Question 1(a) Peter Harmon, a professional accountant, does the bookkeeping, prepares the tax returns and provides various management services for Bunker Ltd . When providing these services it frequently advises its clients to buy its computer, equipment from Computer Services Ltd. Computer Services has agreed to pay Harmon a 10% commission if the referral leads to sales for Computer Services. The statement reflected above indicates the accountants’ code of ethics has high possibility of having been violated. The accounting ethical principle that has been violated under the given scenario is the fundamental principle of been objective (Arens, Best, Shailer, & Loebbecke, 2016) under Section 290 of APES. The objectivity ethical principle provides that a professional accountant should not allow conflict of interest, undue influence or bias to override business or professional judgement. Accordingly, the objectivity principle is been violated since Peter Harmon is likely to give the professional judgement in advising clients to buy the computer equipment from Computer Services Ltd due to the financial commission he will receive that amounts to conflict of interest. (b) David Smith, an auditor, was asked by Allied Insurance, for its help in finding clients. David Smith subsequently referred ten clients to the insurance company without letting them know. The scenario depicts that the Accounting Code of Ethics have been violated due to the actions of David Smith. The ethical principle that has been violated is the integrity fundamental principle. The integrity fundamental principle demands that an accountant should be honest and straightforward in business and professional relationships (Arens, Best, Shailer, & Loebbecke, 2016). Consequently, the extent of Smith to refer the ten clients without their consent or informing them indicates he was honest in the business and professional relationship with the insurance company and the clients. (c) Wrench and company, Chartered Accountants, keeps details of its clients in its computer records at its office. Since it also has time available, it will allow its clients to use its computers if they require them. If necessary Wrench will arrange for members of its staff, mainly administration but sometimes from the audit branch to assist with the input of data for these clients. The staff from the Audit section can be involved in the audit of clients, depending upon the Audit Partners requirements. The Accounts Code of Ethics has been violated under the scenario given above. The particular code of conduct that has been violated if the confidentiality principle. The confidentiality ethics principle provides that the confidentiality of the information received through business and professional relationship should be respected (Arens, Best, Shailer, & Loebbecke, 2016). Accordingly, the extent of the Wrench and Company to allow use its computers containing vital information by diverse clients amounts to disclo ...

1. Question 1(a) Peter Harmon, a professional accountant, does the
bookkeeping, prepares the tax returns and provides various
management services for Bunker Ltd . When providing these
services it frequently advises its clients to buy its computer,
equipment from Computer Services Ltd. Computer Services has
agreed to pay Harmon a 10% commission if the referral leads to
sales for Computer Services.
The statement reflected above indicates the accountants’ code
of ethics has high possibility of having been violated. The
accounting ethical principle that has been violated under the
given scenario is the fundamental principle of been objective
(Arens, Best, Shailer, & Loebbecke, 2016) under Section 290 of
APES. The objectivity ethical principle provides that a
professional accountant should not allow conflict of interest,
undue influence or bias to override business or professional
judgement. Accordingly, the objectivity principle is been
violated since Peter Harmon is likely to give the professional
judgement in advising clients to buy the computer equipment
from Computer Services Ltd due to the financial commission he
will receive that amounts to conflict of interest.
(b) David Smith, an auditor, was asked by Allied Insurance, for
its help in finding clients. David Smith subsequently referred
ten clients to the insurance company without letting them
know.
The scenario depicts that the Accounting Code of Ethics have
been violated due to the actions of David Smith. The ethical
principle that has been violated is the integrity fundamental
principle. The integrity fundamental principle demands that an
accountant should be honest and straightforward in business and
professional relationships (Arens, Best, Shailer, & Loebbecke,
2016). Consequently, the extent of Smith to refer the ten clients
without their consent or informing them indicates he was honest
in the business and professional relationship with the insurance

2. company and the clients.
(c) Wrench and company, Chartered Accountants, keeps details
of its clients in its computer records at its office. Since it also
has time available, it will allow its clients to use its computers
if they require them. If necessary Wrench will arrange for
members of its staff, mainly administration but sometimes from
the audit branch to assist with the input of data for these clients.
The staff from the Audit section can be involved in the audit of
clients, depending upon the Audit Partners requirements.
The Accounts Code of Ethics has been violated under the
scenario given above. The particular code of conduct that has
been violated if the confidentiality principle. The
confidentiality ethics principle provides that the confidentiality
of the information received through business and professional
relationship should be respected (Arens, Best, Shailer, &
Loebbecke, 2016). Accordingly, the extent of the Wrench and
Company to allow use its computers containing vital
information by diverse clients amounts to disclosure of the
confidential information without the consent of the respective
clients.
(d) Stephanie Barry has an audit client, Williams Pty Ltd ,
which uses another public accountant for its management
services work. Barry sends her firm’s literature regarding its
management services capabilities to Williams on a monthly
basis unsolicited.
The scenario reflected above depicts there is a potential of the
Accountants Code of Ethics by Stephanie Barry. The ethic’s
principle that is been violated in the given situation is the

