Kindly revised the answer in Auditing. The revision should reflect the following:
1. Students need to support their analysis and solutions / recommendations using requirements: the current Australian Auditing Standards, the text and a minimum of eight (8) suitable, reliable, current and academically acceptable sources.
2. Link the answer to ASA 700, 705, various Sections of APES like 210, 290 etc.
3. The answers should be minimum of 2000 words.
Please see also the guide in making good marks to this assignment.
For Kim Woods Only – Revision for Auditing
Question 1(a) Peter Harmon, a professional accountant, does the bookkeeping, prepares the tax returns and provides various management services for Bunker Ltd . When providing these services it frequently advises its clients to buy its computer, equipment from Computer Services Ltd. Computer Services has agreed to pay Harmon a 10% commission if the referral leads to sales for Computer Services. The statement reflected above indicates the accountants’ code of ethics has high possibility of having been violated. The accounting ethical principle that has been violated under the given scenario is the fundamental principle of been objective (Arens, Best, Shailer, & Loebbecke, 2016) under Section 290 of APES. The objectivity ethical principle provides that a professional accountant should not allow conflict of interest, undue influence or bias to override business or professional judgement. Accordingly, the objectivity principle is been violated since Peter Harmon is likely to give the professional judgement in advising clients to buy the computer equipment from Computer Services Ltd due to the financial commission he will receive that amounts to conflict of interest. (b) David Smith, an auditor, was asked by Allied Insurance, for its help in finding clients. David Smith subsequently referred ten clients to the insurance company without letting them know. The scenario depicts that the Accounting Code of Ethics have been violated due to the actions of David Smith. The ethical principle that has been violated is the integrity fundamental principle. The integrity fundamental principle demands that an accountant should be honest and straightforward in business and professional relationships (Arens, Best, Shailer, & Loebbecke, 2016). Consequently, the extent of Smith to refer the ten clients without their consent or informing them indicates he was honest in the business and professional relationship with the insurance company and the clients. (c) Wrench and company, Chartered Accountants, keeps details of its clients in its computer records at its office. Since it also has time available, it will allow its clients to use its computers if they require them. If necessary Wrench will arrange for members of its staff, mainly administration but sometimes from the audit branch to assist with the input of data for these clients. The staff from the Audit section can be involved in the audit of clients, depending upon the Audit Partners requirements. The Accounts Code of Ethics has been violated under the scenario given above. The particular code of conduct that has been violated if the confidentiality principle. The confidentiality ethics principle provides that the confidentiality of the information received through business and professional relationship should be respected (Arens, Best, Shailer, & Loebbecke, 2016). Accordingly, the extent of the Wrench and Company to allow use its computers containing vital information by diverse clients amounts to disclosure of the confidential information without the consent of the respective clients. (d) Stephanie Barry has an audit client, Williams Pty Ltd , which uses another public accountant for its management services work. Barry sends her firm’s literature regarding its management services capabilities to Williams on a monthly basis unsolicited. The scenario reflected above depicts there is a potential of the Accountants Code of Ethics by Stephanie Barry. The ethic’s principle that is been violated in the given situation is the objectivity principle under Section 280 of APES. The objectivity principle has been violated because Stephanie is likely to give biased advice to Williams Pty Ltd in an attempt to influence it to drop the services of the other public accountant on its favour (Arens, Best, Shailer, & Loebbecke, 2016). (e ) Katrina Ng is a manager on the audit of a not for profit entity. She is also a member of the Board of Directors for the not for profit entity, but the position is honorary and does not involve her acting in a management capacity for the not for profit firm. The decision by Katrina to be manager on the audit of the entity is an indication that the Accountants Code of Ethics has been violated. The code of ethics that has been violated in the objectivity principle under Section 280 of APES. The objectivity principle has been violated because there is presence of conflict of interest under Section 220 of APES since Katrina still acts as member of the Board Directors in the same entity (Arens, Best, Shailer, & Loebbecke, 2016). (f) Peter Beattie , a public accountant , provides tax services, management advisory services, bookkeeping services, and conducts audits for the same client. As the firm is small, the same person frequently provides all the services. The scenario given above indicates there is violation of the Accountants Code of Ethics. The ethic’s principle that has been violated is the objectivity principle due to the conflict of interest emerging under Section 220 of APES. The extent of Peter Beattie to audit the financial reports of the client while he offers management advisory and bookkeeping services to the same client implies he has an interest with the financial results (Arens, Best, Shailer, & Loebbecke, 2016). Consequently, the conflict of interest has the effect of occurring due to the competing interests. (g) The Hornsby Auditors, have taken advertisements in the local newspaper with bright colourful full-page pictures of the staff and giving details of their being the top auditors in the district compared to other auditors and