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Assignment is an analysis of the type of opinion to be expressed in the given situations & reason for the same

Home, - Ethical requirements of APES 110.

SOLUTION TO ACC305 INDIVIDUAL ASSIGNMENT

QUESTION 1: ANALYSIS OF SITUATIONS AND STATING WHETHER THEY ARE OR ARE NOT A BREACH OF THE ETHICAL REQUIREMENTS OF APES 110 & IN CASE OF BREACH THEN STATING THE ETHICAL PRINCIPAL THAT HAS BEEN BREACHED:

(a) Ernie Dengate sells his accounting practice which includes bookkeeping, tax and auditing.He obtains permission for the release of tax working papers but does not request permission for the others.He releases all the working papers from these functions to the new accountant,Jago ,who has bought the practice . In this case, Ernie Dengate while selling his accounting practices and releasing all the working paper from the areas he operated to Jago has breached the ethical requirement as stated in APES 110. This is because of the fact, that permission for release of working papers related to tax was only obtained by Ernie. However, he has released all the papers including papers related to book keeping and auditing. Therefore, there has been breach of Confidentiality as per APES 110 by Ernie Dengate.

(b) Fred Nerk ,a public accountant in a small country town,provides tax services,management advisory services and does audits for the same clients.Sometimes the same person provides all these services In this case, Fred Nerk, while discharging his services as a public accountant provides all the services i.e. tax, management advisory services and auditing as well for the same client which has breached the ethical requirement as stated in APES 110. This is because of the fact thatif person is providing all these services it can lead to biasness conflict of interest and undue influence.Therefore, there has been breach of Objectivity as per APES 110 by Fred Nerk.

(c) The Allgood Chartered Accounting firm maintains its records on various computers in its office.It does audits on the Branch company and the Branch company has found its computer facilities are inadequate for its needs and so the Allgood Chartered Accounting firm has maintained certain of the accounting records of Branch company on its computers. In this case, the Allgood Chartered Accounting firm while discharging his services as an auditor is not allowed to keep accounting records of its client in the auditor’s office and computers and so there has been breach of the ethical requirement as stated in APES 110. This is because of the fact that if person is providing all these services it can lead to biasness conflict of interest and undue influence. Therefore, there has been breach of Objectivity as per APES 110 by the Allgood Chartered Accounting Firm.

(d) James Jameson ,a public accountant,stays too long at the annual Christmas party of his firm,the Balgowlah Accountants and consumes too much alcohol and drugs. He subsequently goes into town and is involved in a fight and is charged with assault on a person at a hotel as well as drunken and disorderly behaviour when he attempts to drive off.He is subsequently convicted and sentenced to 3 month in gaol as well as having his license suspended for 1 year. In this case, the act of James Jameson, the accountant is breach of the ethical requirement as stated in APES 110. This is because of the fact that if person is professional services then he should have to maintain professional behaviour and have to comply with all the laws and regulations and those actions that discredits his professional has to be avoided by him.Therefore, there has been breach of Professional Behaviour as per APES 110 by the James Jameson.

(e) The Mortdale Accounting firm had carried out several audits of public companies in the last year.It now provided the working papers to the Penshurst Accountants who were carrying out a peer review of the audits by Mortdale Accounting.The Mortdale Accounting firm does not advise its clients of these reviews. In this case, the Mortdale Accounting Firm not informing its client about the peer reviews and sharing the papers with the Penshurst Accounting, is not leading to breach of the ethical requirement as stated in APES 110. This is because of the fact that peer reviews are not conducted at own wish and are conducted only when the regulators require them to be conducted. Therefore, there has been NO breach of ethics as per APES 110 by the Mortdale Accounting Firm.

(f) Jan Dungog,a CPA , applies to a local public accounting firm of Chartered Accountants, for a position ,but asks the local public accounting firm not to contact her current employer.The local public accounting firm do not contact her contact her current employer but hire her without contacting them or her other referees . In this case, the local accounting firm not contacting the current employer of Jan Dungog and hiring her is leading to breach of the ethical requirement as stated in APES 110. This is because of the fact that the professionals are required to be straightforward and honest in case of all the relationships.Therefore, there has beenbreach of Integrity as per APES 110 by the Jan Dungog.

