Auditing can be said, in a simple word, the expression of opinion on financial reports based on various rules, regulations and standards. The four different situations state the various scenarios behind the scene that depicts the auditors’ credibility and quality of audit works conducted. They have to be cautious to maintain their professional standards and to avoid various disciplinary actions which can be taken by the regulatory and authoritative bodies. Proper professional care can reduce their threat to a great extent and make auditing works credible.

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Assessment Value: 20%
Instructions:
1. This assignment is to be submitted in accordance with assessment policy
stated in the Subject Outline and Student Handbook.
2. It is the responsibility of the student who is submitting the work, to ensure that
the work is in fact her/his own work. Incorporating another’s work or ideas into
one’s own work without appropriate acknowledgement is an academic offence.
Students can submit all assignments for plagiarism checking (self-check) on
Blackboard before final submission in the subject. For further details, please refer
to the Subject Outline and Student Handbook
3. Maximum marks available: 20 marks.
4. Due date of submission: Friday 30th August, 2013. Requires both soft copy
(SafeAssign) and hard copy to be submitted
HA3032 AUDITING AND ASSURANCE
SERVICES
TRIMESTER2, 2013
INDIVIDUAL ASSIGNMENTSOLUTIONS

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ASSIGNMENT QUESTION
The following are independent situations and you should refer to APES (Accounting Professional
and Ethical Standards 110 “Code of Ethics for Professional Accountants”) and the Corporations
Act 2001 as a minimum for each situation. You need to identify any breaches (under what
section) and why. You should also consider any remedy or alternative course of action that
should have been considered for each where appropriate.
There is no word limit set for this assignment but it is expected that each question will be well-
covered and considered. Guidelines would be that each question should be of between 400-600
words
1) Rodney Brick is completing a Master of Accounting part-time and has taken on a role as an
auditing assistant with an audit/accounting firm and his first job is to assist with auditing the
books of Daffey Jones Ltd, a major retailer. Whilst undertaking the audit, Rodney comes across
certain financial information that he believes will assist him in completing one of the auditing
assignments he is currently working on so he copies the information and uses it in the
assignment, although he is careful by removing all reference to Daffey Jones in order to
preserve the client’s confidentiality.
Question: Has Rodney breached any auditing standards/regulations and if so, what and why?
(6 marks)
2) Bertha Bigga has been the engagement audit partner on the Wait Alert Limited (“WA”)
account for a number of years. Roughly one year ago, WA’s long-standing company secretary
resigned and the company took almost nine months to find a replacement. At WA’s request,
Bertha performed company secretarial duties during this period of time.
Question: Do you have any concerns and are there any breaches that have occurred here?
(4 marks)

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3) John Bartram is the son of the factory manager of one of your firm’s major audit clients, John
Worst Foods Limited. John is studying accounting, with a specialisation in auditing at Holmes
Institute. John applied for work during the summer where he could both earn money as well as
gain first-hand experience in his area of interest. He is assigned to the audit of John Worst’s
Foods Limited where part of his audit work consisted of testing the internal controls of the cash
payments and cash receipts system.
Q: What is the issue in this situation and what sections of the Act are bought into question? Is
there something that should be in place with the audit firm?
(4 marks)
(4) Ocean Adventures Limited is a large importer/wholesaler of luxury cruise boats and is
currently experiencing financial difficulties. Their audit firm is PVC Partners but they have not
paid the audit fees for the past three years. The audit partner recently threatened to resign from
the audit if the outstanding fees were not paid. To prevent this occurring, Ocean Adventures
offered to supply AUDITRUS with a nine-metre cruise boat as payment. The partner accepted
this offer in full consideration of the outstanding fees, even though the boat was only worth 75%
of the balance.
As a gift, Ocean Adventures also gave the partner a 15% shareholding in an unrelated
company. At present these shares are worth $21,500.
Q: What if any, issues exist in this situation? Should PVC have accepted boat and the gift
(consider each one separately in your answer). (6 marks)

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[Document Title here]
Table of Contents
Abstract:7

