Situations that may or may not breach ethical requirements

According to the provisions of APES 110 Codes of Ethics for Professional Accountantsstates, that confidentiality of any information must be maintained by an auditor, to which he had access to during the course of audit Section- 140.1 of the APES 110 states that no disclosure should be made by any auditor the course of the audit. Important audit findings and information are generally noted down by the auditors in working paper. Section- 140.6 of the APES 110 states that even after the auditor’s terms of engagement with the particular client is over, he cannot disclose any information of his client. Moreover, an auditor should not disclose any information related to previous clients.

Nothing has been stated particularly under the provisions of the APESregarding this question in the given case. However, a background check must be done by a firm in case of any new employee it is employing. Moreover, professional competence must be ensured regarding the capability of the person, performing the job and also the required skill and knowledge of the person in the particular field.

In this case, therefore, there has been no breach of ethical standards in accordance with the provisions of the APES 110, as the APES 110 does not have any such issue.

The principles of objective, according to section 120.1of APES, states that an auditor must not compromise his judgment or act in a biased way, under influences of others and must form independent judgments in making financial statements for the clients. Section- 220.1 of the APES states that a it may lead to conflict where the same business is engaged by the auditor and is in competition with a public firm, which not only threatens the principle of confidentiality but also the objectivity.

Section- 290of the APES states that an auditor has to be free from the client and as per this section independence can be classified into independent mind and freeness of appearance. This concept is crucial to the principles of objectivity and integrity for the audit quality. It is also stated clearly through Section-290 that when an auditor takes up or already has a position in the company of the client or has any financial interest within the company, it will be treated a threat to independency.

Therefore, as the auditor holds a position of the director in the given scenario, there is a clear breach of ethical standards, as the auditor holds a financial interest in the company.

In the given case, Ernie Dengate sold her audit working papers, bookkeeping, and tax to another person, who had bought the business. According to the rules of APES 110, confidentiality must be maintained by an auditor, about the information, which he had access to, during the course of audit. Moreover, section-140.1states that such information must be disclosed to any outside business or third party, by the auditor and he shall not provide the anyone’s working paper, even after his term with client in relation to engagement has ended. He shall preserve such papers for the particular time as mandated through the regulations.

Types of opinions that should be expressed

Any person should not engage in any occupation or activity, which might harm the objectivity, integrity and good reputation of the auditing profession, as per Section-200.2of the APES. In the given scenario, Fred Nerk, provides tax services, audit services and advisory services to its clients. Sometimes, all these three activities are done by him for the same client, which is a violation of the ethical standards. It is so, because it will affect the objectivity, integrity and even independence of the auditor (Knechel et al. 2012).

In the given scenario, the All good Chartered Accountancy firm maintained all information of his client Branch Company in computers, which is permitted by the audit regulations.

Therefore, the ethical standards as per the APES 110 has not been breached by the firm and can preserve information in computers, as long as in compliance of confidentiality.

Section-200.2of the APES clearly states that a person shall not engage himself in any occupation or activity, harming the objectivity, integrity and goof reputation of professional auditing. Accordingly, the given scenario shows that James Jameson, a public accountant, got excessively drunk on a night of Christmas and got in a fight, for which he was held liable and was sentenced for a period of  3 months. This activity of his and the sentence will disrepute the auditing profession and hence, it shall be treated as a breach of standards of ethics

1. In the given scenario, it was not possible for the auditor to obtain confirmations from the client’s supplier, but he was content about the balances after bearing in mind the other audit evidences. There was no limitation or misstatement on the management’s part, therefore, an unqualified report will be issued by the auditor.
2. In the given case, the client had restricted the auditor for carrying out the process of audit on assets like property and plant. The material part of the financial statement comprises of the fixed assets and there can be discrepancies. The auditor will  issue  a qualified report because of the limitation on the part of the management (Blandón and Bosch 2013).
3. In the given case, disclosures were not made by the management, regarding the contingent liability, which will affect the business if it becomes actual liability. In this case, the auditor shall believe the probability of the liability to take palce in future (Holder et al. 2013). The auditor shall ask the management to record it in financial statement and he will issue a qualified report for the misstatement towards contingent liability in a manner as if the liability turn out to be a real liability and will have a substantial  effect on the financial statements.
4. Advice must be given to the management, by the auditor, on the weakness of internal control and inefficiency of the internal control (Munsif, Raghunandan and Rama 2012). Therefore, there will be an issuance of a qualified report by the auditor, due to the ineffectiveness of the internal control, as the cash values are not measureable.
5. According to the given case study, the management refused to give the data on the opening balance upon the starting of the financial year. In this case the auditor will issue a qualified report as this is a restraint on the extent of audit.
6. In the given case, the auditor will be issuing an adverse report because the client company was not following the auditing standards, which must be fundamentally considered by an auditor (Cullinan et al. 2012).
7. In the given case, a qualified report will be issued by the auditor as the company was not next applicable standards of auditing in inventory administration, which was having a material impact on the business.
8. The FASB standard, on Going concern, state that at what time there is a major doubt of an auditor, on the going of the client, the auditor must make comment on the same in the auditor’s report. A qualified report will be issued by the auditor, which will contain an explanatory paragraph, explaining the management’s going concern problem (Goh, Krishnan and Li 2013).  

Reference

Backof, A.G., 2015. The impact of audit evidence documentation on jurors’ negligence verdicts and damage awards. The Accounting Review, 90(6), pp.2177-2204.

Blandón, J.G. and Bosch, J.M.A., 2013. Audit firm tenure and qualified opinions: New evidence from Spain. Revista de Contabilidad, 16(2), pp.118-125.

Chen, P.F., He, S., Ma, Z. and Stice, D., 2016. The information role of audit opinions in debt contracting. Journal of Accounting and Economics, 61(1), pp.121-144.

Cpaaustralia.com.au. (2018). APES 110. [online] Available at: https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-ethical-standards/apes-110-code-of-ethics-for-professional-accountants [Accessed 8 Jan. 2018].

Cullinan, C.P., Wang, F., Yang, B. and Zhang, J., 2012. Audit opinion improvement and the timing of disclosure. Advances in Accounting, 28(2), pp.333-343.

Goh, B.W., Krishnan, J. and Li, D., 2013. Auditor reporting under Section 404: The association between the internal control and going concern audit opinions. Contemporary Accounting Research, 30(3), pp.970-995.

Holder, A.D., Karim, K.E., Lin, K.J. and Woods, M., 2013. A content analysis of the comment letters to the FASB and IASB: Accounting for contingencies. Advances in Accounting, 29(1), pp.134-153.

Knechel, W.R., Krishnan, G.V., Pevzner, M., Shefchik, L.B. and Velury, U.K., 2012. Audit quality: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 32(sp1), pp.385-421.

Munsif, V., Raghunandan, K. and Rama, D.V., 2012. Internal control reporting and audit report lags: Further evidence. Auditing: A Journal of Practice & Theory, 31(3), pp.203-218.

Rahmina, L.Y. and Agoes, S., 2014. Influence of auditor independence, audit tenure, and audit fee on audit quality of members of capital market accountant forum in Indonesia. Procedia-Social and Behavioral Sciences, 164, pp.324-331.