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November 15, 2024
1. The following scenarios may or may not violate the ethical standards of APES 110. You must indicate if they constitute a violation of the ethical standards of APES110, and if so, specify which ethical principle has been violated.
(a)The Mortdale Accounting business conducted many audits of public firms in the last year. It has now sent the working papers to the Penshurst Accountants, who are doing a peer review of Mortdale Accounting's audits. The Mortdale Accounting business does not inform its customers about these evaluations.
(b) Jan Dungog, a CPA, applies to a local public accounting firm of Chartered Accountants for a position, requesting that the firm refrain from contacting her current employer. The firm complies with her request, hiring her without reaching out to her current employer or other references.
(c)Wendal Sailor, a chartered accountant, purchases an insurance and superannuation company while also doing audits. During these audits, he regularly communicates with the companies to inform them of his other services before delivering the final Audit Opinion.
(d)Judith Durham is the partner in an audit of a nonprofit benevolent organization. She is also an honorary member of the Board of Directors, a position that does not require her to undertake any duties.
any managerial role.
(e)Ernie Dengate sells his accounting company, including bookkeeping, tax, and auditing services. He secures authorization for the release of tax working papers but neglects to gain permission for the others. He then provides all working papers from these functions to the new accountant, Jago, who has
Acquired the practice.
(f)Fred Nerk, a public accountant in a rural town, offers tax services, management consultancy services, and conducts audits for the same clientele. Occasionally, the same individual delivers all these services.
(g)The Allgood Chartered Accounting firm stores its records on multiple computers within its office. It conducts audits for the Branch company, which has determined that its computer facilities are insufficient for its requirements. Consequently, the Allgood Chartered Accounting firm has retained some of the Branch company's accounting records on its computers.
(h)James Jameson, a public accountant, excessively prolongs his attendance at the annual Christmas party of Balgowlah Accountants and drinks an excessive amount of beer and narcotics. He later travels to town, engages in a physical altercation, and is charged with assault at a hotel, along with public intoxication and disorderly conduct while attempting to drive away. He is ultimately convicted and sentenced to three months in jail, in addition to a one-year suspension of his driving license.
2. Specify the sort of view to be articulated in each of the following scenarios, along with justifications supporting your selection.
(a)The auditor could not get confirmations from eight of the client's principal customers included in the sample; nonetheless, he was able to verify the balances of these accounts using other audit processes.
(b)The client limited the auditor's ability to perform procedures to check the property, plant, and equipment, which constitutes 35% of total assets.
(c) Management has omitted essential disclosures on a contingent liability from the financial report. Should this liability materialize, it would significantly impact the financial report.
(d) A substantial percentage of a retailer's sales occur in cash; yet, the internal controls are insufficient, rendering the value of these transactions unverifiable. No audit tests can be conducted to guarantee that cash sales are accurately reported.
(e) You have been requested to conduct the audit for a new client this financial year. Although you are confident that there are no material misstatements in the current financial year's information, the client refuses to disclose any information regarding the opening balances of accounts at the beginning of the financial year.
(f)You have just been auditing the financial accounts of a customer that has not adhered to the Australian Accounting Standards since its inception four years ago.
(g)A customer has used the LIFO approach for inventory accounting, which is prohibited under Australian Accounting Standards. This has significantly impacted the financial statements, while its influence is presently confined to the inventory valuation.
(h)The auditor of Numark has finalized the audit and is confident that there are no material misstatements; however, the client's viability as a going concern is severely questionable, as its primary customer has entered liquidation, and it seems improbable that alternative customers will emerge due to the highly specialized nature of its products.
(a)The Principle of Confidentiality, in conjunction with the Principle of Integrity, has been contested in the present instance. The auditor must maintain the confidentiality of any documents acquired during the company's audit. Furthermore, he is not obligated to divulge or discuss the client's verbal information with any other party (Tsahuridu, 2014). This concept of integrity asserts that the auditor must exhibit honesty in all activities undertaken.
