Ethical Considerations in Auditing Smith Limited's Financials

This case study analyzes the ethical dilemmas faced by an auditor, Adam Brown, who discovers errors in the previously audited financial statements of Smith Limited for the years 2008 and 2009. The core issues revolve around threats to fundamental principles such as integrity, objectivity, professional competence, and professional behavior. The case highlights the importance of adhering to auditing standards and ethical guidelines, particularly regarding communication with previous auditors and maintaining independence. Adam Brown is advised to involve the management of Smith Limited in addressing the discrepancies and facilitating communication with the previous auditor to ensure transparency and avoid any self-review or familiarity threats. The study emphasizes the need for auditors to exercise due diligence and professional skepticism in their work.

AUDITING AND ETHICS
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SUMMARY OF THE FACTS
 This presentation reveals that issues in the
financial statement of Smith Limited while
audit was implemented by the member of
the audit firm.
 Adam Brown has discovered some errors as
far as accounts for previous year 2008 and
2009 are concerned. The dilemma is how
Brown should proceed (Chan, & Vasarhelyi,
2018).

CASE IS CONCERNED WITH
 Member in public practice
 The engagement partner in Lew-Jones-Jodie
and have audited the accounts of Smith
Limited for 6 years until he resigned from the
practice 1 year ago.
 Adam Brown discovered errors as far as
accounts for previous year 2008 and 2009
are concerned and showcased that it had
been accompanied with the inherent and
detention risk. (Christensen, et al. 2018).

THREATS TO FUNDAMENTAL
PRINCIPLES
 The threats may arise to these fundamental
principles include:
 Integrity- Involvement in the manipulation of
financial data by Adam.
 Objectivity
 Professional competence and due care- lack
of work effectiveness of Adam.
 Professional behaviour- Not Complying with
the audit and assurance program.

IDENTIFICATION OF SAFEGUARDS
 As per the relevant provisions of law Adam
Brown cannot proceed to communicate with
the previous auditor directly.
 He needs to involve the client and then do
the communication. This shall prevent any
self-review or familiarity threat.
 Further, proper independence needs to be
exercised irrespective of the personal relation
between Brown and previous auditor.

CONCLUSION
 What should Adam Brown Do ?
 Adam Brown must go and ask the
management of Smith Limited to let him
communicate with the previous auditor
regarding the discrepancies observed in the
previously finalised and signed accounts by
the previous auditor.

REFERENCES
 Chan, D. Y., & Vasarhelyi, M. A. (2018). Innovation and practice of
continuous auditing. In Continuous Auditing: Theory and
Application (pp. 271-283). Emerald Publishing Limited.
 Christensen, B. E., Eilifsen, A., Glover, S. M., & Messier, W. F.
(2018). The Effect of Materiality Disclosures on Investors’
Decision Making.
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margin (NPM), debt to equity ratio (DER), and current ratio (CR),
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 Lakis, V., & Masiulevičius, A. (2017). ACCEPTABLE AUDIT
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Management, 2(31).
 Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial
accounting for managers. New York: McGraw-Hill/Irwin.