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Introduction:8
Solution to situation 1:9
Situation:9
Analysis of Applicable and Breached Standards:9
 APESSection 140.1(a)9
 APESSection 140.1 (b)9
 APESSection 140.39
 APESSection 140.610
 APESSection 140.8 (a)10
 APESSection 150 ProfessionalBehaviorsubsection 150.110
Solution to situation 2:11
Situation:11
Analysis of Applicable and Breached Regulations:11
 APESSection 290.611
 APESSection 290.711
 APESSection 290.13411
 APESSection290.13512
 Section 324CI12
Safeguards:12
 APESSection 290.712
 APESSection 290.3612
 APESSection 290.3813
Solution to situation 3:14
Situation:14
Analysis of Applicable and Breached Regulations:14
 APESSection 290.12714
 APESSection 290.12814
Safeguard:15
Solution to situation 4:16
Situation:16
Analysis of Applicable and Breached Regulations:16
Boat as fee:16

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ShareholdingasGift:17
Safeguards:17
Conclusion:18
References:19

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Abstract:
Auditing can be said, in a simple word, the expression of opinion on financial reports based on
various rules, regulations and standards. The four different situations state the various scenarios
behind the scene that depicts the auditors’ credibility and quality of audit works conducted. They
have to be cautious to maintain their professional standards and to avoid various disciplinary
actions which can be taken by the regulatory and authoritative bodies. Proper professional care
can reduce their threat to a great extent and make auditing works credible.

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Introduction:
The service of auditing is expressing an opinion on the prepared financial statements. The
auditors have to be independent, influence free, well skilled, maintain professional competence
and due care (APESB 2011) (Frias, Solita & Fajardo 2008), maintain integrity (APESB 2011), and
comply with general application of auditing code (APESB 2011) (Puttick, Sandy van & S. D. 2008) and
also specific ones. Keeping abreast from personal gains, maintaining standards are to be strictly
maintained. Planning and plotting in advance what threats can arise is a good way to reduce
threats. The four situations presented are good examples of these situations. A critical analysis of
all the four situations revealed good platform for analysis of real situations.

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Solution to situation 1:
Situation:
Rodney Brick is doing part-time Masters in Accounting and currently is an audit assistant
working at Daffey Jones Ltd of an audit firm. While doing his works, he found some information
that can assist him in doing his assignment without proper permission and uses copied
information removing references of Daffey Jones Ltd to maintain confidentiality.
Analysis of Applicable and Breached Standards:
The stated situation fully complies with confidentiality of the audit teams and members of
engagement. The Accounting Professional & Ethical Standards (APES) Section 140
Confidentiality directly applies in this situation (CCH 2009).
 APES Section 140.1(a) states that members of the engagement team cannot disclose any
information obtained from working in audited organizations as a result of their
professional duty. This can be done if required by the law, or with proper permission
from proper applicable authority. Rodney took information without taking proper
permission and breached this regulation directly.
 APES Section 140.1 (b) states that information acquired due to professional and business
relationship cannot be used for personal and/or third parties interest. Rodney used
obtained information for his personal interest. He breached this section of standard
perfectly.
 APES Section 140.3 states that an auditor will keep safe the information and maintain
confidentiality of the information disclosed to him to conduct his professional duties
independently and properly. Rodney hasn’t maintained this section. He disclosed the
information gained and breached the regulation.

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 APES Section 140.6 states that confidentiality is to be maintained even after the
accomplishment of the audit engagement. The auditor is entitled to use his/her
experiences gathered but not entitled to disclose specific information of the prior
engagement if that violates APES 140 Confidentiality. Rodney breached this by
breaching APES Section 140.3.
 APES Section 140.8 (a) states that whether disclosing confidential information all parties
or relevant parties’ interests have been affected. If it does not do so, auditor can disclose,
but if affected, he cannot. In the situation, client’s interests have been affected. Thus,
Rodney breached this section as well.
 APES Section 150 Professional Behavior subsection 150.1 states that auditor must not do
anything which discredit the profession and comply with all applicable laws and
standards. What Rodney did, can be viewed as a discredit of the profession and also
breached many standards.

