran
Pastoral. TRC has been purchased by McCarran Pastoral, which has been owned by FFA before.
However, McCarran Pastoral has not paid the full settlement to FFA. As stated by Voss (2018),

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Case Study Analysis
the reason for McCarran Pastoral’s non-payment is that there were errors in the accounting
system of TRC that has led the accounting statements of TRC to be misstated. In return, FFA has
been planning to sue SBF for this condition. In the background, it can be seen that the
independent auditor appointed by SBF for reviewing the accounting system of TRC has
concluded that the accounting system of TRC was reliable, which was discovered later to have
errors in them. This led to misstated financial record of TRC noticing which McCarran Pastoral
has withheld its payment to FFA. Therefore, it can be said for the negligence of SBF, the whole
thing occurred. In case SBF had crosschecked the accounting system of TRC, this would not
have occurred.
Recommendation
After analyzing the provided case study, it is recommended that, SBF should recheck the
financial system of TRC so that there is correct evaluation of the financial statements of TRC. In
case the correct financial statements is provided, and if a consideration is held with McCarran
Pastoral regarding the settlement of TRC, then only there is a way out from the sue to be made
by FFA. SBF should take necessary actions against the independent auditor who provided with
the false statements to SBF and do the necessary things to compensate with the loss incurred by
FFA in the selling process of TRC.
Conclusion
From the case study, it can be concluded that SBF has shown negligence in its accounting
procedure of TRC which has led to many discrepancies in the selling process of TRC to
McCarran Pastoral. This could have been avoided if SBF had done its duty properly at the
beginning.

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Case Study Analysis
Reference List
Abernathy, J., Hackenbrack, K. E., Joe, J. R., Pevzner, M., & Wu, Y. J. (2015). Comments of the
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Fair Value Measurements: Participating Committee Members. Current Issues in
Auditing, 9(1), C1-C11.
Chandrakumara, A., McCarthy, G., & Glynn, J. (2018). Exploring the Board Structures and
Member Profiles of Top ASX Companies in Australia: An Industry‐level Analysis.
Australian Accounting Review, 28(2), 220-234.
Coyne, J. G., Coyne, E. M., & Walker, K. B. (2016). A model to update accounting curricula for
emerging technologies. Journal of Emerging Technologies in Accounting, 13(1), 161-
169.
Dickins, D., Doxey, M. M., Geiger, M. A., Nolder, C., & Roush, P. B. (2018). Comments by the
Auditing Standards Committee of the Auditing Section of the American Accounting
Association on the International Monitoring Group Consultation, Strengthening the
Governance and Oversight of the International Audit-Related Standard-Setting Boards in
the Public Interest. Current Issues in Auditing, 12(1), C1-C10.
Lama, T., & Anderson, W. W. (2015). Company characteristics and compliance with ASX
corporate governance principles. Pacific Accounting Review, 27(3), 373-392.
Payne, D. M., Corey, C. M., & Raiborn, C. (2018). A model code of ethics for decision making
in accounting professions. 2017-2018 OFFICERS President President-Elect, 195.
Safari, M. (2017). Board and audit committee effectiveness in the post-ASX Corporate
Governance Principles and Recommendations era. Managerial Finance, 43(10), 1137-
1151.
Samsonova-Taddei, A., & Siddiqui, J. (2016). Regulation and the promotion of audit ethics:
Analysis of the content of the EU’s policy. Journal of business ethics, 139(1), 183-195.
Simunic, D. A., & Biddle, G. C. (2019). The Big Four: The Curious Past and Perilous Future of
the Global Accounting Monopoly, 45(2), 459-560.
Sonnerfeldt, A., & Loft, A. (2018). The changing face of ethics–Developing a Code of Ethics for
Professional Accountants from 1977 to 2006. Accounting History, 23(4), 521-540.

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Voss, G. (2018). Professional Ethics in Accounting as Assessed by Managers of Entities.
European Journal of Economics and Business Studies, 4(1), 173-181.
William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and assurance services: A systematic
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