The accounting company has revealed all sensitive information to another audit firm without obtaining the client's consent. The concept of secrecy has been violated, and concurrently, the principle of integrity has been compromised due to his failure to tell the client about the peer review activities.
b) According to the principle of professional behavior, every auditor or member of the Institute of Certified Public Accountants must adhere to the prescribed code of conduct; failure to uphold its spirit will result in culpability for professional misconduct.
In this scenario, Jan Dungong, who has applied to another accounting company, opposes the employer's attempt to contact her former employer for information. According to the rule of conduct for professional behavior, the new employer must acquire the reasons from the prior employer about her departure from the position. The present employer has hired her without consulting the prior employer, so violating the concept of professional conduct.
c) According to the concept of Objectivity, the auditor must maintain impartiality while forming a judgment on the company's financial accounts and must not be influenced by any interests received or anticipated from the client. If he fails to maintain impartiality, he may be subject to professional misconduct.
Wendal Sailor, a chartered accountant, is involved in auditing services as well as operating a company in insurance and superannuation. During the audit visit to the customer, he deliberately initiates a discussion about insurance and superannuation, attempting to entice them to acquire these services from him. He has so breached the code of conduct and will be accountable for professional misconduct.
d) The concept of objectivity stipulates that the auditor must not have any direct or indirect relationship with the client for whom the audit is conducted and the opinion on the financial statements is formulated. This has been designated as the ethical code. This is considered an ethical guideline owing to the potential for the relationship to result in the authentication of the company's financial statements via improper and inequitable methods.
Judith Durham, a partner at the audit company, performs the audit of the nonprofit charity organization where she serves as a director. Although she does not actively participate in managing the company's business, her position on the board may influence the cancellation or routing of audit complaints. There is also the potential that the audit may not have been undertaken or that more significant manipulations may have occurred. Consequently, the concept of objectivity has been violated.
e) According to the code of conduct regarding confidentiality, the company's auditor is not obligated to disclose, reveal, share, or transfer any documents, information, or financial records to third parties without obtaining the client's consent for whom the auditor is rendering services. Documents, information, or financial records may be disclosed if mandated by legal requirements (CPA Australia, 2014).
Enrie Dengate is transferring the practice to Jago, the incoming accountant who will assume all responsibilities moving forward. Upon selling the practice to Jago, Enrie Dengate has obtained authorization for all aspects of the transfer, except for the tax working paper, and has proceeded with the transfer without prior consent for that specific document. The norm of secrecy has been egregiously avoided and breached.
f) According to the concept of objectivity, a company's auditor is prohibited from providing both audit services and accounting, bookkeeping, tax return filing, management advising, and tax services to the same customer. If he offers other services alongside audit services, the idea of impartiality will be compromised, as the auditor will be unable to deliver a truthful and fair conclusion and will face the risk of self-review.
In the current context, Fred Nerk is delivering audit services in conjunction with taxes and management consultation services. In this instance, the auditor's judgment formed during the audit will be compromised by the threat of self-review, so undermining the auditor's impartiality and independence.
g) In accordance with the principle of professional competence and due care, the auditor of the business must implement a system that guarantees the firm has adopted the necessary systems including new and innovative technologies pertinent to areas such as accounting and taxation. The task will be executed by a team of certified chartered accountants and tax specialists. If the audit company lacks such a system, it will be a violation of professional competence and due diligence.
In this scenario, Allgood Chartered Accountants upholds a procedure in which the audits of the branch business are conducted. The customer notes that the organization lacks the necessary infrastructure to conduct discussions efficiently. Consequently, there is a violation of the concept of professional competence and due diligence.
h) According to the established code of conduct, a chartered accountant will be deemed guilty of professional misconduct if found engaged in illegal activities or if imprisoned for a specified duration, resulting in the temporary suspension of their license by a court of law for a period of months or years.
In the described scenario, James, a public accountant, engaged in a drunken altercation at the hotel and exhibited behavior unbecoming of a Chartered Accountant. He has been incarcerated for three months, and his license has been revoked for one year. Consequently, under these conditions, he will be deemed culpable of professional misconduct and inappropriate professional conduct.