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Solution to situation 2:
Situation:
Bertha Bigga has been working with Wait Alert Limited (“WA”) as an engagement partner for
several years. WA’s secretary resigned one year ago and they could not get another person for
the post. She worked in this time in request of WA’s the duties of secretarial jobs.
Analysis of Applicable and Breached Regulations:
The situation of Bertha indicates that this is a case of employment with the audit client which is
directly related to the APES Section 290 Independence – Audit and Review Engagements. The
integrity (Iain & Stuart 2007) of the engagement partner has also been compromised as stated in
APES 110 Integrity.
 APES Section 290.6 states that the auditor must have independence of mind and
appearance in conducting the engagement. Performing secretarial duties pose great
conflict with the basic objectives of auditing (Spencer Pickett 2006) (Tom & Keith A. 2005).
The dual objectives are of great conflict and material as well. Both of the independence
has been compromised and Bertha has violated this section.
 APES Section 290.7 states the judgments regarding the threat of independence. The
subsection (a), (b), (c) all imply that a major material risk and breach of independence
exists in the stated situation. Safeguard is necessary to handle the situation.
 APES Section 290.134 states that the familiarity or intimidation threat arises when a
person or persons of the clients entity having power to influence the financial reporting is

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in the engagement team. In this case, Bertha is absolutely in such a position to exert that
kind of power. She is breaching this regulation.
 APES Section 290.135 states clearly that the independence would be compromised if an
engagement partner joins the audit client as a director or officer having power to
influence the financial reporting. Bertha, in this case, is perfectly in that position and she
breached this regulation and compromised independence.
 Section 324CI1
and 324CJ2
of the Corporations Act 2001, imposes restrictions and
regulatory guidelines in respect of auditors to work in clients organization. Bertha hasn’t
retired, but working in clients organization in an influential position. So, she breached the
Corporations Act as well.
Safeguards:
The situation stated demands certain safeguards to be taken as per APES Section 290.7, 290.136,
290.138.
 APES Section 290.7 dictates a professional judgment is to be made in regards of the threat
to independence.
 APES Section 290.36 states that if the engagement partner has joined client’s organization
in an influential position, then:
 Audit planning is to be modified.
 Appointing new engagement partner who has sufficient experience.
1
CorporationsAct2001, Section324CI Special rule forretiringpartnersof auditfirmsand
retiringdirectors of authorisedauditcompanies
2
CorporationsAct2001, Section324CJ Special rule forretiringprofessional memberof audit
company

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 A Member review of work of the previous audit member is to be done of the audit
team.
 APES Section 290.38 dictates of the self-interest threat as situations and conditions stated
earlier. This would result in:
 Removal of the engagement partner from the audit team.
 Review of any significant decisions, judgments made by that partner while he/she
was in the audit team.

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Solution to situation 3:
Situation:
John Bartram is the son of the manager of John Worst Foods Limited. He is studying accounting
specializing in audit. He has joined an auditing farm that audits John Worst Foods Limited and
working as an engagement partner having charge of testing internal controls, cash receipts and
payment systems.
Analysis of Applicable and Breached Regulations:
In the stated situation conflict of interests exists as stated in Sec. 324CD3. Any rational person
can perceive the possible threat and conflict of interests from the context4. John is a family
member of the John Worst Foods Limited’s manager. A significant and influential personal
relation exists between the engagement team member and the client. Thus, it falls under APES
Section 290 Independence – Audit and Review Engagements.
 APES Section 290.127 states that family and personal relationship with the audit client
creates familiarity, intimidation and self-interest threats. In the stated situation the threat
of self-interests, independence (Elmarie et al. 1998) compromising is material and
significant. Employing John independence has been brought into question along with
professional judgment (Karla 2013).
 APES Section 290.128 dictates that when any of family members of any member of the
audit team is in a significant influential position of the client’s organization, the threat to
3
CorporationsAct2001, 324CD Conflictof interestsituation
4
CorporationsAct2001, 324CD Conflictof interestsituation,subsection1(b).

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independence exists. It advocates that that member should be replaced with one who does
not have such relationship to reduce audit risk and threat to independence.
Safeguard:
Sections 290.129, 290.130, 290.131, 290.132, 290.133, 290.133.1 all state the safeguards and
provide guidelines what to do to minimise the threats to independence due to family and personal
relationships. The main safeguards are –
 Removing the audit team member from the audit team.
 Setting audit roles such as no one has to handle any matter that can affect personal
relations and create threats to independence.
 A review of Member work that has been done.

