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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)” incorporated in 1916, is seen to be having a reputable and rich history for holding premier community of the accountants in academia. The diversity among the membership has been able to create an environment with appropriate innovation and collaboration.

The study is intended to address the legal and the ethical issues which need to be considered by the audit division at Miller Yates Howarth (MYH). The main consideration of the study will consist of application of “American Accounting Association (AAA)” based on the ethical issues and the decision models. The recommendations of the study have shown an effective use of the model. The final section of the study has been seen with the relevant application of the case laws which has been prepared as per the recommendations made by the managing partners at MYH.

Determination of Facts

The given case is considered as per the consideration made by the MYH accounting firm. This is seen to mainly operate in NSW and Queensland. Morgan Fertilisers Pty has been further considered to be long standing client with the operations located in Tamworth and Toowoomba. Morgan Fertilisers has gone through recent changes as the contractors for the waste management has been changed to Dumparound Ltd. Jacqui Leaks one of the senior auditor has been seen to be having the knowledge about the community activities and she has been seen to be having the knowledge about the local council investigating norms in the toxic waste in one of the sites (Azahari, 2013).

Identification of ethical issues

The considerations of the ethical issues have been considered as per the activities of Morgan Fertilisers Pty, who has changed its contractor to the Dumparound Ltd. for management of waste. The ethical concern has been considered as per the investigation made by Dumparound Ltd. for waste management at one of the sites. The contract made between Dumparound and Morgan Fertilisers is seen to be investigated by the local council norms and the toxic level in one of the sites. The contract between Morgan Fertiliser and Dumparound has not been able to specify for any damages and has not been signed by Dumparound Ltd. The main aspect of the contract is held substantially for last 3 years and has concerning issues for Jacqui.

Determination of Facts

Identification of major principals and rules, values

The existing ethical and the legal concern have been considered as per “AASB 102 on valuation of inventories”. The cost of valuation needs to be recognized as per the asset and this needs to be carried forward for recognition of the revenue. The main applicable code has been seen to be “APES 110 Code of Ethics for Professional Accountants” is applicable as per “Section 310 conflicts of interest”. The application of the rule has shown that MYH members are expected to extend the support for ethical and legitimate objectives and apply relevant procedure in the organization (BIRD & OROZCO, 2014).

Specification of the alternatives

The alternative specification has been evaluated as per the adjustment of the inventories and this has been adjusted in the inventories as per the years end and the dates of physical count. Furthermore, the auditor is required to analyze the inward and the outward movement of stocks with the cutoff date and established the validity date as per the closing year date (Nelson, Proell, & Randel, 2016).

Comparison of values and alternatives

The values have been compared based on the “APES 110 Code of Ethics for Professional Accountants” vs. “AASB 102 on valuation of inventories”. The application of the APES rules of the membership has been seen with the responsibility of the employing the organization as per the professional obligations and comply with the various types of the fundamental principles. The member in the business needs to support the procedures and the rules appropriate to the organization.

The important consideration for the AASB 102 rulings has been based in terms of measuring the net realizable value and the cost of asset and these needs to be carried forward with the recognition of the revenue. The inventory cost has been based on the evaluations and the reliable factors of the cost in making the assets ready for use.

Identification of the alternatives access the consequences

The inventory value is seen to be overvalued and the various types of the income needs are overstated in the gross profit of the company. The overvaluation has been further seen to be take place in the retained earnings. The various types of the consideration for the equity and the total assets may be seen to be overvalued as per the retained earnings.

Recommended Decision

The recommendation for Oasis Ltd has brought forward the negligence which has been charged during the conduction of audit at MYH. It needs to further base on the sole consideration to deal with the way MYH may or may not held for the issue of negligence.

Identification of Ethical Issues

2.Report for the managing partners of MYH

The various types of the considerations as per “AASB 102 on valuation of inventories” has been identified as main issue and the error in the inventory valuation is based on the cost of the asset recognized or the total value whichever is lower. The inventory cost needs to be based on the cost of purchase, conversion cost and the cost incurred in making of an asset which is ready with a specified purpose. The inventory cost may or may not recovered as per the inventories which are seen to be obsolete or damaged. It has been further observed that the inventory cost has not been recovered based on the evaluated expenses and assessed the expenses based on the sales policy expansion. The important consideration for recording of the inventory is below the cost of the net realizable amount which is seen to be reliable in nature. This should not be carried with the excess amount of the expected realization of the sales amount.


