APES 110 and its implications on auditor’s decision-making process
Section 260 of APES 110 is associated with a member in public practice taking gifts and hospitality. This section is linked to the families accepting gifts and is likely to produce self-interest threat. The nature of the threat is associated with nature, as well as the value of the offer that is in the case of a 25% discount. If the auditor accepts this offer that is accepting two concert tickets at 25% then at a later point of time, if the company makes a request of unreasonable nature in tune to the financials then the auditor will not be able to refuse. If the threat cannot be reduced to a certain extent then the auditor should not accept the offer because such as offer can create a negative impact on the auditor’s judgement. It is upon the auditor to provide a true and fair view of the state of affairs of the company (Hoffelder, 2012). In this scenario, the auditor should ensure that the auditor should not create a familiarity level because it is the main factor that creates an obstacle in the process of decision-making.
As per APES 110, the auditor of the company should be the sole audit and should not audit further companies. It is due to the fact that the audit of different companies will lead to a difference in the process of decision making. It is the responsibility of the auditor to project a true a fair view of the state of affairs of the company and in this tune, the decision should not be affected by the data of other companies (Geoffrey, Joleen, Kelli & David, 2016). Auditing other companies will create a problem in terms of decision making process.
A client requests the assistance of Jack Dack, a chartered accountant, in the installation of a new computerised inventory system for maintaining production and inventory records.As Dack has no experience in this type of work he engages a computer inventory consultant who he has confidence in to carry out the review. Due to the highly technical nature of the work and other time pressures, Dack is not able to review the computer consultant’s work and once the client has agreed to Dack gives the go-ahead for the installation of the inventory system
This cannot be termed an auditing work by Jack Dack. As per the auditing standards, it is permitted to appoint an external expert who is an individual or any organization that possess the desired level of skills, knowledge and expertise leaving aside accounting and auditing used by the members in practice. As per the fundamental principle, the principles of Professional competence and due care needs to be followed that mean the auditor needs to ensure knowledge and skills so that the services are in tune with the standards. Therefore, the duty of the auditor should be in tune with the code of conduct and there should be no differences as the judgement is final and binding (Lapsley, 2012). Hence, considering the scenario, it can be stated that Jack Dack needs to consider the work that is undertaken by the consultant is binding upon the auditor. The client has the reliance on Jack Dack and Jack Dack has not assessed the work that is done by the external expert and this is a violation of the Code.
Violation of auditing standards and ethical principles
According to the conceptual framework of an organization, the confidentiality agreement should always be present between the accountant and the client so that obligations of principles can be maintained. This confidentiality agreement prevents the accountant to discuss any details with outsiders without any legal or professional notice to the client because if any type of information is read by him to the outside sources, the client can penalize him for breaking the agreement (Lapsley, 2012). The accountant is only having the authority to convey the information to the outsiders if and only if there is any legal obligation that is required to be fulfilled or if the fundamental principles are not hampered. For this particular case, it has been observed that the auditing principles have been violated as the financial statements of the organization have been given to another member of the organization for the assessment of data (Geoffrey, Joleen, Kelli & David, 2016). The activities conducted by the auditors of the organization was not at all professional in conduct because of which they should be penalized and also no information should be conveyed to them from this particular time onwards. It is a General fact that the financial accounts of an organization are not public documents and they contain much precious information that may hamper the organizations business is leaked. Therefore, it is the sole duty of the auditors to maintain the secrecy of the data that have been provided to them for assessment.
It was observed in this case that the accountant was providing very crucial information in relation to the customers and their review, which may help the business to earn huge amount of money and thus become the leader in its field. The accountant was further trying to convey more information to the organization which can be used by it to improve the managerial framework of the organization and may further be helpful to improvise the revenue earning a statement of the company (Kaplan, 2011). Many basic fundamental principles of auditing were hampered and violated by the Accountant of the organization. An evaluation should be made by the auditor of the organization to find out the reasons for the uncertain profit that have been generated by the organization. If the evaluation states that the revenue has been earned from legal measures, strict action should be taken against the organization and its managers. Under the section 340 of the Corporations Act, 2001 it has been clearly stated that no auditor is having the authority to convey private information of an organization for personal use or advantage. Hence, if it is observed in any way that the auditor is trying to exploit the company details, he should be penalized.
Four Chartered Accountant firms case
According to the basic principles of the auditing task, it has been clearly stated that the Accountant and the auditor of the organization can never be the same. No matter how big the volume of the business or what a reputation it holds in the market, this fundamental principle remains the same. this principle helps to remove the vulnerability in the audit report of the organization so that a clear view can be judged based on the accounts and the financial statements of the organization without any personal benefit involved. It is a basic fact that no one will find mistakes in his own work because of which a biased decision may be presented in the audit report (Livne, 2015). The auditor should have an independent mind while making an assessment of the financial statements of the organization show that an accurate assessment of data is made, which will further help the organization to improve its managerial functions and the shareholders to make decisions in relation to the investments.
