General Ethical Principles of Auditing

According to the given information, Peter Sung has been auditing the Musical Company Pty Ltd. One can observed from the provided information that Dave Thompson who is the CEO of the company says to Peter that he would receive 25% discount on the price of the tickets of the next two concerts in the presence of the longstanding relation between them; and this whole situation can contribute to the threat of audit principles. According to APES 110, Section 260, Gifts and Hospitality, if an auditor accepts any kind of gift, hospitality and offer from the audit client while providing the professional services, it can contribute towards the threat to non-compliance with the required standards of audit ethics (apesb.org.au 2018). In the presence of this threat to audit ethics, there is a possibility for the violation of the standard of APES 110, Section 110, Integrity as it can question the ability of the auditor to be straightforward and honest while providing the professionals services. Thus, in the presence of the above-discussed audit guidelines, it can be concluded that there will be the violation of the standard of APES 110, Section 110, Integrity due to the acceptance of the certain offer from the CEO of the audit client company (Han Fan, Woodbine and Cheng 2013).

According to the given information, Jana Went has the responsibility to conduct the audit of Gerroa Company for the first time; but the information indicates towards the fact that Jana has conducted the audit of other companies in the same industry and for this reason, there is a high potential for the violation of the general ethical principle of auditing. According to APES 110, Section 140, Confidentiality, it is a prime responsibility on an auditor not to disclose the private business information of the audit client obtained while providing the assurance services to any outside firm or perform without informing the client; and this regulation has connection with the provided scenario of Jana (George, Jones and Harvey 2014). The scenario shows that Jana has been the auditor of other companies in the same industry. At the time of conducting the audit of those companies, Jana must have confronted with the confidential business information of those companies. This whole aspect creates the possibility of using the obtained informant of those other companies for the audit of Gerroa Company by Jana in the presence of some personal interest in the audit client. For this reason, this aspect can lead to the violation of APES 110, Section 140, Confidentiality principle of audit ethics (Martinov-Bennie and Mladenovic 2015).

Violation of APES 110 Section 260: Gifts and Hospitality

As per the provided scenario of Jack Dack, in order to maintain the production process along with the records of inventory, the responsibility is on Jack for the installation of a new computer inventory system within the organization. Jack made the appointment of a computer inventory consultant for this position due to the fact that he does not possess the required expertise for the job. After that, Jack provides the approval to install the computer program without the review of the work of the consultant as there was less time along with highly technical nature of the job. The guiding principles of APES 110, Section 130, Professional Competence and Due Care states that the auditor must possess the required knowledge and skill for providing the professional services related to audit and assurance to the audit client (Van Akkeren and Tarr 2014). At the same time, this regulation states that the auditors are needed to act diligently by complying with the required technical standard. Thus, the presence of this regulation puts the obligation on Jack hat he should have accepted the job in the presence of the required knowledge and competency. Thus, this aspect leads to the violation of ethical principle of APES 110, Section 130, Professional Competence and Due Care. Apart from this, the requirement for Jack was to review the work of the hired consultant that contributes towards the breach of the general ethical audit principle (Chapple et al. 2014).

It can be seen from the givens scenario that there is a involvement of four chartered accounting firms in a review program of quality assurance working paper. In this review, there is analysis and evaluation of the working papers of the other companies with the aim to discuss both the strengths and weaknesses of audit. This given scenario can lead to the violation fo the general ethical principle of auditing. It needs to be mentioned that the quality assurance programs help to improve the audit quality of the companies. However, one should not ignore the confidentiality aspect in the given scenario of quality assurance program. According to APES 110, Section 140, Confidentiality, it is a prime requirement on an auditor not to disclose the secret business information of the audit client obtained while providing the assurance services to any outside firm or perform without informing the client (de Burgh-Woodman et al. 2015). This particular regulation can be applied in the given scenario. It can be seen from the provide information that the quality review program involves in the analysis of the audited papers of the companies and this will provide the companies with the chance to review the confidential business information that is against the regulation of APES 110.  Thus, it can be said in the presence of this information that there can be the breach of the regulation of APES 110, Section 140, Confidentiality due to the quality assurance review program (Houghton et al. 2013).

