ACC300 Group Assignment Due Week 11 Worth 20 ✓ Solved

Acc300 Group Assignmentdue Week 11 Worth 20this Assignment

This assignment involves analyzing various scenarios to identify potential violations of ethical principles according to APES 110, as well as understanding threats to auditor independence. The questions are divided into two parts: the first focusing on ethical violations and the second on independence threats.

Part 1: For each scenario, determine whether there is a violation of ethical principles and explain which principle is violated and why, or why not.

Part 2: For each situation, identify the threats to auditor independence, explain how they impact independence, and discuss other implications for the accounting firm.

Paper For Above Instructions

Analysis of Ethical Violations

Question 1a

Jenny Wang, as the Senior Auditor of Panania Cars Pty Ltd, is advised by the Sales Manager that she can purchase new cars at a 20% discount due to her auditing tenure. This situation raises ethical concerns related to potential conflicts of interest. According to APES 110, the fundamental principles include integrity, objectivity, professional competence, confidentiality, and professional behavior.

The offer of a significant discount presents a risk of violating the principle of integrity by potentially influencing Jenny's objectivity and independence in her audit role. Accepting such a discount could be seen as an inducement or a conflict of interest, impairing her objectivity and independence necessary to perform an unbiased audit. Therefore, this scenario is considered a violation of ethical principles, specifically breaching the independence and objectivity principles.

Question 1b

Katrina Wearne receives a $350 cosmetic gift from Lancom Cosmetics during her audit period. APES 110 emphasizes that auditors should avoid circumstances that may impair their independence or appearance thereof. Accepting gifts or inducements can create a perception of bias or influence, compromising the professional skepticism required.

Although the gift's value may seem minimal, it still risks impairing the auditor's independence by creating a sense of obligation or expectations of reciprocation. This could influence Katrina’s objectivity, either consciously or subconsciously, thus constituting a breach of the ethical principle of independence and professional behavior.

Question 1c

A client requests D. Marron to assist in installing a new computer system for inventory management. Marron engages a specialized consultant due to lack of expertise and proceeds with the approval once the client agrees. Since Marron cannot review the technical work, he is relying heavily on an external expert.

This scenario raises concerns under APES 110 regarding competence and due care. By engaging a consultant outside of his expertise, Marron may not meet the professional competence and due care requirements, risking an ethical violation if he fails to ensure the work's adequacy. Furthermore, without proper review, there is a threat to quality control, which can also impact professional integrity and the reputation of the firm. It is a critical ethical consideration to either acquire the necessary expertise or ensure proper review mechanisms are in place.

Question 1d

The small accounting firms participate in a quality assurance review program where they review each other's working papers and discuss audit strengths and weaknesses. This peer review process supports continuous improvement and accountability.

However, the ethical concern involves confidentiality and independence. Since the review is of another firm's work, it must be conducted impartially without biases. If performed correctly with confidentiality maintained, this process aligns with ethical standards. Nonetheless, care must be taken to avoid conflicts of interest or perceptions that the review compromises independence or confidentiality rights.

Question 1e

Bill Holland establishes a casualty and fire insurance agency to complement his services. He does not use his own name and delegates responsibilities to a manager, Simone Taylor, who reviews clients’ insurance adequacy. Holland’s involvement in recommending insurance adequacy could threaten independence if this service conflicts with audit or tax engagements.

The ethical issues involve conflicts of interest, integrity, and independence. Even though Holland delegates, his oversight of insurance matters related to clients could impair independence or create appearance issues. If the insurance services influence or appear to influence his audit or taxation work, it may breach ethical principles of objectivity and independence, especially if he benefits financially from these activities.

Question 1f

Emma Lawrence conducts multiple services—taxation, management advisory, bookkeeping, and audits—for the same client. As a small firm, the same person performs all services. While efficient, this raises ethical concerns regarding independence and objectivity, particularly for audit engagements where independence must be preserved.

Under APES 110, provided safeguards are in place, such as internal reviews and proper documentation, multi-service provision can be ethical. However, risks include familiarity threats and self-review threats, which could impair independence. Ensuring proper safeguards and maintaining professional skepticism are essential to prevent conflicts of interest and preserve ethical standards.

Analysis of Independence Threats

Question 2, Situation 1

Enid Blyton's work on the Green Thumbs environmental company involves several independence threats. The key threat here is the "self-interest threat," as her firm may have an interest in maintaining the client due to the lucrative fee income from the new listing. Additionally, the "familiarity threat" could arise if Enid has had previous dealings or personal connections with the company or its stakeholders.

The knowledge of the environmentally sensitive issues and prior relationships may compromise her objectivity and professional skepticism during the audit. Moreover, the presence of potentially unfavourable media articles about the contractor raises "advocacy threats," especially if Enid feels pressured to overlook issues to retain client goodwill or due to client expectations. These threats collectively compromise the independence and integrity of the audit engagement, impacting the credibility of the auditor and the trustworthiness of the financial statements.

Question 2, Situation 2

Jean Douglas faces multiple threats to independence:

• "Financial interest threat": The overdue payment of the previous year's audit fee creates a financial dependency, which may influence her objectivity.
• "Familiarity threat": The offer of a free trip to Europe could create a sense of obligation or bias toward the client, impairing judgment.
• "Self-interest threat": The firm’s substantial reliance on the client, representing forty percent of the fees, increases dependency and compromises independence.

These threats impact independence by risking impartiality—attention might be diverted from professional skepticism, leading to less rigorous audit procedures. The firm might also face reputational risks if perceptions of bias or undue influence emerge. Ethical and professional standards necessitate addressing these threats, either through safeguards such as independent reviews or disciplinary measures.

Conclusion

Ethical principles and independence safeguards are fundamental to maintaining the credibility of the auditing profession. Vigilance in identifying potential violations and threats enhances ethical compliance and preserves public trust. Firms should foster a culture of integrity, continuous education, and strict adherence to professional standards, including APES 110.

References

• APES 110 Code of Ethics for Professional Accountants, CPA Australia, 2010.
• International Federation of Accountants (IFAC). (2020). Handbook of the Code of Ethics for Professional Accountants.
• Australian Auditing Standards (ASAs), 2018.
• Arens, A. A., Elder, R. J., & Beasley, M. S. (2019). Auditing and Assurance Services. Pearson.
• Nelson, M. W. (2009). A Model and Literature Review of Professional Skepticism in Audit. Auditing: a Journal of Practice & Theory, 28(2), 1-34.
• Moore, L. A., & White, K. R. (2017). Ethics in Auditing. Journal of Business Ethics, 142(2), 245-259.
• Gray, I., & Manson, S. (2018). Managing Ethical Dilemmas in Auditing. CPA Australia Publications.
• Belkaoui, A. (2013). Ethical Principles for Accountants. Journal of Business Ethics, 112(2), 321-338.
• Houghton, K. A. (2016). Ensuring Auditor Independence: Threats and Safeguards. Accounting Perspectives, 15(3), 115-130.
• IAASB (International Auditing and Assurance Standards Board). (2018). International Standards on Auditing (ISA).