Ethical Violations in Auditing Practice
1.As a Senior Auditor of the Panania Cars Pty Limited which is dealing in the selling of new as well as well as the old cars, she cannot buy the new cars at a discount of 20% on the discounted sale price.
A close business relationship between a company and the auditor, and the auditor client or its management arises from a commercial relationship or common financial interests. The example of one such relationship is distribution or marketing the client’s products or services or client distributes or promotes the products or services (Accounting Professional & Ethical Standards Board Limited, 2017). One of the ethical principles of the auditor is the integrity which will be violated if the client provides the extra discount, as the discount is for the purpose of the customers and the auditors are not falling under this category.
Unless there is any immateriality in the financial interest or any insignificance associated with the business or management of the Panania Cars Private Limited company, the deal is not acceptable. Therefore, in the position of senior auditor she cannot buy the cars at 20% discount under the fair trade practices. The offer which is given to the established customers can be accepted on the grounds of client auditor relationship. Beyond the offer, the deal cannot be accepted and the auditor is violating the rules and the principle of business relationships has been violated.
2.As per the ethical standards an auditor of a company and who is closely associated with the client shall not receive gifts or any kind of hospitality from the clients unless the informed third party has not considered the value of the gift so trivial or inconsequential. Therefore Katrina Wearne the auditor of the Lancom Cosmetics, can accept the gift only if the gift is of trivial nature. Therefore, Katrina Wearne is not violating the rules as per the international auditing standards (Dodgson, Agoglia, Bennett & Cohen, 2017).
3.As per the given case, D.Marron the chartered Accountant, shall not give a go ahead for the installation of the computer system before reviewing the work of an expert. As per the international auditing standard SA 620, relying upon the work of an expert, it is the responsibility of the auditor to evaluate the objectivity of the expert (Ho, 2017) The auditor shall obtain the appropriate audit evidence to conclude that the computer system has been installed correctly and in an appropriate manner. The auditor may rely on the work of an expert but cannot his responsibilities. Therefore, as per the given standard the auditor is violating the practice.
Situation a: Discount on Car Purchase
4.Under the given case as per the international auditing standard the chartered accounting firms can review the work of other chartered accounting firms under the statement of the peer review issued by the Australian board of Auditing. The main focus during the exercise or review shall be on whether the firms have complied with the relevant auditing and technical standards, whether the reports formed are of qualitative nature, office systems and procedures align with each other or not and lastly the training programmers and infrastructure facilities have been reviewed or not (Saputra, 2015) Henceforth, the working papers of the firms can be reviewed and the auditor is not violating the ethical practices.
5.Under the given case, Bill Holland the chartered accountant has set up a casualty and fire insurance agency as an additional service apart from the auditing and tax services. As per the principles of the ethics the chartered accountant is not complying with the rules and therefore there arises a case of conflicts of interests hence the insurance agency running in the name of Simone Taylor is not correct by the virtue of the standards on auditing (Chen, Liu, Luo & Suzuki, 2017).
6.Under the given case, Emma Lawrence the auditor of the small company cannot conduct the services apart from auditing. If an auditor is giving the auditing services the auditor cannot provide the following services whether directly or indirectly. Accounting and bookkeeping , internal audit, services given as actuarial, investment advisory services, investment banking services, rendering of outsourced financial services, management services or any other kind of services. Therefore, Emma Lawrence as an auditor is violating the ethical practices.
1.In the present case, where the newly appointed auditor Enid Blyton is aware that the contractor has a bad reputation and there have been unfavorable articles about him in the local press, so according to Accounting Professional & Ethical Standards Board Limited (2017) , section 225 ‘Responding to Non-Compliance with Laws and Regulations ‘ of the APES110 Code of Ethics for Professional Accountants , she shall respond to the noncompliance of the applicable laws and regulations relating to the disposal of toxic waste (Alexeyeva & Svanström, 2017).
As per Section 225 a member undertaking the audit of a public firm should be made aware of nonconformity with the applicable laws and regulations during the time in which the accountant is serving his /her professional services to the firm. It is the accountability of the auditor to respond to such unethical course of action and report the same to the management.
Situation b: Accepting Gifts from Clients
The noncompliance with the applicable laws and regulations also includes the matters of corporate governance and the acts of omissions and commissions regarding it. While confronting such matters, it is the responsibility of the auditors to comply with the provisions and report such matters to the appropriate authority. It is the obligation of the accountancy profession to act in public interest .So; Enid Blyton must report the matter to the senior management and appoint a new contractor in place of this contractor (Saputra, 2015).
2.In the given case, where Jean Douglas has initiated the audit of the financial statements and came to know that the company has not paid 30% of the past audit fees but has ensured that the it would be paid once it is happy with the progress of audit fees and it has also advised the accounting firm that it should start selecting the audit for the coming years.
Furthermore, the CEO has promised a free trip to Europe to the auditor and his partner after the successful completion of the audit. In this case , according to section 280 ‘Objectivity –All Services ‘of the APES110 Code of Ethics for Professional Accountants , the auditors shall analyze whether there are threats posed to the objectivity . The auditors shall provide professional services which are independent of the assurance client. If he has not paid the audit fees of the previous year then the auditors should refuse to conduct the audit of the current year (Ye, Simnett and Carson, 2014).
Furthermore, according to Section 280 ‘Gifts and Hospitality’ the auditors shall refuse to accept any gifts and hospitality from the client as it am pose threat to the compliance of the professional principles .So, in this case , the auditors shall refuse to accept the proposal of the foreign trip from the CEO of the company(Nawaiseh and Alnawaiseh,2015).
References
Accounting Professional & Ethical Standards Board Limited (2017) Compiled APES 110 Code of Ethics for Professional Accountants[online] Available from: https://www.apesb.org.au/uploads/standards/apesb_standards/20092017153656_Compiled_APES_110_Sept17.pdf [Accessed 18th May, 2018].
Alexeyeva, I., & Svanström, T. (2017) Knowledge Spillover and Audit Efficiency: Evidence from the Joint Provision of Audit and Non-Audit Services, London: Palgrave Macmillan.
Chen, H., Liu, Q., Luo, L., & Suzuki, T. (2017) The consequences of private relationship between audit partners and their clients. Asia-Pacific Journal of Accounting & Economics 10(3) pp.25-32
Dodgson, M. K., Agoglia, C. P., Bennett, G. B., & Cohen, J. R. (2017) Managing the Auditor-Client Relationship Through Partner Rotations: The Experiences of Audit Firm Partners.
Ho, N. (2017) Local Competition and Auditors’ Use of Non-Audit Services, New York: Springer.
Nawaiseh, M.A.L.A. and Alnawaiseh, M. (2015) The Effects of the Threats on the Auditor’s Independence. International Business Research. 8(8), pp. 141-149.
Saputra, W.(2015) The Impact Of Auditor‘s Independence On Audit Quality: A Theoretical Approach. International Journal of Scientific & Technology Research .4 (12), pp. 348-353.
Ye, P., Simnett, R. and Carson, E.(2014) Threats to Auditor Independence: The Impact of Relationship and Economic Bonds. Auditing: A Journal of Practice and Theory. 30(1), pp. 121-148.
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