2a) According to the provided situation, the auditor will offer a clean report or render an unqualified opinion. The auditor, despite being unable to secure confirmations and discrepancies between the customers' balances and the company's accounting records, successfully executed audit procedures that provided reasonable assurance regarding the accuracy of the accounting. Consequently, the financial statements were prepared in a true and fair manner, accurately reflecting the company's financial position and performance. Consequently, the auditor will provide an unqualified opinion (AASB Official Website, 2013).
b) According to the specified circumstance, the auditor will provide a disclaimer of opinion in the audit report. A disclaimer of opinion is provided when the client impairs the auditor's impartiality by failing to provide necessary papers, explanations, or information, or by not permitting the auditor to conduct extra processes. Consequently, when the auditor's scope is limited, a disclaimer of opinion is provided. The client limits the auditor's examination to the principal components of property, plant, and equipment. Consequently, this indicates that the auditor's scope is limited, resulting in the issuance of a disclaimer of opinion by the auditor.
c) In accordance with the specified circumstances, the auditor is obligated to offer an unfavorable opinion in the audit report. The adverse opinion is issued by the auditor in the audit report when it is determined that the company has deliberately omitted material facts that should be included in the financial statements, thereby hindering users' ability to make informed decisions based on those statements. This non-disclosure will arouse suspicion in the auditor's thinking, leading to the issuance of an undesirable report. In this instance, contingent liabilities have not been mentioned in the notes to the accounts, and if reported, they will be included into the real liabilities. In light of this information, the auditor has given an unfavorable report.
d) In this instance, the auditor cannot authenticate the client's retail cash sales due to the company's inadequate internal controls for the verification of cash sales transactions. The documentation of monetary transactions is not conducted regularly. In this scenario, the auditor is left without any processes to ensure that the cash sales recorded in the company's books are verifiable and can be readily corroborated with the sales invoices. In such circumstances, since the auditor's scope is limited, the auditor will give a disclaimer of opinion.
e) In this scenario, the auditor is unable to authenticate the company's initial balance, since the client has unequivocally refused to furnish the details of the opening balance. Despite the auditor's contentment with the entries in the company's financial records for the current audit year and the absence of material misstatements, the lack of verifiable documents for the opening balance has compelled the auditor to issue a qualified report (Bedard, 2010).
f) In this context, the company has been operational for four years and has not adhered to accounting standards, resulting in the failure to prepare its financial records in accordance with the stipulated provisions of those standards. The auditor will provide an unfavorable opinion on the company's financial accounts due to non-compliance with accounting standards. The firm has the opportunity to amend its financial accounts and get a new audit report with an unqualified opinion.
g) In this context, the firm has been using the LIFO approach for inventory valuation, which is explicitly prohibited by Australian accounting rules and international financial reporting standards. The use of this procedure significantly impacted the company's financial statements, since the previous stock value may be assessed at a greater net realizable value. This is a definitive instance of account manipulation, and the auditor must provide a Qualified and Adverse Opinion on the company's financial statements.
h) In the present circumstances, while the auditor has not detected any substantial misstatements that might impact the company's financial statements, there exists a material fact that may contest the validity of the produced financial statements. The company's primary customers have entered liquidation, resulting in a significant decline in turnover, and additional clients are likely to seek other suppliers. In this instance, due to the impairment of the company's going concern assumption, the auditor will provide a qualified opinion.
Tsahuridu E,(2014), An Overview of APES 110- Code of Ethics for Professional Accountants available at https://www.apesb.org.au/uploads/meeting/board_meeting/24112014043919_agenda-item-16-f-cpa-australia-s-overview-of-apes-110.pdf accessed on 24/05/2017
CPA Australia Official Website, (2014), A guide to Understanding Auditing & Assurance available at https://www.cpaaustralia.com.au/~/media/Corporate/AllFiles/Document/professional-resources/auditing-assurance/guide-understanding-audit-assurance.pdf accessed on 24/05/2017
AASB Official Website, (2013), Forming and Opinion and Reporting on a Financial Report available at https://www.auasb.gov.au/admin/file/content102/c3/Jul13_Compiled_Auditing_Standard_ASA_700.pdf accessed on 24/05/2017
Bedard, J.C., 2010, Audit quality indicators: A status update on possible public disclosures and insights from audit practice Current Issues in Auditing, 4(1), pp.C12-C19.
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