Zara and Company Audit Report: Quality, Ethics, and Recommendations

This report examines the audit conducted by Zara and Company for Simpson Co, focusing on quality control, ethical, and professional issues. The report identifies deficiencies in quality control, such as non-compliance with review procedures and the use of random sampling instead of statistical methods. It also highlights ethical breaches, specifically the breach of confidentiality due to the disclosure of information to a former finance director. The report references ASQC 1 and APES 110 to support its analysis. Recommendations include using appropriate statistical techniques, adhering to ethical principles, and ensuring confidentiality. The conclusion emphasizes the importance of complying with auditing standards to maintain client relationships and transparency.

ZARA AND COMPANY

Table of Contents
INTRODUCTION...........................................................................................................................1
1. Identifying and discussing quality control, ethical and professional issues raised with
relation to audit of Simpson Co..................................................................................................1
2. Recommend actions to be taken for identified issues.............................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Auditing process checks the adherence of financial position of company. Present report
deals with Zara, a global accounting firm which is carrying out audit of its client Simpson Co.
This report will discuss quality control, ethical and professional issues in audit of client.
Moreover, recommendations will be provided for resolving issues.
1. Identifying and discussing quality control, ethical and professional issues raised with relation
to audit of Simpson Co
Quality Control
The firm is required to adhere to system of quality control which includes policies and
procedures addressing ethical requirements, monitoring and other factors in effective manner. It
can be analysed that Simpson Co has not carried out review procedures which should have been
complied. Moreover, samples were selected randomly to reduce time and as a result, statistical
methods were not being used in the firm. The quality control needs to be adhered in relation to
ASQC (Auditing Standard Quality Control) 1 prepared by AASB (Auditing and Assurance
Standards Board) of Australia. The standard applies to firm performing an audit of financial
report for a particular financial year of company (ASQC 1 Auditing Standard ASQC 1 Quality
Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial
Information, Other Assurance Engagements and Related Services Engagement. 2013).
The standard requires monitoring firm's quality control procedures and policies. Ongoing
consideration and evaluation of quality control needs to be followed. It can be assessed that
particular statistical method should have been implemented for carrying out research with taken
sample. The deficiencies need to be carried out and proper action is to be taken (McGrath and
Loper, 2018). Zara should communicate the same to engagement partners and other professional
for maintaining quality of the audit and take corrective action for monitoring purpose in effectual
manner
Ethical and Professional Issues
APESB (Accounting Professional & Ethical Standards Board) has issued APES 110 code
of ethics for professional accountants laying down fundamental principles such as-
Integrity-
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The integrity means to be straightforward and honest in maintaining relationships with
clients.
Objectivity-
This principle states that not to override business judgements and allow biasness
Professional competence and due care-
It requires professional and skilled services should be provided to clients and to act
diligently with applicable professional standards (APES 110 Code of Ethics for Professional
Accountants. 2010).
Confidentiality-
This states that information should be kept confidential of audit client and not to disclose
to third parties.
Professional behaviour-
It states that business should comply with laws and regulations and avoid any action
disrespecting and discrediting profession.
It can be assessed that Russell was not the member of Zara and was the former finance
director of Simpson Co. Here, breach of confidentiality fundamental principle of APES 110
applies as he was not a member of firm and information was disclosed to them which has lead to
breach of ethical and professional standards. Moreover, outsourcing of financial reports to
offices of Zara should be based on objectivity and integrity so that information of the audit client
may not be misused in any manner.
2. Recommend actions to be taken for identified issues
The issues that were identified in the above case study of Zara is that firm should have
taken into account that Simpson Co has not complied with quality standards. This is evident from
the fact that review control procedures were not being carried out and for reducing sample size,
random sample were being taken and appropriate statistical method was not used (DItri and
Helms, 2018). It is recommended that concern statistical technique should be used in order to
produce effective results in a better manner. Moreover, it can be analysed that despite of increase
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in materiality level, Simpson Audit Committee refused to increase audit fees which is also not
appropriate as per professional behaviour.
On the other hand, it can be analysed that locations for physical verification for non-
current assets were not being used. It is required to use appropriate statistical technique else
accounting for physical verification may be misleaded. On the other hand, Zara outsourced audit
works to overseas offices including India, it is needed in order to comply with APES 110 code of
ethics and professional standards, all the fundamental principles particularly objectivity and
integrity needs to be complied with. Moreover, it is recommended that confidentiality principle
should be exercised so that third party may not access the confidential information of audit
client. Thus, these issues could be resolved with ease by implementing such recommendations.
CONCLUSION
Hereby it can be concluded that auditing standards have to be complied by audit services
company. Zara should comply with the issues and perform better audit services to be imparted to
Simpson Co for maintaining perfect business and client relationships. Thus, transparency can be
attained along with client satisfaction.
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REFERENCES
Books and Journals
DItri, M. and Helms, M.M., 2018. Toward a Global Business Standard for Supply Chain
Ethics. IEEE Engineering Management Review.
McGrath, E. and Loper, K., 2018. Quality Management. InEstablishing a Hematopoietic Stem
Cell Transplantation Unit(pp. 219-230). Springer, Cham.
ONLINE
ASQC 1 Auditing Standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews
of Financial Reports and Other Financial Information, Other Assurance Engagements and
Related Services Engagement. 2013 [PDF] Available Through:
<https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standar
d_ASQC_1.pdf>
APES 110 Code of Ethics for Professional Accountants. 2010 [PDF] Available
Through:<https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf>
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