3102AFE Auditing: Analyzing Auditor Independence at PMB Security

This case study analyzes the auditor independence issues surrounding PMB Security Ltd, an ASX-listed company audited by Maitland Partners. The central issue revolves around a former audit partner becoming the CFO of PMB Security, potentially compromising the auditor's objectivity. The report identifies self-interest threats arising from the close relationship and the potential for biased financial reporting. It further discusses safeguards, referencing APES 110, that auditors can implement to maintain independence, such as professional ethics and maintaining distance from management influence. The analysis concludes by emphasizing the importance of auditor independence in ensuring the true and fair view of a company's financial statements and adherence to regulations. Desklib provides resources for students, including solved assignments and past papers.

Running head: Auditing Theory and Practice
Auditing Theory and Practice
Name of the Student
Name of the University
Author Note

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Auditing Theory and Practice
Executive Summary
The report show about the auditing process as it is the inspection and examine of company
financial statement. It show about the different issue which the auditor is facing and how the
issue will be turn to be threat and it also it show the different safeguard which the auditor will
able to take for the same.

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Auditing Theory and Practice
Table of Contents
Introduction................................................................................................................................3
Issue which can lead to Threat...................................................................................................3
Threat to Independence of Auditor............................................................................................3
Safeguard for Threat to Independence of Auditor.....................................................................4
Conclusion..................................................................................................................................4
Reference....................................................................................................................................6

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Auditing Theory and Practice
Introduction
. Auditing is the process of inspection and examination of financial accounts of book of
company. The auditor checks whether the company financial statement is having true and fair
view or not (DeFond and Zhang 2014). It shows whether the company is able to follow all the
standard and norms for the preparation of company financial statement. The report show
about the company PMB Security Ltd.
Issue which can lead to Threat
As per the case study it can say that the company PMB Security is concern it is
having an old partner of audit firm who is Tegan, who become CFO of PMB Security so as
the company employee have a good relationship with the partnership firm so this can make
an effect upon the independence of auditor (Furnham and Gunter 2015). As the audit team of
company is being giving all the information to CFO so as the CFO was an old member of
audit firm so as it able to change the opinion of the company auditor easily so that it can able
a proper auditor report for the company. As the auditor firm is carrying its audit in company
financial statement so it able to know the company is not able to maintain proper record as so
there can be fraud in the company (Hall 2015). As the company is having new technology in
regards of the company costing system, as the new system is not been familiar to company
employee so can easily be that the company is not able to maintain it properly and does many
mistake in carrying it company business.
Threat to Independence of Auditor
Threat are the one which directly affect the company auditor report as if the company
auditor is not having proper independence than it will directly affect the company financial
statement as if the company is able to affect company auditor than it can directly use the
auditor to get proper report for the company. The threat which is been faced by the auditor is

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Auditing Theory and Practice
Self-Interest Threat – Self-Interest Threat shows that the auditor is having some kind
financial interest or personal interest in company (Griffiths 2016). As if the auditor is having
any financial interest with company than the management will able to make affect the auditor
changes, so as per case study it can see company is a having an old member of auditor firm so
the old member who is also CFO of company so as the company if having any mistake in the
financial statement that the auditor will give the company an Unqualified Report. As the CFO
is giving them the company auditing with high fees so if the auditor company is not able to
provide them with a proper report than, the company will not give the audit of company for
upcoming years (Knechel and Salterio 2016). So as per the issue the auditor will be able to
face Self-Interest Threat.
Safeguard for Threat to Independence of Auditor
As per the threat which is shown above so as per APES 110 it also contains the
safeguard which is able to stop the auditor to give any unjustified report to company. The
safeguard is that the auditor should able to work as per his profession and should maintain a
proper gap with management so that the decision which the auditor will take is an
independent decision and will not affect by the management (Groomer and Murthy 2018).
Auditor should able to have all the ethics which are required in the profession and it should
deal the same while carrying its process in the company so that the auditor will able to carry
all the auditing process in the company properly and effectively, which help the auditor to
give proper report to company.
Conclusion
The report concludes about the auditing process, which the inspection and
examination of company financial statement so that the auditor will able to give its opinion
that whether the company financial statement is showing true and fair view or not. Auditor

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Auditing Theory and Practice
carry many process in company financial statement so that it able to check whether the
company has followed all the rules and regulation properly in preparation of financial
statement. It shows about the company PMB Security and the auditor firm as how the firm is
able to have some kind of issue which will create a threat to auditor independence. The report
concludes about the auditor facing the threat and how it can able to safeguard the
independence of auditor by applying proper rules and regulation.

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Auditing Theory and Practice
Reference
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of
Accounting and Economics, 58(2-3), pp.275-326.
Furnham, A. and Gunter, B., 2015. Corporate Assessment (Routledge Revivals): Auditing a
Company's Personality. Routledge.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Groomer, S.M. and Murthy, U.S., 2018. Continuous auditing of database applications: An
embedded audit module approach. In Continuous Auditing: Theory and Application (pp. 105-
124). Emerald Publishing Limited.
Hall, J.A., 2015. Information technology auditing. Cengage Learning.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.