Auditing Assignment
Length: 1500-2000 words.
Question 1
In Bloxham's (2015) article "Should companies eliminate audits?" she states: A study published in the May 2015 issue of The Accounting Review analyzed over 650 company financial restatements. Only about 20% of companies provided investors any early warning about their material control weaknesses (5% of companies denied that a material control weakness led to their restatement). Of the remaining companies, nearly two-thirds fessed up to a material control weakness only after the restatement-while one-third just remained silent.
Required:
a.. What responsibilities do external auditors have (under the Auditing Standards and Corporations law) to understand and test the internal control systems of their clients.
b. What responsibilities do external auditors have (under the Auditing Standards and Corporations law) to notify their clients about internal control weaknesses?
c. Appropriate Harvard in-text references and reference list used for Question 3.
Question 2
Christine Careful is an audit senior with the firm Amazing Audits. During her two years as an audit senior she has come across a number of issues on different engagements.
1. During the audit of Fast Cars Ltd, she discovers that financial controller is the uncle of the graduate auditor in the audit team.
2. One audit team member for the Great Gadgets Company, holds 500 shares in the company. Great Gadgets has 400,000 issued share.
3. Sam Savvy, a member of the audit team for the Wonderful Weekends Company, discovers the company has just signed a deal with a well-known hotel chain. It is expected that sales will double over the next three years. Sam tells Christine he is planning to buy 1000 shares in the company.
4. Christine's boyfriend David Double is an audit partner in the firm Double Dealing Accountants. In his spare time David is a bookmaker (takes bets) at the local race track. David tells Christine he is about to become a part owner in Suzy Strippers Night Club.
5. Christine Careful is offered the opportunity to have lunch every day at the restaurant of her new audit client while she is conducting the audit
6. Steady Steve has a home loan from the Best Bank. Steady Steve has been assigned to the audit team for the Best Bank.
7. Freddy Fast, the chief accountant at Good Gear Ltd, is two thirds through preparing the financial statements for inclusion in the annual report (which is being audited) when he has a serious car accident. The CEO asks Christine if she will complete the preparation of the financial statements so that the annual return can be lodged in time and Good Gear Ltd will not incur a late lodgement fine.
8. Penny Poor the senior accountant at Paper Perfect Ltd, needs to go overseas indefinitely to care for her aged parents. Christine is offered the position as a senior accountant, to commence when the audit is complete.
Required: Consider each issue independently:
i. outline any ethical dilemma that needs to be addressed
ii. discuss the relevant sections of the APES 110 Code of Ethics for Professional Accountants, that provide guidance for the situation.
iii. advise Christine what course of action should be taken to act ethically in each situation.