Question

The following situations involve potential violation of the general ethical principles as outlined in APES 110 .You are asked to advise whether they involve a violation or not of the ethical principles 
and if there is a violation explain which ethical principle has been violated and the reason(s)why it is or isn’t a violation .

1) Six small chartered accounting firms have been taking part in a quality assurance working paper review program.Under this review each firm reviews the working papers of another firm and the reviewer discusses the strengths and weaknesses of the audit with the auditor from the other firm.

2)    Bill Holland , a chartered accountant ,sets up a casualty and fire insurance agency to complement 
his auditing and tax services .He doesn’t use his own name on anything relating to insurance agency 
and has a highly competent manager,Simone Taylor, who runs it .Holland often requests that Taylor review the adequacy of the client’s insurance with management if the client seems underinsured .

3)    Emma Lawrence , a public accountant in a small country town,provides tax services,management advisory services ,bookkeeping services and conducts audits for the same client .Since the firm is small the same person often carries out all the services.    

Answer 1

Case I:-

In the given scenario, review should be done independently and should not be discussed with the Auditor as it might compromise independence of the reviewer.

The reviewer should discuss and sought clarification from the Auditor if requires so and reports the weakneses after completion of the review and the same should not be discussed with other Auditor of other firm.

Case II :-

There is a violation of ethical principles as Auditor may come under a pressure to act or behave in ways that could create threats to compliance with the fundamental principles.

In case there is a direct financial interest in an Audit client then in that case threat would be such that no safeguard can take it to the Acceptable level.

Case III :-

There is a violation of ethical principle in Providing an Audit Client with accounting and bookkeeping services, such as preparing accounting records or Financial Statements because it creates a self-review threat when the Firm subsequently audits the Financial Statements. Likewise providing certain tax related services creates self review and advocacy threats.