Ethical And Legal Issues In Miller Yates Howarth Audit Essay.

AAA Model

1.Using the American Accounting Association (AAA) ethical decision model explain the ethical issues involved here and recommend a course of action for Jacqui.

2.With reference to relevant case law, prepare a report for the managing partners of MYH on the strength of any negligence case that Oasis might bring against MYH.

“American Accounting Association (AAA)” has been founded in 1916 and is seen to be having a rich and reputable history for holding premier community of academicians in Australia. The diversity among the membership has been further able to create environment with appropriate collaboration and innovation.

The report has intended to address the legal and the ethical issues associated to the audit division at Miller Yates Howarth (MYH). The main considerations of the study will consider the application of AAA decision model which explains the ethical issues considered in the study. It various types of the important considerations made in the study has been taken into account by the use of this model. The latter part of the study has been seen to apply the appropriate case law with the recommendations of the managing partners of MYH.

Determination of Facts

As per the given study it has been discerned that MYH accounting firm, mainly operates in NSW and Queensland. Morgan Fertilisers Pty is recognized as a long standing client with the operations in Tamworth and Toowoomba. Morgan Fertilizers has been seen to recently change the contractor for waste management for Dumparound Ltd. Jacqui who is one of the senior auditors is aware of the community activities and local council information for the investigations made in terms of the Dumparound Ltd. toxic level in one of the sites (Baikovs & Zari?š, 2013).

Identification of ethical issues

The ethical consideration has been charged based on the Morgan Fertilisers Pty who has been considered to change its contractor to Dumparound Ltd. for waste management. The ethical factor has been based on Jacqui Leak, for investigating the local council for toxic level at one off the sites. The contract between Morgan Fertiliser and Dumparound has been able to specify for any damages which has not been signed by Dumparound. The contract for this has been further seen to be held based on 3 years and Jacqui is concerned about the implications  (Viegas et al., 2013).

Identification of major principals and rules, values

The prevailing form of the ethical issues and the main form of the legal issues has been considered as per the “AASB 102 on valuation of inventories”. The valuation cost has been further seen to be considered as per the asset needs and the same has been carried forward for revenue recognition. The main code applicable has been based on “APES 110 Code of Ethics for Professional Accountants”, this has been further seen to be based on “Section 310 conflicts of interest”. The main applicability of this rule has been considered as per the legitimate support of MYH and the various types of the ethical objectives which has been considered as per the application of appropriate procedure in the company (Sookhaket al., 2014).

Report for the managing partners of MYH

Specification of the alternatives

The important specification has been seen to be considered with the adjustment of the inventories between the inventories and the year ending date along with the appropriate recording of the physical count. Furthermore, the auditor is needed to analyze the inward and the outward movement of stocks with the date of cutoff until the same has been validated on the closing year date (Espinosa-Pike & Barrainkua-Aroztegi, 2014).

Comparison of values and alternatives

The value comparison is considered as per “APES 110 Code of Ethics for Professional Accountants”, this consideration has been further based on “Section 310 conflicts of interest” vs. “AASB 102 on valuation of inventories”. The APES rulings has been applied based on the responsibility of the members and needs of the organization with the professional obligations which will be able to comply with the fundamental principle in conflict. The members of the business further needs to support the rules among the employer with the appropriate procedure.

The considerations of the AASB 102 have measured the cost of realizable value which has been carried forward with the revenue recognition. The inventory cost is seen to be capable of various types of the evaluation which is based on factors like cost in making of an asset ready for use (Tormo-Carbó et al., 2016).

Identification of the alternatives access the consequences

The inventory value based on the case has overstated the income needs and the gross profit. The overvaluation of the retained earnings has been further considered as per the statements needed to be valued appropriately. The equity value and the value of the total assets have been considered as per the various types of the overvaluation in the retained earnings (Vosselman, 2013).

Recommended Decision

Oasis Ltd. needs to bring forward the issue of negligence charges during the conduction of the audit at MYH. This however, needs to be based on the sole decision of the court to deal with what MYH may or may not consider the matter related to negligence.

