The fundamental principles as per APES 110 requires the auditing professional to follow integrity, objectivity, Professional competence and due care, Confidentiality and Processional Behavior. The ethical principles allows the auditors to ensure that quality of audit is maintained and further appropriate opinion can be formed regarding the financial statements (Goicoechea, Gómez-Bezares and Ugarte 2019). In this analysis, the fraud activities in terms of reporting for QFOR are considered and the main operations of the company is to deliver technology solutions in the Manufacturing, Media, Retail, Healthcare, and Services sectors. The main ethical principle which is considered to be important from the perspective of audit especially considering the case of QFOR are listed below:
- Professional Competence and Due Care: One of the fundamental principle of auditing is Professional Competence and Due Care where the auditor is expected to act diligently and ensure that professional auditing standards are followed. The case of QFOR shows that the auditor failed to obtain sufficient appropriate evidence regarding the case. It was further identified that the auditor failed to apply appropriate audit procedures for ensuring that the financial statements are free from material misstatements (Shailer 2020). The analysis of the case shows that the auditor did not follow professionalism and further the quality of audit would be compromised.
- Integrity: One of the fundamental principle of auditing is to maintain the integrity during the audit process. The principle states that the auditor needs to behave in a straight forward and honest in his approach while dealing with the clients. As per the case, the auditor did not act with integrity in terms of collecting audit evidences and assess the accuracy of the financial information (Wu and Ying 2016). As per the case of QFOR, the auditor did not appropriately cover all aspects of the financial information such as previous period results and interim statements. The integrity of the audit process is also compromised which is major factor which can affect the quality of the audit process.
The above analysis appropriately shows that the ethical principles are important for the course of audit to ensure that appropriate quality is maintained during the audit process. The principle of integrity and professional competence and due care is violated in the above case for which the auditor would be held responsible.
The case of QFOR makes it clear that the auditors did not apply due skill and care while conducting the audit and did not maintain professional skepticism. This can be identified one of the main reasons that the incidence of fraud was not detected earlier. During the course of audit, the main threats which an auditor face are explained below:
- Self Interest Threat: This is considered to be a major threat when it comes to audit for a recurring client. The auditor’s judgment in such a case might get affected by any self-interest which can be extra compensation for other non-audit services or a higher audit fees. This threat affects the quality of the audit by restricting the auditor to carry out his duties in an effective manner. As per the case, the business of OFOR had appointed the audit firm from 2013 and had not changed the auditor (Prodanova et al. 2019). Further the auditor would be inclined to meet the requirements of the client considering their own self interests. The case make it clear that the auditors were not able to detect the fraud earlier mainly due to the fact that they relied on management representation more rather than looking for other corroborative audit evidences (Lessambo 2018). Therefore, it can be said that self-interest threat is one of the major threats which affected the compliance with fundamental principles perspective of the auditor.
- Familiarity: This threat also arises when the same audit team engages in the audit for a client more than one time and in such a scenario, the auditor tend to rely on their past experience rather than look for new evidences. This is major threat as it enhances the reliance of the auditor on internal sources of information and reduces the professional skepticism level. It is due to such a fact that the auditor is not able to accumulate sufficient appropriate audit evidences (Svanberg and Öhman 2016). The case of QFOR shows that the auditor has performed audit for the client company more than once which enhances the familiarity threat and affects the overall quality of audit. In an overall basis, this factor needs to be taken into account for assessing the frauds which has taken place and whether the auditor is responsible for the same or not.
Reference
Goicoechea, E., Gómez-Bezares, F. and Ugarte, J.V., 2019. Integrated reporting assurance: Perceptions of auditors and users in Spain. Sustainability, 11(3), p.713.
Lessambo, F.I., 2018. Audit Evidence and Documentation. In Auditing, Assurance Services, and Forensics (pp. 155-182). Palgrave Macmillan, Cham.
Prodanova, N., Trofimova, L., Bashina, O., Kachkova, O., Ilienkova, N. and Polyanskaya, T., 2019. Approaches for obtaining audit evidence at fair value measurement. International Journal of Economics and Business Administration, 7(3), pp.279-292.
Shailer, G., 2020. Ethics in the Independent Audits of Financial Statements. Handbook on Ethics in Finance, pp.1-17.
Svanberg, J. and Öhman, P., 2016. Does ethical culture in audit firms support auditor objectivity?. Accounting in Europe, 13(1), pp.65-79.
Wu, H. and Ying, X.S., 2016. Realizing auditor independence in China: Insights from the local context. Contemporary Management Research, pp.245-272.
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