Violation of APES 110 Section 140: Confidentiality

The provided scenario indicates towards the fact that Johan Geldens is a chartered accountant by profession and he has established an insurance agency in order to complement different kinds of services like taxation, superannuation and others. Janina Borg takes care of the business activities of the businesses of Johan due to the presence of his highly competent nature. For this reason, the responsibility of Janina is the review of the insurance adequacy of the client. It needs to be mentioned that this situation can lead to the violation of ethical principle of auditing. According to APES 110, Section 220, Conflicts of Interests, the responsibility is on the auditor for the identification of the special situation that can contribute towards the development of conflict of interest in the companies (Townsend 2014). It can be seen from the provided situation that there is the potential for the development of the conflict of interest due to the fact that there can be deficiencies in the process of the internal control of the client organizations and thus, Johan is discussing the adequacy of insurance with Janina. At the same time, it needs to be mentioned that Johan discloses the crucial financial information of the business of his audit clients with Janina at the time to discuss about the adequacy of insurance of the clients. APES 110, Section 140, Confidentiality puts the responsibility on the auditors for not disclosing any private business information. Thus, it can be said in the presence of this regulations that the actions of Johan can lead to the violation of APES 110, Section 140, Confidentiality (Menzel 2013).

According to the provided scenario, besides providing the audit and assurance related services, Edith Bailey also provides their customers with different non-audit services like management advisory services, taxation related services and others. In the presence of only two accounting and audit firm in the town, Edith Bailey has been providing these services for the last ten years. The presence of all these facts can lead to the violation of the ethical principles of audit profession. It needs to be mentioned that the regulation of APES 110 states that it is not the accountability of the auditors to provide the non-audit services to the audit clients; and in case they provide non-audit services, they are needed to consider the extent to which it will not affect the audit ethical principles. For this reason, the requirement for Edith Bailey is the determination of the level to which it will not create any negative effect on the ethical principles of audit profession. As per APES 110, Section 120, Objectivity, auditors must not compromise their professional judgment and opinion in the presence of any personal interest (Marley and Pedersen 2015). It can be happened in case of Edith Bailey can compromise his professional audit judgment in order to provide non-audit services. Thus, it can create the violation of APES 110, Section 120, Objectivity.    

Violation of APES 110 Section 130: Professional Competence and Due Care

The provided scenario indicates towards the fact that Keith Barnes is working for Andrew Capizzi Chartered Accounting firm for the last five years and has been appointed as the auditor of Maitland Coal Company. As per the scenario, the company is using the most cheap legally permissible method for the disposal of waste and has not complied with the regulation of anti-pollution of the government. Due to all of these reasons, some unfavorable articles have been published about the company.

While providing the professional services in auditing, the auditors are needed to follow the regulations related to auditor’s independence. There are five types of audit independence threat; they are Self-interest threat, Self-review threat, Advocacy threat, Familiarity threat and Intimidation threat. The auditors are needed to be independent from mind and appearance in the audit profession. It can be observed that the managements of the client organizations often create direct or indirect pressure on the auditors so that they cannot conduct the audit in the most objective manner. The analysis of the provided situation shows that the management of the client organizations has not put any kinds of pressure on Keith Barnes that stops him from acting objectively (Sarwoko and Agoes 2014).

It needs to be mentioned in this context that analysis and inspection of the financial statements of the companies with the aim to find any kind of material missstements is the main responsibility of the auditors; and the same rule is also applicable for Keith Barnes. Thus, it needs to be mentioned that it is not his responsibility to provide the client with the advice in the aspects of illegal waste disposal and non-compliance with environmental law. For this reason, this situation does not involve the violation of auditor’s independence (Gul, Wu and Yang 2013).

