Auditing Test Assignment
Target Word Limit: 1250 words
Referencing Style: APA Question 1 (8 marks)
The following are a number of different situations where there may be violations
of the ethical
principles .You are asked to state whether there has been a violation of the
Accountants Code of Ethics and state which ethical principle has been violated
briefly providing a reason for your opinion:
(a) Peter Harmon , professional accountant, does the bookkeeping, prepares the
tax returns and provides various management services for Bunker L td .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 .
(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.
(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.
(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 .
(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.
(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 .
(g) The Hornsby Auditors, have taken advertisements in the local newspaper
with a 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 clients get higher tax deductions.than all others
in the district.
(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 . Question 2 (12 marks)
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 these accounts using other audit procedures.
(b)The client restricted the auditor from observing the property ,plant and
equipment .The property, plant and equipment is a material part of the assets
making up 20% of total assets.
(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.
(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 yourself that cash sales are accurate.
(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. (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.
(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
(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.
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