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Violation of ethical standards in sharing client information

1.The following situations may or may not breach the ethical requirements of APES 110. You need to state whether they are or are not a breach of the ethical requirements of APES110 and if they are a breach of the ethical requirements state which ethical principle has been breached :

(a)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.

(b) 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 .

(c)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.

(d) 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.

(e) 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 .

(f) 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.

(g)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.

(h)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.

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 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.

(b)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..

(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 when it becomes an actual liability.

(d) 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

(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.

(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 four years ago.

(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

(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.
 

Violation of ethical standards in sharing client information

1.In this scenario, the ethical requirements of the APES 110 are been violated because the professional ethics never permit the company to disclose any of the information that are gathered while auditing and security procedures regarding any client without his permission (Trevino and Nelson 2016).

The Mortdale accounting company has organized audit of different public companies and from there he has accumulated several working papers of different client. He then shared those information gathered during the assurance processes to his peer reviewer- Penshurst accountants in order to carry out assurance activity of Mortdale. Even though the information was given for conducting the working processes of the company and for checking whether all the processes that is necessary for executing audit is being implemented, still it should never be shared without taking permissions of the clients. Hence, Mortdale must have taken consent from its clients prior to providing the working papers to the peer reviewer.

Yes, the ethical requirements of APES 110 have been violated both by the CPA and the accounting firm (Briggs 2013). Instead of depending on the words of candidate, the accounting firm should gather information regarding its past engagements. With the same, it is also vital to ensure that its interests are not in conflict with the organization’s objectives. 


In this scenario before providing Jan Dungog job in the company, the local accounting firm must have made research about him. It should have tried to find out the reasons that made him leave his past job. Through this, the firm would have identified his strength and weakness.

Yes, the ethical requirements of APES 110 have been breached by WendalSailorin this scenario, as he is not permitted to request his clients for giving information about their other engagements and services (Townsend 2014). It is the duty of a professional accountant to be independent of his opinions and objectives. He should never be influenced through any factors during conducting his assurance services and audit. This may lead to influenced opinion towards its stakeholders about the true position of the organization.

In this case the work of wendalsailor is entirely against the ethical standards of professional accountant, as this would affect the autonomic opinion formation regarding the true image of the engaging firm.

(d) This situation is not a breach of any of the stated ethical requirements stated under APES110.

In this scenario, Ernie Dengate should not have sold his accounting practices without taking permission for doing that. Here he has breached the professional standards as specified under APES 110 by selling all the working papers to Jago. The professional standards do not allow Ernie to supply information regarding his clients to any other without taking permissions from them (Han Fan, Woodbine and Cheng 2013). Even though Ernie has taken permission for transferring the tax working papers, but he should have also sought permissions sharing the audit documents too. Hence, in this way the ethical requirements are breached in this case. This is due to the reason that there is a direct relationship between the audit and tax working papers. It is always recommended that audit documents should be shared and taken permission before the transfer of the tax papers. Without taking the permission of the audit, it will involve more risk for the transferring of the tax papers due to the reason that without having the permission of the audit, tax paper may have to face added risk of fraud and other scams. 

Need for research before hiring an accountant


The professional standard stated by APES 110 under the section 290 states that a professional accountant should not get influenced during providing the audit opinion as well as should be independent of his views (Carey, Monroe and Shailer 2014).  If an accountant provides management services to any of the client and if it is related to the organization’s decision, then he is not allowed to provide the audit procedure to the same client.

In this case, Fred Nerk provides tax services, management advisory services along with audit procedures. If providing the management advisory service influences the independence during providing the audit or taxation services then it shall be against the stated professional standards.

In this case, the professional standard is not violated by the Allgood Chartered accounting firm.   


James Jameson has breached the professional standards set by the APES 110 under the section 150. The section clearly states that if the professional accountant involves in illegal activities that could brings disgrace to his profession, then the person will be considered as adversely affecting the stature of the profession (Clayton and Staden 2015). James is engaged in a fight and is charged for assaulting a person being in drunken state. With the same, he has behaved in disorderly manner during his attempt to drive off. In this way he has violated the standard of professional behavior.