It can be seen from the provide scenario that there are some major violence of auditor’s independence. The scenario states that Kirk Wilson who is the CEO of Moonies has made 20% of the previous year’s audit fee due because he has not received his fees. This scenario indicates towards the intention of the CEO to create indirect pressure on Ken Smith by not paying the whole audit fee and the intention can be to obtain sympathetic audit result from the auditor. According to APES 110, Section 100.12, Threats and Safeguards, there can be the progress of the threat of audit independence in case the auditors fail to act in the objective manner due to any personal interest or any pressure (Ball, Tyler and Wells 2015). As per this regulation, the above discussed situation has the potential for the threat of Self-interest threat of audit independence.

Violation of APES 110 Section 220: Conflicts of Interests

The provide case study also shows the situation of Emma Feeney. As per APES 110, Section 100.12, there can be the development of Self-review threat of audit independence in case an auditor does not involve in the appropriate evaluation of the working papers and audit results of the previous audit partner. For this reason, the situation of Emma can lead to the self-review threat of audit independence in case Emma does not properly evaluate the audit results of the previous audit partner (Carey, Monroe and Shailer 2014).

Moreover, the provided situation also indicates towards the situation of Teena Dean. In this context, there can be the development of Familiarity Threat of Audit Intendance when the audit partner has any relationship with the audit client; and thus the situation of Teena Dean can lead to the auditor’s independence threat. It can also be seen from the provided information that the company is not complying with the required standard for inventory valuation and reserahgc; and this can lead to the violation of Self-interest Threat of Audit Independence as per APES 110, Section 100.12 (Clout, Chapple and Gandhi 2013).

References

Apesb.org.au. (2018). APES 110 Code of Ethics for Professional Accountants. [online] Available at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 17 Sep. 2018]

Ball, F., Tyler, J. and Wells, P., 2015. Is audit quality impacted by auditor relationships?. Journal of Contemporary Accounting & Economics, 11(2), pp.166-181.

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.

Chapple, L., Crofts, P., Ferguson, C. and Hronsky, J., 2014. Professional independence and attachment bias: an exploratory study.

de Burgh-Woodman, H., Saha, A., Somasundram, K. and Torrisi, A., 2015. Sowing the Seeds for Ethical Business Leadership through Business Education. In Business Law and Ethics: Concepts, Methodologies, Tools, and Applications (pp. 57-79). IGI Global.

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.

Gul, F.A., Wu, D. and Yang, Z., 2013. Do individual auditors affect audit quality? Evidence from archival data. The Accounting Review, 88(6), pp.1993-2023.

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.

Houghton, K., Ng, J., Jubb, C. and Kend, M., 2013. The future of audit: Keeping capital markets efficient (p. 700). ANU Press.

J. Clout, V., Chapple, L. and Gandhi, N., 2013. The impact of auditor independence regulations on established and emerging firms. Accounting Research Journal, 26(2), pp.88-108.      

Marley, S. and Pedersen, J., 2015. Accounting for Business: An Introduction. Pearson Higher Education AU.

Martinov-Bennie, N. and Mladenovic, R., 2015. Investigation of the impact of an ethical framework and an integrated ethics education on accounting students’ ethical sensitivity and judgment. Journal of Business Ethics, 127(1), pp.189-203.

Menzel, D.C., 2013, March. The ethics of public officials: Strong, bent, broken. In 5 Th Annual A. David Kline Public Philosophy Symposium” Municipal Ethics.

Sarwoko, I. and Agoes, S., 2014. An empirical analysis of auditor’s industry specialization, auditor’s independence and audit procedures on audit quality: evidence from indonesia. Procedia-Social and Behavioral Sciences, 164, pp.271-281.

Townsend, S.R., 2014. The regulation of auditor ethical behaviour in Australia: the problem of conflicts of interest and proposal for structural reform.

Van Akkeren, J. and Tarr, J.A., 2014. Regulation, compliance and the Australian forensic accounting profession. Journal of Forensic and Investigative Accounting, 6(3), pp.1-26.