(g) Wendal Sailor ,a chartered accountant,acquires an insurance and superannuation business as well as conducting audits.During audits Wendal Sailor frequently contacts the firms during the audit advising them of their other services prior to providing their final Audit Opinion. In this case, the action of Wendal Sailor on contacting the firm for other services prior to finalisation of the Audit Report leading to breach of the ethical requirement as stated in APES 110. This is because of the fact that the professionals are required to be unbias and should not have any influence. Therefore, there has been breach of Objectivity as per APES 110 by Wendal Sailor.

(h) Judith Durham is the partner on an audit of a not for profit charitable organisation.She is also a member of the Board of Directors but this position is honorary and does not involve her performing any management function. In this case, eventhough Judith Durham is not performing any management functions still conduting the audit of that organisation is leading to breach of the ethical requirement as stated in APES 110. This is because of the fact that the professionals are required to be straightforward and honest in case of all the relationships. Therefore, there has been breach of Integrity as per APES 110 by the Judith Durham.

 

ANALYSIS OF THE TYPE OF OPINION TO BE EXPRESSED IN THE FOLLOWING SITUATIONS & REASON FOR THE SAME:

(a) 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. Providing the opening balances at the start of the financial year while conducting audit is among an essential part and condition as laid down by GAAP even though there are no material misstatements. Therefore, in this case there would be a QUALIFIED OPINION in the Audit report.  

(b) You have just started auditing the financial statements of a client, which has not been following the Australian Accounting Standards since it began operating four years ago. Since in this case, the financial statements are not been prepared in accordance with the Australian Accounting Standards since the beginning and therefore this indicates a possible misstatement and fraud. Therefore, in this case there would be aADVERSE OPINION in the Audit report.

(c) 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 Maintenance of inventory value as per LIFO which is not accepted under the Australian Accounting Standards is among an essential part and condition as laid down by GAAP even though there are no material misstatements and the effect of the same are limited to the value of the inventory. Therefore, in this case there would be a QUALIFIED OPINION in the Audit report.  

(d) 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. The maintenance of the Going Concern policy is very important as laid down by GAAP even though there are no material misstatements but still the impact of this is also very important. Therefore, in this case there would be a QUALIFIED OPINION in the Audit report.  

(e) The auditor was unable to obtain confirmations from eight of the client’s major customers that were included in the sample however, the auditor was able to satisfy himself about the balances of these accounts using other audit procedures. Confirmation of the balances of the customers was not available even though the balances were verified using other procedures and therefore there is clear audit report. Therefore, in this case there would be anUNQUALIFIED OPINION in the Audit report.  

(f) The client restricted the auditor from carrying out procedures to verify the property, plant and equipment .The property, plant and equipment comprises 35% of total assets. Restricting the auditor from verification of any important component of audit is not accepted under the Australian Accounting Standards as well as the Auditing Standards is among an essential part and condition as laid down by GAAP. There are chances of material misstatements and the effect of the same are 35% of total assests which are huge in nature. Therefore, in this case there would be a DISCLAIMER OPINION in the Audit report.  

(g) 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 when it becomes an actual liability. Exclusion of Contingent Liability is not accepted as per Australian Accounting Standards is among an essential part and condition as laid down by GAAP even though there are no material misstatements and the effect of the same are limited to the value of the Contingent Liability. Therefore, in this case there would be a QUALIFIED OPINION in the Audit report.  

(h) A significant proportion of a retailer’s sales are made on a cash basis but the internal controls are inadequate and the value of these cannot be verified. There are no audit tests that can be done to assure yourself that cash sales are being recorded or are correct. Internal Controls for cash sales are important as per Australian Accounting Standards and is also essential part and condition as laid down by GAAP. Therefore, in this case there would be anADVERSE OPINION in the Audit report.  

 

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