The various types of the accounting standards needs to be based on “AASB 102 on valuation of inventories”, the main issue has been seen to be based on recognition of the value which has been carried forward as per recognition of the revenue. The needs associated to the inventory have been further seen to be considered based on the realizable cost or the cost whichever is lower (Zengin Karaibrahimoglu & Guneri Cangarli, 2016). The inventory cost has been based on purchase cost, conversion cost and the cost in making of asset. The cost of inventory may or may not be based on the conversion cost, purchase cost and the cost in making an asset. The cost of inventory may not be recoverable in case the inventory is damaged or obsolete. The inventory cost has been not expected to recover the various types of the evaluated expenses and the expenses assessed as per the sales policy. The consideration of the recording of inventory has been based on the cost of  net realizable cost which must not be carried forward along with the surplus amount from the realization of the sales (Boyce, 2014).

If the inventory is overvalued the net income and gross profit needs to be overstated. The impact of the overvaluation of the retained earnings has been considered as per the equity of the stakeholders and total assets. The net income has been also overvalued in case the inventory in less number with the COGS along with the charges for the revenue. The inflated amount of net profit has indicated on the equity of the stakeholders and the retained earnings. The overvaluation of the inventory in the inventory towards the finishing of the inventory has been changed to the start of the inventory and the finishing of the accounting period which has been turned into the accompaniment of the designated time frame. The period for the cost of goods has been considered as per the COGS and the period of net income has been considered to be too low (Irawan & Mcintyre-Mills, 2016).

The given case of Morgan Fertilisers, has been able to carry the high amount of inventory in the balance sheet which has been taken over by Oasis Ltd. However, after two months the company’s inventory has been overstated. It has been further discerned that more than 50% of the inventory was considered obsolete and was not included in the valuation count. The main considerations of the inventories have been further seen to be based on the actual values. Moreover, MYH needs to value the stock as appropriate by the management (Davidson & Stevens, 2013).

The physical inventories count has been seen to be main responsibility of management. The main duty of the management is to build the strategy for checking the inventories once in every year for establishing the formulation of the financial statement. The auditor should focus on completing the review with the appropriate techniques which has been considered suitable for the physical inventory and confirmation of audit (Nawal Kasim, 2013). The auditor further needs to be ready with the stock report and be able to conduct the survey which has been seen to be considered as per the recording of the changes pertaining to dependability of such procedures. The auditor is not allowed to opt for the inventory count which has been seen to be available for the various types of the alternative measures and the various types of the adjustments which needs to be made in the inventory and recorded accurately (Chou, 2015).

The auditor needs to review the different types of the information of the management for internal control, re-counting, tagging, stock sheets and identification of the obsolete and the rejected items. It also needs to be considered based on the cut off procedures and the valuation of the WIP with the movement of the inventory. The general rule of the auditor has been seen in terms of WIP valuation of the moving inventory. As per the general rule of thumb, the auditor is not seen to be liable for the third party clients (Ryoo, Rizvi, Aiken, & Kissell, 2014). Some of the main considerations for the third party clients have been listed below as follows:

• The evaluation of the financial statement is not seen to be true
• The auditor has been seen to be recklessly or intentionally ignored the fact which has been seen to be untrue
• The errors has been committed in the preparation of the final accounts
• The main form of the negligence has been considered on the part of the auditor’s employee
• The preparation of the financial statement intentionally taken onto consideration with the third party taking the appropriate action (Horngren, Datar, & Rajan, 2015).

The application of the case study has been considered with Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997). This has been seen to be based on the money lent by the corporation and the various considerations of the audit report. The default in the payment for Esanda was brought forward by the auditors after the issue of the audit report, which has breached the various types of mandatory accounting standard (British Psychological Society, 2014).

Conclusion

The given case has been associated to the auditor of MYH for the correct verification of the stock and accepting of the valuation which has been not considered for the obsolescence of the stock. Oasis Ltd. has been under considerable pressure for the audit completion process and in the limited time period within one month from the fate given in the balance sheet. It has been further discerned that Oasis Ltd. has been able to get under significant pressure from the clients for the completion of audit with the limited time period and date given in the balance sheet. Oasis Ltd. has been able to bring forward the various issues associated to the negligence charges for the audit of MYH.

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