Special advertising
Special advertising
When any member of the public practice that is the accountants in the given case, solicits any new work through special advertising on the newspaper or any other means of marketing, it will cause the threat to the fundamental principles (Aasb.gov.au 2018). For instance, it will lead to self-interest threat for complying with the professional behaviour principles if it is created for marketing the products, services or achievements in such a manner that is not consistent with the principle. Further, in promoting and marketing the work, the members must not bring profession into disrepute and shall not make any exaggerated claims for offering their services, their experiences and the qualification they have. In the given case, The Berowra Accountants advertised in the local newspaper specially that they provide guarantee for providing the clients with the tax refund. To maintain the ethical requirements The Berowra Accountants should not have published the advertisement in the local newspaper assuring the client for tax refund as it will lead to self interest threat and violate the ethical principle.
In auditing, the auditor is not allowed to be the partners, administrator, and employee, chairperson, relative or managing director of the firm for which they are carrying out the audit. Further, the auditor is not allowed to practice other profession that is in conflict with his work. He is further not allowed to engage himself in consulting work that is not associated with accounting, preparation of accounts, bookkeeping, advertising their work or keeping client’s money in their custody (Accounting Professional & Ethical Standards Board 2018). As per the given case the auditor, Jamie Harvey is the auditor of a chartered accountant firm and at the same time he has been asked to become the treasurer of a local athletic club. If the auditor accepts the offer they will violate the ethical principle as they are not allowed to become treasurer and it is irrelevant that the club is not a profit firm.
The auditor is not allowed to any kind of payments or benefits unless he is entitled as per the predetermined fixed arrangements. Further, it will create the self interest threat if the fees from the client is due before the issue of report or the payment is depended on issuance of appropriate report or any particular kind of report (Accounting Professional and Ethical Standards Board (APESB) 2013). The remuneration to the auditor includes any expenses incurred by auditor with regard to the company’s audit and the facility provided to him, if any. However, it shall not include any remuneration that is paid to the auditor for the services served by him upon the request of the client. For any kind of payment to the auditor, the amount and the services shall be disclosed through notes and it is compulsory for the company to disclose the amount in the profit and loss statement of the company for the payments paid to the auditor. Further, the payment to the auditor is fixed in the general meeting of the company and determined in such a way that it shall be determined with the Corporation Act 2001. In the given situation, Pymble Accountants caries out audit of Monlec Ltd and they have advised the auditor that final payment will be dependent on issuance of appropriate final report. If the payment based on such conditions is accepted by the auditor, The Pymble Accountants, it will create the self-interest threat and violate the ethical principle.
Auditor carrying out the work of treasurer
The confidentiality principle imposes the obligation on the members to abstain from –
- Using the confidential information gathered in the course of audit as a result of business relationship for the personal advantage or for advantage of any third party.
- Disclosing the information outside the company or employing the confidential information of the organization gathered in the course of audit.
- Disclosing the information gathered as a result of business and professional relationship without specific and proper authority or unless any professional or legal duty or right is there to disclose.
However, the audit working papers are the property of the auditor and the auditor can share working papers with anyone only with prior permission of the client to maintain the confidentiality. Only exception to this is where there is a legal or any other requirement to share the papers (George, Jones and Harvey 2014). Here in the given case the papers were provided to staff of Chadwick Chartered Accountants who were appointed to perform the quality review audit and appointed by the institute of chartered accountants. Therefore, sharing the audit working papers by The Pymble Accountant with the Chadwick Chartered Accountants will not violate the ethical principle.
- Threat of self-review
It takes place where any members of the audit firm or the entire audit firm are kept under a position for reviewing the work that was previously done by them and which is significant with regard to the audit engagement. It takes place in the following situations where –
- Carrying out the services of the client is directly impacted by the subject matter of the present or subsequent audit engagement
- Any member of audit team recently been the officer, director, accountant or any other employee of the client under the position where it can directly have an impact on the audit engagement subject matter (Han Fan, Woodbine and Cheng 2013).
- Preparation of the actual data that is used in the financial statement preparation or the preparation of any other records that are the audit engagement subject matter.
Therefore, in the given case if Jane Davis is considered as part of the audit team to do the audit of Jenkins Ltd, it will create self-review threat and shall not be taken up the audit engagement.