2.a.In this case, the auditor has taken every necessary action to obtain confirmations from the major customers of the clients. He then has undertaken other audit procedures to confirm the position of the customers who were included in the sample. The procedures finally made him satisfied by providing balances of the accounts. Hence, it can be said that a non qualified opinion should be expressed in this situation.

b.A qualified opinion should be expressed by the auditor on this issue because the client has restricted him to carry out verification processes for the property, plant and equipment. As the accountant finds himself unable to obtain information regarding the true position of the same, he should share this matter to those who are charged with governance With the same, these parts comprises of 35% of the total asset. Hence, necessary disclosure should be expresses with qualified opinion.

c.The auditor should express a qualified opinion in this situation where the client have not revealed the existence of contingent liability and that if it becomes actual liability, it can harm the client’s financial position. The auditor can discuss about the matter with management and if management could not help him out, then he should seek a qualified opinion on this matter because it has the ability to affect the financial position of client. With the same, the information related to the same should also be supplied to its stakeholders.

Requesting client information is a breach of ethical standards

d.An adverse audit opinion should be expressed on this matter because the organization of the client does not have adequate internal control procedures in order to record the cash sales that affect the financial position of the client. With the same, the auditor is unable to perform required audit tests and this is making the situation worse. This is because the auditor is unable to form audit opinion on fair sales position made by client. 


e.In this case the accountant is unable to confirm the opening balances because he was not involved with his new client in last financial year. Therefore, qualified opinion should be expressed in this situation to find out the true position of the financial statements (Kumar and Sharma 2015). This is more important due to the reason that financial statement should always be checked with the expert accountants due to the reason that they will be able to help in identifying the mistakes and errors in the financial statements. In addition, financial statements are such that they cannot get examined by the common people. Thus, it is always recommended that in order to reduce the risk of the errors and mistakes in the financial statements, accountants should be involved in checking those.

f.Not working according to the accounting standards may affect both the financial and true position of the client. Hence adverse opinion should be expressed during reporting this matter in his report. The auditor should at first state the issue to the management and in case if no rectifications are made then the auditor should express adverse opinion on the same.

g.The auditor should express qualified opinion in this situation because the client is not adhering to proper accounting methods; instead he is following a method of LIFO that is disallowed under the Australian accounting standard (Chiang and Braender 2014) Furthermore, there is no accurate disclosure of valuation of the inventory upon which the auditor should express his opinion. In case if the management does not alter the inventory method of valuation (the LIFO method), the auditor should report the issue in the report by expressing qualified opinion (Gronewold, Gold and Salterio 2013).

h.Where there is inappropriate going concern position of the operation or entity in the organization and the client position in financial statements reveal that the survival of it is difficult, and then the auditor must report this issue in his report with all the necessary facts and figures; reasons and circumstances by expressing a qualified opinion. Since the major customers of the organization has gone into liquidation and with the same the chances for the  other customers  to take its place is very less; hence it can be concluded that the going concern position is influenced. Therefore, expressing a qualified opinion is needed in this situation. 

References

Briggs, L., 2013. The Ineffectiveness of the National Programmatic Agreement for Cell Phone Towers.

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.

Chiang, B. and Braender, L.M., 2014. Business Ethics in Public Accounting: Ethical Dilemmas Faced by Today’s Public Accountants and Its Implication to Accounting Education.

Clayton, B.M. and Staden, C.J., 2015. The Impact of Social Influence Pressure on the Ethical Decision Making of Professional Accountants: Australian and New Zealand Evidence. Australian Accounting Review, 25(4), pp.372-388.

Gronewold, U., Gold, A. and Salterio, S.E., 2013. Reporting self-made errors: The impact of organizational error-management climate and error type. Journal of business ethics, 117(1), pp.189-208.

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.

Kumar, R. and Sharma, V., 2015. Auditing: Principles and practice. PHI Learning Pvt. Ltd..

Trevino, L.K. and Nelson, K.A., 2016. Managing business ethics: Straight talk about how to do it right. John Wiley & Sons.

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