Scenario a
1.In the given case, Jenny Wang is the senior auditor of the given company Panania Car Pty Ltd. which is in the business of selling old and new cars. The sales manager of the company mentions to the auditors that is sale is coming up for the long established dealers and since Jenny has been auditing the firm for last 6 years, she would be eligible for purchasing the cars at 20 percent discount(Alexander, 2016). Ideally, this is a kind of compromise with the independence of the auditor as this may lead to biasness in the report that will be published. Independence is one of the most important criterion to be fulfilled by the auditors as the audit report prepared by them forms the basis of decision making by many stakeholders and this 20 percent discount may act as an incentive for persuading auditor to give biased report.
In the 2ndcase, Katrina Wearne is auditing the client Lancom Cosmetics. She has been doing the audit since November and December and has been given the Christmas gift of cosmetics worth $ 350 by the company. As per the rules of the professional ethics and the regulations mentioned in APES 110, the auditors should not accept any monetary consideration or any other gift, etc other than the audit fees which may have an effect of compromising with the auditor’s independence. The standards and the general ethical principles restrict the auditors to accept such gifts in order to avoid any biasnesss and sympathetic attitude towards the report preparation (Bromwich & Scapens, 2016).
Here, the given client is seeking for assistance with regards to the installation of the computer system for maintaining the inventory and production reports from the chartered accountant, D. Marron. As he is not having nay professional skill and expertise with respect to the given work, he hires a computer consultant who assures to take the given work and fix it. Now since this is outside the scope of the expertise of the chartered accountant and his work skills, he is not being able to review the same and just accept to give a go ahead to the technician for installation of computer machine once client does agree for the same. This is somewhat a professional non compliance and against the General Ethical Principles as the chartered accountant should not have accepted the enegagement as it does not deals with the kind of work in which he deals in and now he will be responsible and accountable for the same(Bizfluent, 2017).
Scenario b
The given case is one describing the peer review where six chartered accounting firms are taking part amongst themselves to do a quality assurance check. Under this review mechanism, each of the firms will be checking the working papers of the other firms and will discuss the significant strength and weaknesses amongst them to improve the quality of audit. In the given case, what happens is the auditor doing the audit of one firm discusses the strengths and weaknesses of the firm with the auditor of another firm. There can be two aspects to it(Chron, 2017). If it is general discussion then the same does not results in professional non compalinace as the agreement would have been signed by the parties to the audit to discuss the findings to improve the quality of audit but in case it is regarding the specific points, then it results in the breach of confidentiality clause which should be adhered to by the auditor in this case. The auditor may be penalised for breaching confidentiality of this type. In this case, the strengths and the weaknesses should have been discussed with the auditor of the respective firm (Visinescu, et al., 2017).
In the given case, Bill Holland, a chartered accountant has also set up a casuality and fire insurance agency to assists his auditing and taxation services. He does not uses his own name in any of the insurance papers but but the name of his manager, Simone Taylor. Holland often asks Simon to discuss and review the adequacy of the insurance of the client with the respective management in case the client seems to be underinsured. In this particular case, the auditor does not possess the professional skill and expertise to determine what is the insurance which will be required by the client and so he is right to not use his name in the insurance documents but since the services are being provided in his firm’s name, so he would be responsible for the same. This falls under the other assurance engagements under Section 290 which needs to be checked(Linden & Freeman, 2017).
In the given case, Emma Lawrence, one of the public accountants in a small country provides a variety of services to its clients like the taxation services, the amangement advisory services, book keeping services and also conducts the audit for the same client. This is one of the serious non complainaces of the General Ethical Principles as this poses the risk of independence on the work being performed by the auditor. A person who is managing and is involved in the preparation of the books of accounts cannot be perfoming the audit of the same client(Dichev, 2017). This has been clearly stated in Section 290.172. It can only be done by the same audit provided the same personnel who will be in the audit team is not a part of the accounting team and also the accounting entity in which the services will be provided is immaterial to the Financial statements of the overall company on which the opinion will be expressed (Kuhn & Morris, 2016).
Scenario c
2.In the given case Enid Blyton has been associated with Anthony Don Chartered Accounting firm for last 4 years and has recently started with the audit of the newly publicly listed client Green Thumbs environmental company having been listed just 1 month ago. However, The company has started using the services of contractor to dispose the toxic waste. The issue is this contractor is widely known and has won several contracts in the past but there have been several unfavourable articles regarding it. Here the audit manager Peter Don is right in mentioning that Endi must go forward and disclose material misstatements, if any, which could be foreseen and also it is the responsibility of the auditor express the true opinion and highlight the risks which the contractor may pose for the company in the future(Raiborn, et al., 2016). It might be that the financial statemnets may not be providing a true and fair view now and therefore, since it is a new listed company, it may pose a threat on auditor’s independence and might also result in expression an incorrect opinion in the absence of detailed information regarding the contractor. The company in the course of producing the toxic waste should also be responsible for disposing it off in a socially and environmentally ethical manner so that the society is not being impacted as a result of the same (Saeidi, 2012).
Jean Douglas has just started the audit of the financial statements of Dooleys and made an observation and notes of the interview with the CEO who apologised for not making the final auditor payment of 30% for the previous years on the grounds that he will release the cheque once he is “happy” with the progress of the audit. Dooley has also made clear to Douglas that the company is starting to search for the auditors for next year and that Dooley’s audit comprises 40% of the total audit receipts of the firm’s income. The CEO has also promised that the company will be providing a free trip to Europe to its auditors once the audit is completed. Jean is concerned on several aspects of the company as it has not been following the appropriate accounting standards in valuation of inventory and has also not been taking the impact of reduction in the inventory fair values in financial statements which is material(Sithole, et al., 2017). This is completely against the General Ethical Principle and the auditor should report this material mistatament in the financial statements. Also since 40% of ist total income comprises of Dooley’s audit fees and the CEO of the company is also not clearing the old payments, this might have an impact on the independence of the auditor and he might be influenced to report as per the needs and wishes of the management, thereby hiding the true and fair picture of the books of accounts (Félix, 2017). This is against the complainace and should be reported in the audit report and the annual accounts of the company that the relevant standards are not being followed and it poses substantial risk to the value of the company.
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.
Bizfluent, 2017. Advantages & Disadvantages of Internal Control. [Online]
Available at: https://bizfluent.com/info-8064250-advantages-disadvantages-internal-control.html
[Accessed 07 december 2017].
Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management Accounting Research, Volume 31, pp. 1-9.
Chron, 2017. five-common-features-internal-control-system-business. [Online]
Available at: https://smallbusiness.chron.com/five-common-features-internal-control-system-business-430.html
[Accessed 07 december 2017].
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.
Félix, M., 2017. A study on the expected impact of IFRS 17 on the transparency of financial statements of insurance companies. MASTER THESIS, pp. 1-69.
Kuhn, J. & Morris, B., 2016. IT internal control weaknesses and the market value of firms. Journal of Enterprise Information Management, 30(6).
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), pp. 353-379.
Raiborn, C., Butler, J. & Martin, K., 2016. The internal audit function: A prerequisite for Good Governance. Journal of Corporate Accounting and Finance, 28(2), pp. 10-21.
Saeidi, F., 2012. Audit expectations gap and corporate fraud: Empirical evidence from Iran. African Journal of Business Management, 6(23), pp. 7031-41.
Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention on learning accounting. Journal of Educational Psychology, 109(2), p. 220.
Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), pp. 58-66.
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