their ability to help clients get higher tax deductions than all others in the district. The scenario given above demonstrates there has been violation of the Accountants Code of Ethics regarding the professional behaviour principle. The professional behaviour principle requires professional accountants to avoid actions that are likely to discredit the accounting profession and comply with the relevant regulations and laws (Arens, Best, Shailer, & Loebbecke, 2016). Thus, the assertion by Hornsby Auditors that it can help clients to offer superior services compared to their competitors in the district without substantiation amounts to exposing the accounting profession into disrespect. (h) David Cheadle conducted an audit of Nestree Ltd for the year ended 30 June 2015. David has just started his audit of Nestree for the year ended 30 June 2016 .The audit fees for the year ended 30 June 2015 have not yet been paid. The decision by David Cheadle to extend the auditing services to the Nestree Ltd without receiving the previous audit fees conducted signals there is a violation of Accountants Code of Ethics. The ethics principle that has been violated in the given scenario is the professional competence and due care. The professional competence and due care principle requires the accountants to maintain professional skill and knowledge in ensuring the client receives competent services. The fundamental principle of professional competence and due care is been violated since the failure of receiving the fees from the previous audit service offered may make difficult for the auditor to undertake the current audit in accordance with the professional standards and applicable techniques due to scarcity of financial resources. Question 2 Indicate the type of opinion that should be expressed in each of the following situations, providing reasons for your choice .(a) The auditor was unable to obtain confirmations from three of the client’s major customers that were included in the sample .The auditor was able to satisfy himself about the balances of these accounts using other audit procedures. A qualified audit opinion should be expressed under the given situation since there is an exception surrounding the three main clients that makes it difficult to determine the possible material uncertainty outcome (Arens, Best, Shailer, & Loebbecke, 2016). (b)The client restricted the auditor from observing the property ,plant and equipment. The property, plant and equipment are a material part of the assets making up 20% of total assets. A qualified opinion is the one that should be issued by an auditor because potential material impact in accounting for the property, plant, and equipment cannot be established while they form a substantial proportion of the total assets. Thus, a qualified opinion should be issued since it is not possible conduct an accurate audit report in the absence of the financial records detailing the information regarding the property, plant, and equipment. (c) Management have excluded from the financial report the necessary disclosures in relation to a contingent liability. If this becomes an actual liability, it will have a material effect on the financial report. A qualified opinion is the appropriate opinion that should be issued since the absence of the financial records makes it impossible to establish the potential financial material regarding the contingent liability. (d) A significant proportion of a retailer’s sales are on a cash basis and inadequate records have been maintained. There are no audit tests that can be done to assure you that cash sales are accurate. A qualified audit opinion should be given because the unavailability of the financial records to confirm the sales revenue on cash basis makes it impossible to establish the accuracy and materiality of the results. (e) You have been asked to do the audit for a new client this financial year .While you are satisfied that there appears to be no material misstatements for the information during the current financial year the client will not provide any information about the opening balances of accounts at the start of the financial year. A qualified audit opinion should be issued because the absence of the opening balances of accounts makes it impossible to determine the materiality of the financial results. (f) You have just started auditing the financial statements of a client, which has not been following the Australian Accounting Standards since it began operating five years ago. An adverse opinion because the financial statements presented by the firm do not reflect a fair operation results, financial position, and changes in financial position in conformity with the established Australian Accounting Standards (Arens, Best, Shailer, & Loebbecke, 2016). (g) A client has been using the LIFO method of accounting for inventory, which is disallowed under the Australian Accounting Standards. This has had a material effect on the financial statements however, its effect is currently limited to the effect on the Inventory value. An adverse opinion should be issued because the unconformity with the Australian Accounting Standards in accounting for inventories implies the financial report does not give a fair financial position of the firm. (h) The auditor of Numark has just completed the audit and is satisfied that there are no material misstatements however the client’s continuation as a going concern is in extreme doubt as its major customer has gone into liquidation and it appears very unlikely that other customers will take its place due to the highly specialised nature of its products. A modified opinion is the one that should be issued by the auditor since financial status of the firm into the future, as a going concern is uncertain (Arens, Best, Shailer, & Loebbecke, 2016). Thus, the modified opinion will be given to express the uncertain financial status of the firm as a going concern. References Arens, A., Best, P., Shailer, G., & Loebbecke, J. (2016). Assurance Services and Ethics in Australia , 10th ed. Australia: Pearson .
For Kim Woods Only – Revision for Auditing