A small public company named as Maitland Coal company. have got its financial statements audited by auditor Andrew Capizzi Chartered Accounting firm. In order to improvise the business, the company has tried to make new contracts with new people so that it can expand its business, but it was noticed that the contractors why not having a good image in the media which have been clearly assessed with the help of unfavourable articles published in relation to their image. The major duty that is to be performed by the auditor is to state the fairness of the financial statements of the organization so that decision-making process can be carried out by the investors and shareholders in an appropriate way.
The auditor should be satisfied with the financial statements of the organization as long as all the information recorded satisfies the prescribed accounting rules and regulations that have been stated as the accounting principles. The major concern of the auditor while performing the audit services for this company should be the services of the independent contractor which have proved not to be very friendly in nature (Livne, 2015). The auditor is also required to present and help the organization to deal with the toxic waste disposal program. The auditor is yet to decide the effect of the waste disposal program and the independent contractor.
Therefore, it is important for the auditor to prepare and present the financial statements of the organization in the best possible manner so that true and fair information can be depicted to the shareholders of the organization and further the decision making process can be carried out in a sophisticated manner. The changes or the effects that will be made by the waste disposal program are not likely to impact the financial statements but it should be kept in mind by the auditors that the independent contractors may pose a threat, as they are not having a good image in front of the industry (Gay & Simnet, 2015). Hence, if all these factors are assessed properly, then the financial statements of the organization will be free from any kind of material misstatement and can also be further used for proper decision making.
Edith Bailey case
The major function carried out by the management of the organization is to prepare the financial statements in the best possible manner so that true and fair information is being presented by it. Whereas the job of auditors is to access this information in order to find any kind of material misstatements present in them which may affect the decision-making process carried out by the investors or the management itself. If a situation arises where the auditor has noted a significant violation of accounting standard, he will be liable to report it to the management of the organization so that it can be corrected before the data is presented to the general public and the investors. If the company is not willing to change the financial statements of the firm to make it in accordance with the accounting standards, then the auditor should report it in the audit report of the organization.
In this particular case, it has been observed that violation of accounting standards have been made by the Moonies in relation to the valuation of inventory. The deductions that are to be made in the fair value of the inventory is not being assessed by the organization because of which material impact can be noticed in the financial accounts of the organization (Fazal, 2013).
It has also been clearly noted that the payment of almost 20% of the audit fees has not been made in the previous year. The company has started to clear the due amount in the current year because of which it is the obligation of the auditor to conduct the audit process for this particular year. This causes a violation of the independence of auditors as the auditors are forced to work under the terms of the client. Revenue is being provided by the audit services which cannot be compromised by the organization because of its significance (Matthew, 2015). Therefore, this is also a threat to the audit firm because of the involvement of the huge sum of fees involved.
The conditions that have been stated by the organization in relation to the payment of the audit fees can for the auditor to work as per the conditions of the client because of which the independent auditing principal charging damaged. Another aspect that was noticed in relation to the accounts of the company was to violate various principles and Standards while preparation of the accounts of the organization (Baldwin, 2010). Therefore, it is the sole duty of the auditor to provide professional data to the users of the financial statement so that all these factors can be judged while making any decision in relation to the investments that are to be made in the organization. It is very necessary for the auditor to stand with all the principles and ethics so that true and fair data can be depicted to the investors and shareholders of the firm. The auditor shouldn’t accept any such incentive provided to him by the organization which may force him to act personally (Baldwin, 2010). After removal of all the threats to Independence, the impacts that may be caused on the organizations business should be clearly discussed in the audit report in relation to the violation of principles and standards that have been made in the preparation of financial accounts.
References
Baldwin, S. (2010) Doing a content audit or inventory. Pearson Press.
Fazal, H. (2013) What is Intimidation threat in auditing?.[online]. Available from: https://pakaccountants.com/what-is-intimidation-threat-in-auditing/ [Accessed 21 September 2018]
Gay, G. and Simnet, R. (2015) Auditing and Assurance Services. McGraw Hill
Geoffrey D. B, Joleen K, Kelli S. and David A. W. (2016) Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors. Accounting Horizons. [online] 30(1), pp. 143-156. Available from https://doi.org/10.2308/acch-51309 [Accessed 21 September 2018]
Hoffelder, K. (2012) New Audit Standard Encourages More Talking. Harvard Press.
Kaplan, R.S. (2011) Accounting scholarship that advances professional knowledge and practice. The Accounting Review [online]. 86(2), pp. 367–383. Available from https://doi.org/10.2308/accr.00000031
Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative Research in Accounting & Management. [online]. 9(3), pp. 291-292. Available from https://doi.org/10.1111/1468-0408.00081
Livne, G. (2015) Threats to Auditor Independence and Possible Remedies. [online] Available from: https://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-and-possible-remedies?full [Accessed 21 September 2018]
Matthew, S. E. (2015) Does Internal Audit Function Quality Deter Management Misconduct?. The Accounting Review. [online]. 90(2), pp. 495-527. Available from https://doi.org/10.2308/accr-50871 [Accessed 21 September 2018]
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