- Self-interest threat
When the auditors accepts the work of others or the work where the optimistic approach has been applied for treating the items and if such works are accepted by the auditor it will create the self-interest threat to the auditor (Krupenye et al. 2017). In the given case, the auditors are provided with the paper copies where the details have been taken from different computer files and accounting standards. The papers taken were also shown sympathetic approach to the asset valuation, as the client adopted optimistic approach in valuation of the development expenses and capitalised it under the intangible asset. If this treatment is accepted by the auditor it will create self-interest threat.
- Familiarity threat
The familiarity threat created owing to the close relationship with the audit client, its officers, directors or any employee or when the audit firm becomes too much sympathetic with the interest of the client. For instance –
- The member of audit team who have close family member as the officer, director, or any other employee of client company is in the position for exerting significant an d direct impact over the main topic of audit assignment (Carey, Monroe and Shailer 2014)
- Long association on any member of the audit firm with the client
- Acceptance of any hospitality or gift unless value of the offerings are clearly irrelevant from the client company, its employees, directors or officers.
Therefore, if the auditor joins the social club of Chocolate Company and visits the client’s 2nd chocolate shop before completion of audit, it will create familiarity threat.
- Adverse opinion
This opinion is issued where financial record of the company is misrepresented. This may take place due to error or it may be an indication of fraud (Naslmosavi, Sofian and Saat 2013). In the given case, the company is facing difficulty in paying their debts, bank wants their due payment within 1 month and company was not successful in obtaining finance from any other source (de Andrés Suárez et al. 2013). Still, no material misstatements were found in financial statement of the company. Therefore, the auditor shall issue adverse opinion and the client company shall make the correction in their report.
- Adverse opinion
Payment based on appropriate final audit report
Adverse opinion is issued where the financial record of the company has not been properly maintained and it lead to misrepresentation or misstatement (Cox 2013). Therefore, even if the impacts are limited to the inventory, as the impacts led to material misstatement, the auditor shall issue the adverse opinion and the client company shall make the correction in their report.
- Disclaimer of the opinion
In some instances, the auditor is not able to complete the accurate report for audit. The reason behind this may be absence of proper financial records or absence of proper valuation. While this takes place the auditor gives disclaimer of opinion (Amin, Krishnan and Yang 2014). In the given case, the directors have applied the same valuation for the factory that was carried out five years ago as the directors are in the view that the market value has not been changed over the last 5 years and the director’s approach was not appropriate. Therefore, in such case the auditor shall issue disclaimer of opinion.
Reference
Aasb.gov.au. 2018. Australian Accounting Standards Board (AASB) – Home. [online] Available at: https://www.aasb.gov.au/ [Accessed 6 Jan. 2018].
Accounting Professional & Ethical Standards Board, 2018. Code of Ethics for Professional Accountants. [ebook] Australia: Accounting Professional & Ethical Standards Board. Available at: https://www.apesb.org.au/uploads/standards/superseded_pronouncements/21092016145901_APES_110.pdf [Accessed 6 Jan. 2018].
Accounting Professional and Ethical Standards Board (APESB), 2013. APES 110 Code of Ethics for Professional Accountants.
Amin, K., Krishnan, J. and Yang, J.S., 2014. Going concern opinion and cost of equity. Auditing: A Journal of Practice & Theory, 33(4), pp.1-39.
Carey, P.J., Monroe, G.S. and Shailer, G., 2014. Review of Post?CLERP 9 Australian Auditor Independence Research. Australian Accounting Review, 24(4), pp.370-380.
Cox, J.D., 2013. Strengthening financial reporting: An essay on expanding the auditor’s opinion letter. Geo. Wash. L. Rev., 81, p.1036
de Andrés Suárez, J., García, E.C., Méndez, C.F. and Gutiérrez, C.R., 2013. The effectiveness of the audit committee in Spain: implications of its existence on the auditor’s opinion. SERIEs, 4(3), pp.333-352.
George, G., Jones, A. and Harvey, J., 2014. Analysis of the language used within codes of ethical conduct. Journal of Academic and Business Ethics, 8, p.1.
Han Fan, Y., Woodbine, G. and Cheng, W., 2013. A study of Australian and Chinese accountants’ attitudes towards independence issues and the impact on ethical judgements. Asian Review of Accounting, 21(3), pp.205-222.
Krupenye, C., Kano, F., Hirata, S., Call, J. and Tomasello, M., 2017. A test of the submentalizing hypothesis: Apes’ performance in a false belief task inanimate control. Communicative & integrative biology, (just-accepted), pp.00-00.
Naslmosavi, S., Sofian, S. and Saat, M.B.M., 2013. The effect of audit firm size on independent auditor’s opinion: Conceptual framework. Asian Social Science, 9(9), p.243.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