3. objectivity principle under Section 280 of APES. The
objectivity principle has been violated because Stephanie is
likely to give biased advice to Williams Pty Ltd in an attempt to
influence it to drop the services of the other public accountant
on its favour (Arens, Best, Shailer, & Loebbecke, 2016).
(e ) Katrina Ng is a manager on the audit of a not for profit
entity. She is also a member of the Board of Directors for the
not for profit entity, but the position is honorary and does not
involve her acting in a management capacity for the not for
profit firm.
The decision by Katrina to be manager on the audit of the entity
is an indication that the Accountants Code of Ethics has been
violated. The code of ethics that has been violated in the
objectivity principle under Section 280 of APES. The
objectivity principle has been violated because there is presence
of conflict of interest under Section 220 of APES since Katrina
still acts as member of the Board Directors in the same entity
(Arens, Best, Shailer, & Loebbecke, 2016).
(f) Peter Beattie , a public accountant , provides tax services,
management advisory services, bookkeeping services, and
conducts audits for the same client. As the firm is small, the
same person frequently provides all the services.
The scenario given above indicates there is violation of the
Accountants Code of Ethics. The ethic’s principle that has been
violated is the objectivity principle due to the conflict of
interest emerging under Section 220 of APES. The extent of
Peter Beattie to audit the financial reports of the client while he
offers management advisory and bookkeeping services to the
same client implies he has an interest with the financial results
(Arens, Best, Shailer, & Loebbecke, 2016). Consequently, the
conflict of interest has the effect of occurring due to the
competing interests.
(g) The Hornsby Auditors, have taken advertisements in the
local newspaper with bright colourful full-page pictures of the
staff and giving details of their being the top auditors in the
district compared to other auditors and their ability to help

4. clients get higher tax deductions than all others in the district.
The scenario given above demonstrates there has been violation
of the Accountants Code of Ethics regarding the professional
behaviour principle. The professional behaviour principle
requires professional accountants to avoid actions that are likely
to discredit the accounting profession and comply with the
relevant regulations and laws (Arens, Best, Shailer, &
Loebbecke, 2016). Thus, the assertion by Hornsby Auditors that
it can help clients to offer superior services compared to their
competitors in the district without substantiation amounts to
exposing the accounting profession into disrespect.
(h) David Cheadle conducted an audit of Nestree Ltd for the
year ended 30 June 2015. David has just started his audit of
Nestree for the year ended 30 June 2016 .The audit fees for the
year ended 30 June 2015 have not yet been paid.
The decision by David Cheadle to extend the auditing services
to the Nestree Ltd without receiving the previous audit fees
conducted signals there is a violation of Accountants Code of
Ethics. The ethics principle that has been violated in the given
scenario is the professional competence and due care. The
professional competence and due care principle requires the
accountants to maintain professional skill and knowledge in
ensuring the client receives competent services. The
fundamental principle of professional competence and due care
is been violated since the failure of receiving the fees from the
previous audit service offered may make difficult for the auditor
to undertake the current audit in accordance with the
professional standards and applicable techniques due to scarcity
of financial resources.
Question 2
Indicate the type of opinion that should be expressed in each of
the following situations, providing reasons for your choice .
(a) The auditor was unable to obtain confirmations from three
of the client’s major customers that were included in the sample
.The auditor was able to satisfy himself about the balances of

5. these accounts using other audit procedures.
A qualified audit opinion should be expressed under the given
situation since there is an exception surrounding the three main
clients that makes it difficult to determine the possible material
uncertainty outcome (Arens, Best, Shailer, & Loebbecke, 2016).
(b)The client restricted the auditor from observing the property
,plant and equipment. The property, plant and equipment are a
material part of the assets making up 20% of total assets.
A qualified opinion is the one that should be issued by an
auditor because potential material impact in accounting for the
property, plant, and equipment cannot be established while they
form a substantial proportion of the total assets. Thus, a
qualified opinion should be issued since it is not possible
conduct an accurate audit report in the absence of the financial
records detailing the information regarding the property, plant,
and equipment.
(c) Management have excluded from the financial report the
necessary disclosures in relation to a contingent liability. If this
becomes an actual liability, it will have a material effect on the
financial report.
A qualified opinion is the appropriate opinion that should be
issued since the absence of the financial records makes it
impossible to establish the potential financial material
regarding the contingent liability.
(d) A significant proportion of a retailer’s sales are on a cash
basis and inadequate records have been maintained. There are
no audit tests that can be done to assure you that cash sales are
accurate.
A qualified audit opinion should be given because the
unavailability of the financial records to confirm the sales
revenue on cash basis makes it impossible to establish the
accuracy and materiality of the results.

6. (e) You have been asked to do the audit for a new client this
financial year .While you are satisfied that there appears to be
no material misstatements for the information during the current
financial year the client will not provide any information about
the opening balances of accounts at the start of the financial
year.
A qualified audit opinion should be issued because the absence
of the opening balances of accounts makes it impossible to
determine the materiality of the financial results.
(f) You have just started auditing the financial statements of a
client, which has not been following the Australian Accounting
Standards since it began operating five years ago.
An adverse opinion because the financial statements presented
by the firm do not reflect a fair operation results, financial
position, and changes in financial position in conformity with
the established Australian Accounting Standards (Arens, Best,
Shailer, & Loebbecke, 2016).
(g) A client has been using the LIFO method of accounting for
inventory, which is disallowed under the Australian Accounting
Standards. This has had a material effect on the financial
statements however, its effect is currently limited to the effect
on the Inventory value.
An adverse opinion should be issued because the unconformity
with the Australian Accounting Standards in accounting for
inventories implies the financial report does not give a fair
financial position of the firm.
(h) The auditor of Numark has just completed the audit and is
satisfied that there are no material misstatements however the
client’s continuation as a going concern is in extreme doubt as
its major customer has gone into liquidation and it appears very
unlikely that other customers will take its place due to the
highly specialised nature of its products.
A modified opinion is the one that should be issued by the

7. auditor since financial status of the firm into the future, as a
going concern is uncertain (Arens, Best, Shailer, & Loebbecke,
2016). Thus, the modified opinion will be given to express the
uncertain financial status of the firm as a going concern.
References
Arens, A., Best, P., Shailer, G., & Loebbecke, J. (2016).
Assurance Services and Ethics in Australia , 10th ed. Australia:
Pearson .