The following are independent situations:
(i) Bob is an audit assistant currently undertaking university studies. While auditing the books of Club Casino, he comes across certain financial information that he believes will assist him in completing one of his university assignments. He copies the information and uses it in his assignment, carefully removing all reference to Club Casino in order to preserve the client’s confidentiality.
(ii) Wendy has been the engagement partner on the Ace Limited audit for a number of years. Some time ago, Ace’s long-standing company secretary retired and Ace took six months to find a replacement. At Ace’s request, Wendy performed company secretarial duties for this period of time.
(iii) Leo is the eldest son of the factory foreman of one of your firm’s major audit clients, Precision Machinery Limited. During vacation work, L is assigned to the audit of Precision Machinery. Leo’s work comprised testing the internal controls of the cash payments system.
(iv) Chan & Associates are auditors of Classic Reproductions Pty. Limited, a large furniture wholesaler currently experiencing financial difficulties. Classic Reproductions is a significant client of Chan & Associates and have not paid their audit fee 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, Classic Reproductions offered to supply Chan & Associates with new office furniture. The partner accepted this offer in full consideration of the outstanding fees, even though the furniture was only worth 50% of the balance. As a thankyou present, Classic Reproductions gave the partner a 25% shareholding in an unrelated listed company. At present these shares are worth $1,000. Chan & Associates do not act as auditors of this company.
Required:
a) Define actual and perceived independence, and explain the importance of each.
b) For each of the above independent situations list any professional standards and regulatory requirements breached and discuss possible alternative courses of action the auditor should have taken in order to properly discharge their professional responsibilities.
The depth and correctness of your analysis for each of the above will be the primary criteria for grade differentials in this assignment. Your analysis must be relevant to the cases above.