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ACC568 Auditing Accounting Assignment Help
Nearly all the business decision has its own ethical element and the impact of these decisions creates the impact on the stakeholder in the different ways and will also express different value. The American accounting standard model helps in providing seven step decision-making processes and also considers the ethical issue into the account.
Establishing the fact of the case
In the given case the Jimmy has been informed that the company is planning to promote the Jimmy as the partner so long he continues his good work. The Jimmy was asked to conduct the audit of the Engines International limited which is one of the biggest clients of the company.
At the time of the audit, Jimmy has identified that the method which the company was following for recognizing the revenue was not appropriate and may lead to the inappropriate result and the method was also investigated by ASIC. The senior audit partner of the company tells that the method was followed by the company and challenging the issue may not be beneficiary for the company and may lead to loss of the client.
Jimmy said that he will accept the decision but plan to include the dissenting statement in the working paper about the accuracy of the method of revenue recognition used by the company. The partner tells the Jimmy that he is not permitted to make such a statement but is willing to write the letter to jimmy acknowledging all the responsibility of the audit. The partner responded to Jimmy that she is not comfortable in making him as the business partner if he reports the issue (Doxey, et. al., 2015).
Identify the ethical issue in the case
In the given case the ethical issue was that the partner was forcing Jimmy not to report the issue which he identified at the time of conducting the audit which was against the ethical code of practice as specified by the AASB. Also, the partner was forcing Jimmy not to report the issue as Engines International limited was one of the biggest clients of the company and if the company report the issue than it may lead to loss of a client. Also, the issue was investigated by ASIC and if the company fails to report the issue may lead to attraction of the legal liabilities. The method used by the company for the purpose of revenue recognition is inappropriate and may lead to false reporting of the company affair which may affect the decision of the various stakeholder of the company.
Identify the norms principle and values related to the case
The APES 110 provide the ethical code of professional accountant which provide the ethical practice which the auditor needs to follow at the time of conducting the audit of the company. As per the standard issued by AASB the auditor needs to be independent at the time of conducting the financial audit of the entity and should not be biased at the time of making a decision. Also, the auditor doesn’t need to be influenced by the third party and avoid the personal interest at the time of decision making. Jimmy needs to consider the fundamental principle of auditing at the time of framing the opinion over the financial statement of the entity (Anderson, et. al., 2014). In the given case the auditor may not abide with the honesty and integrity at the time of framing the opinion which many affect the decision of the business.
Alternative course of action
The individual at the time of making a decision has to make the choice of the alternative course of action. For this, the auditor needs to evaluate each of the alternatives on the basis of the merits and demerits of each of the decision. Decision making is the complex process and the auditor needs to conduct the in-depth examine the situation before making a decision. The Jimmy had a lot of alternatives where either he can go with not reporting the issue for the purpose of attaining the position and retaining the existing client of the business. Alternatively, he can follow the ethical code of auditing and report the issue of the inappropriate method used by the company at the time of recognizing the revenue of the company. Jimmy needs to identify the effect of each and every alternative at the time of making the decision. If the Jimmy goes with the ethical code of conduct than he will avoid legal actions which will help him in avoiding future contingency. On the other hand, if Jimmy opts for not reporting the issue then he may be promoted to the business partner and may entertain legal consequences.
Compare value and alternative
Before making the choice of the action the auditor needs to evaluate among the various alternative which may affect is working. The jimmy needs to identify the positive as well as the negative outcome of each of the alternative and make the comparison on various bases before making the decision. These comparisons will help jimmy in appropriate decision making which will benefit him over the long run.
The consequences of the outcome are considered
Jimmy before making the choice of the alternative needs to make the effort to identify the possible outcome of the decision. The comparison needs to be made between the possible outcome and the one which fits best with the current situation. If the Jimmy goes with the reporting the issue then it will help him in avoiding legal consequences and helps in defending himself against the action. On the other hand, if Jimmy doesn’t report the issue then he will be promoted to the partner of the company which will help in growing his career (Abernathy, et. al., 2015).
Make your decision
The final step of the process involves making a decision which best fits the situation and helps in avoiding contingency. The most appropriate action which the jimmy can adopt is to report the issue as the situation was examined by ASIC which creates the probability of the legal action against the company. This action will help the Jimmy in avoiding legal action and conduct his operation in the near future.
The audit is the independent examination of the financial statement of the entity for the purpose of framing true and fair opinion of the financial statement of the company. The AASB has provided with a certain standard which the auditor needs to follow for the purpose of conducting the audit in an effective way (O’Donnell, et. al., 2015). In the given situation the auditor of the Kingsley Read is conducting the audit of Plummet travel limited which promotes the tour of New Zealand to Australia.
In the given situation the auditor of the Kingsley Read is guided by the ASA 620 which is framed by AASB which helps the auditor in making the use of the information provided by the auditor expert. The standard requires that the auditor needs to determine whether to use the work of the auditor expert for the purpose of obtaining sufficient appropriate audit evidence (Shantapriyan, et. al., 2014).The standard describes the nature, timing and the extent of the auditor procedures performed depending on the circumstance of the audit engagement. The standard helps the auditor to evaluate whether the expert has the required competence, capability and objectivity for the role for which he has been hired. This provides the auditor of the understanding of the field of the expertise to determine the work performed by an expert and evaluate the adequacy of the work for the purpose of the audit.