The inventory is seen to be overvalued with the net income and the gross profit needs to be overstated. The important consideration has been further seen to be considered as per the overvaluing of the equity of stockholder, retained earnings and amount of net profit. The overvaluation of the inventory has been further seen to be considered as per the starting period of the accounting year and the same has been seen to be considered as per the accompaniment of the time frame. The cost of goods needs to be considered as per the COGS will be high and the period of the net income and gross profit is considered to be too low.

As per the Morgan Fertilisers case, the carrying value of the inventory has been considered to be particularly high based on the inventory value which has been depicted in the balance sheet  of the company. 50% of the inventory has been further considered to be obsolete and this has been not supposed to include the valuation of the inventory. The different types of the considerations made for the inventory has been further seen to base on the actual value. MYH stock valuation needs to be taken into consideration by the management.

The case of Morgan Fertilisers is considered as per the high inventory value and the values which have been taken into the consideration in the balance sheet of Oasis Ltd. Despite of the varying nature of the considerations, after two months the inventory value of the company has been seen to be overstated. More than 50% of the inventory has been also considered as obsolete in nature and this has been further seen to be obsolete and not included in the valuation of the inventory.

Identification of Major Principals and Rules, Values

The physical confirmation of the inventories has been considered as the responsibility of the management. The duty of the management has been further seen to be considered as per the checking of the inventories once in every year and this has been seen to be conducive in the establishment of the financial statement. The auditor needs to consider the evaluation with the complete review of the technique and get acquainted to the adequate and suitable audit confirmation, which is comparable with the physical inventory. The auditor needs to be present physically with the inspection and the investigation of the inventory to check the systems around the management to record the changes based on the dependability of the procedures. The auditor cannot opt for the inventory count which is seen to be available as per the alternative measures for the inventory adjustments in terms of the date of count and accurate recording of the same.


The auditor needs to review the management information and the internal control with the various considerations of the tagging, identification of the obsolete and non moving items. The auditor needs to consider the various types of the cut off procedures for the valuation of the WIP and the movement in the inventory. The various types of the third party considerations are depicted below as follows:

  • The financial statement is not seen to be true in nature
  • The auditor has been recklessly ignoring the fact and considering the same to be untrue
  • The errors has been committed while preparation of the final accounts
  • There has been certain amount of negligence on part of the auditor employe

The main applicable case has been seen to be done based on “Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997)”. The main observation has shown that the corporation has lent money as per the audit report. The default in the payment has been observed with Esanda claiming to the auditors to provide the loans as per the audit report and the breaches made in the accounting standard (Wang & Cuthbertson, 2015).

Conclusion

The given case has been able to show that MYH has verified the stock appropriately. It has been also seen that they have been able to approve the valuation and did not consider the obsolescence for stock. The different types of the evidence has been further able to depict that Oasis Ltd. has been included for significant pressure which has been considered by the client based on the completion of the audit process with the limited nature of the time. The completion of the audit process has been further seen to be considered from the balance sheet of the company. The various considerations of the report has been also able to depict that Oasis Ltd should bring forward the significant negligence with the audit of MYH.

Reference List

Azahari, F. (2013). Shariah Audit in a Legal Process: Future Growth in Specialised Skills. Malayan Law Journal, 6(xciii), 1–18.

BIRD, R. C., & OROZCO, D. (2014). Finding the Right Corporate Legal Strategy. MIT Sloan Management Review, 56(1), 81–89. Retrieved from https://www.redi-bw.de/db/ebsco.php/search.ebscohost.com/login.aspx?direct=true&db=bth&AN=98547057&site=ehost-live

Nelson, M. W., Proell, C. A., & Randel, A. E. (2016). Team-oriented leadership and auditors’ willingness to raise audit issues. Accounting Review. https://doi.org/10.2308/accr-51399

Wang, T., & Cuthbertson, R. (2015). Eight Issues on Audit Data Analytics We Would Like Researched. Journal of Information Systems, 29(1), 155–162. https://doi.org/10.2308/isys-50955

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My Assignment Help (2018) Using AAA Ethical Decision Model, Relevant Case Law, And Essay. [Online]. Available from: https://myassignmenthelp.com/free-samples/application-of-american-accounting-association
[Accessed 15 July 2024].

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My Assignment Help. Using AAA Ethical Decision Model, Relevant Case Law, And Essay. [Internet]. My Assignment Help. 2018 [cited 15 July 2024]. Available from: https://myassignmenthelp.com/free-samples/application-of-american-accounting-association.

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