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Solution to situation 4:
Situation:
The PVC Partners are the auditor of Ocean Adventures Limited and audit fee for last three years
is outstanding. They threated to resign as auditor if their fee is not paid. As a response, they were
offered a nine-metre cruise boat as payment of fee due of 75% worth of the original fee. Auditors
accepted this and also were offered a gift of 15% shares of unrelated company worth $21,500.
Analysis of Applicable and Breached Regulations:
A critical analysis of the stated situation reveals that threat of compliance, lack of professional
competence and due care (Gupta 2004) exist in this case. Audit risk, threat of self-interest also
exists. The incident of boat as fee and gift of shares are analysed separately bellow:
Boatas fee:
The auditors should not accept the boat as fee. Section 240 Fees and Other Types of
Remuneration clearly dictates the reasons behind this action:
 APES Section 240.1 states that reasonable fee should be charged as applicable. Charging
or accepting below the reasonable fee poses self-interest threat and threat to professional
competence and due care (Greg 2009). Good quality of audit service demands good
amount of fee. Thus, accepting low fee implies lack of professional competence,
technical skills and knowledge, professional standard and bad quality of service.

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 APES Section 240.2 states the quantity of significance of threat. In the stated situation
75% of fee is value of the boat. This indicates that here a material self-interest threat
exists since the auditors are accepting very low price due to them after three years.
Auditors are entitled to get a compensation for long non-payment, but they are accepting
much lower fee than that. So, they lack in professional judgments, skills, standards,
professional competence and due care as well.
ShareholdingasGift:
Members in Public Practice can be offered various gifts to influence them which pose threats and
affects independence (Ismail 2013) (Stefan 2008). Section 260 Gifts and Hospitality describes all
these in details.
 APES Section 260.1 states that accepting gift from client results in self-interest threat,
threat to compliance with basic principles, familiarity or intimidation.
 APES Section 260.2 states that the value, nature, intention for gifting is a judgmental
matter. If it is of significant nature, value, then it’s out of Acceptable Level and auditors
are breaching the standards.
 APES Section 260.3 states that the audit team will evaluate the significance of the risk
posed by threats and take safeguards to reduce that.
Safeguards:
To reduce the risks, threats as stated earlier, the following safeguards can be implemented –
 Informing well and making the client well understand of the professional services
rendered to pay proper fee. [ APES Section 240.2]
 Designing proper timetable and assigning qualified audit team members to conduct
quality audit. [ APES Section 240.2]

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 If the threats cannot be reduced, then auditors should not accept the engagement. [ APES
Section 260.3]
Conclusion:
The task of auditing is to express an opinion on the audited corporation in compliance with
Corporations Act, Auditing Standards and such other related regulations. The purpose of these
regulations is to ensure a true and fair view of the published financial reports. The audit team has
to be conscious enough to build a culture of well-planned and well equipped providing audit
services. Non-compliance may result in bad reputations and many disciplinary actions on the
audit firm. Thus, keeping up-to-date is a good way in ensuring that.

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References:
APESB2011, 'CompiledAPES110 Code of Ethicsfor Professional Accountants', SupersedesAPES110
Codeof Ethics forProfessionalAccountants,December2011, p. 19.
APESB2011, 'CompiledAPES110 Code of Ethicsfor Professional Accountants', SupersedesAPES110
Codeof Ethics forProfessionalAccountants,December2011, p. 17.
APESB2011, 'CompiledAPES110 Code of Ethicsfor Professional Accountants', SupersedesAPES110
Codeof Ethics forProfessionalAccountants,December2011, pp. 11-22.
CCH 2009, Australian MasterAccountantsGuide,CCHAustraliaLimited.
Elmarie,S,Marianne,VS,A.,H & M. van,S 1998, Auditing Final Approach,JutaandCompanyLtd.
Frias,Solita,A & Fajardo,C 2008, Textbookin Auditing Theory,4th edn, Goodwill TradingCo.,Inc.
Greg, H 2009, A PracticalGuide to BusinessValuationsforSMEs,CCHAustraliaLimited.
Gupta 2004, ContemporaryAuditing,TataMcGraw-Hill Education.
Iain,G & Stuart,M 2007, The AuditProcess:Principles,Practiceand Cases,Cengage LearningEMEA.
Ismail,A 2013, AuditorIndependence:Auditing,CorporateGovernanceand MarketConfidence,Gower
Publishing,Ltd.
Karla,J 2013, Auditing:A Risk-Based Approach to Conducting a Quality Audit,Cengage Learning.
Puttick,G, Sandyvan,E & S. D.,VE 2008, The Principles and Practice of Auditing,Jutaand CompanyLtd.
SpencerPickett,KH2006, AuditPlanning:A Risk-Based Approach,JohnWiley&Sons.
Stefan,B2008, AuditorIndependenceand Regulation,GRIN Verlag.
Tom, C & KeithA.,H 2005, Ethics and Auditing,ANUE Press.

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