The ASA 620 required the auditor to agree with the certain matter with the auditor expert in respect of the work to be performed. It also helps in evaluating the adequacy of the specific aspect of the expert work and describes the auditor responsibility when referring to the auditor expert in the auditor report. The standard deal with the auditor responsibility related to the work of the individual or organization which is expertise in the field other than accounting and audit in obtaining the evidence of the expert for the purpose of obtaining sufficient appropriate audit evidence. The auditor has sole responsibility for the audit opinion framed over the financial statement and the responsibility is not reduced when the auditor uses the work of the other expert. If the auditor uses the work of the audit expert following the accounting standard and conclude that the work of the expert is adequate for the purpose of audit and may accept the expert finding or conclusion as appropriate audit evidence.
In the given situation the auditor of the Kingsley Read has conducted the audit of the Plummet Travel Ltd. Which was listed with the ASX 10 year before the account of the company are never being qualified but the company has incurred losses due to short-term liquidity difficulty (Sakka & Jarboui, 2015). The company has implemented the new customer database and the auditor has hired to aid the correct changeover of the file. The auditor was not having information of the system so have used the opinion of the expert for obtaining information that the new database has helped in recording the data in the appropriate way.
Further,the company was a takeover by the parent company on the basis of the offer price equivalent to the net asset backing. After the acquisition was made by the company it was discovered that there was error at the time of making the changeover of the computer system which leads to inventory at the duty free stores being materially misstated and at the time of writing down the inventory the company found the new assets backing of $0.70 per share is established.
The auditor of the Kingsley Read has effectively considered the due care at the time of conducting the audit of the Plummet travel and has made the effective use of the expert of the opinion at the time of analysing the effectiveness of the new database (Harrison & Kitov 2014). As per the standards framed by AASB the auditor has the choice of obtaining the view of the expert as the audit evidence where he is not carrying any expertise information. In the given situation the auditor was not having the knowledge of the new database implemented by the company and has to rely on the view of the expert over the effectiveness of the new process. So in the given situation, the auditor of the Kingsley is not liable as he has relied on the opinion obtained by the expert and was not having expertise in the field.
The management of the Plummet travel is liable to negligence as it is their duty to identify the effectiveness of the change of the database made by the company. The issue should be identified by the management failure to which may cause the inappropriate recording of the information. As per the standards, the auditor is only liable for framing the opinion and it is the responsibility of the management that the data is recorded in the appropriate format and represent the true and fair value of the company (Sanderson, 2013). Due to the negligence made by the management the New Zealand parent company is sued for the $0.40 per share for the negligence. Also, the management of the Plummet Travel will be held liable for not ensuring the effectiveness of the new database.
The auditor of the Kingsley Reads is not liable for the duty of care with the New Zealand parent company as the auditor can rely on the opinion of the expert at the time of obtaining the evidence in relation to the audit. In the given case the auditor of the company has obtained the information of the effectiveness of the new database system as he was not having expertise in the relevant field. The ASA 620 reduces the liability of the auditor where he has used the opinion of the expert at the time of framing opinion over the issues. The standard provides the guidelines of the area where the expert can use the information obtained by the experts for the purpose of decision making. So the auditor is not liable to any penalty in the given case.
Abernathy, J., Hackenbrack, K. E., Joe, J. R., Pevzner, M., & Wu, Y. J. (2015). Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Staff Consultation Paper, Auditing Accounting Estimates and Fair Value Measurements: Participating Committee Members. Current Issues in Auditing, 9(1), C1-C11.
Anderson, U. L., Gaynor, L. M., Hackenbrack, K. E., Lisic, L. L., & Wu, Y. J. (2014). Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2013-009, Proposed Rule on Improving the Transparency of Audit: Proposed Amendments to PCAOB Auditing Standards to Provide Disclosure in the Auditor's Report of Certain Participants in the Audit: Participating Committee Members. Current Issues in Auditing, 8(2), C1-C7.
Doxey, M. M., Geiger, M. A., Hackenbrack, K. E., & Stein, S. E. (2015). Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2015-004, Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit Participants on a New PCAOB Form: Participating Committee Members. Current Issues in Auditing, 10(1), C1-C10.
Harrison, R., & Kitov, R. (2014). U.S. Patent No. 8,819,762. Washington, DC: U.S. Patent and Trademark Office.
O’Donnell, K., Hicks, B., Streeter, J., & Shantapriyan, P. (2015). Getting it right: directors’ assessment of information. Managerial Auditing Journal, 30(2), 117-131.
Sakka, I. F., & Jarboui, A. (2015). External auditor's characteristics, corporate governance and audit reporting quality. International Journal of Accounting and Economics Studies, 3(2), 109-116.
Sanderson, J. (2013). Audit issues. SMSF Guide: Current Issues and Strategies for the Self-Managed Superannuation Funds Adviser, 331.
Shantapriyan, P., O'Donnell, K., Streeter, J., & Hicks, B. (2014). Getting it Right: Directors’ Assessment of Information.