Question

Too and Ren are auditors of Moneycome Berhad, a biscuits manufacturer. The financial director has left the company to take up another post and Moneycome have so far unable to find a suitable replacement. They have therefore asked Too and Run to be responsible for the preparation of the financial statements for the ending 31 December 2014 as part of the audit.
Moneycome have also asked Too and Run to
- Help them in design dan select a new Good Service Tax compliant accounting system
- Assist in finding a new financial director
- Discuss at a board meeting the dividend to be paid.
The company is also subject of a possible takeover bid and wants Too and Run to act for the, in rebutting statements made by the takeover bidder.
During the audit, the audit team find that the company are breaching halal guidelines and they suspect some bank transactions with an offshore based bank.

Required
Explain the ethical implications for Too & Run and how far they can ethically go in helping their client. [30 marks]

Answer 1

Auditors are required to adhere to a set of principles in order to ensure that all audits are done to standard and are consistent. For external auditors, there are a set of ethical issues that often come up when they are hired to audit a company that they are not employed by.

First and foremost, auditors do not take responsibility for the financial statements on which they form an opinion. The responsibility for financial statement presentation lies squarely in the hands of the company being audited.

1. Auditors are not a part of management, which means the auditor will not:

1. Authorize, execute or consummate transactions on behalf of a client
2. Prepare or make changes to source documents
3. Assume custody of client assets, including maintenance of bank accounts

2. In practical terms, there are a number of tasks you should not expect your auditor to perform

4. Select accounting policies or procedures
5. Prepare financial statements or footnote disclosures
6. Determine estimates included in financial statements
7. Prepare or maintain minutes of board of directors meetings and discuss in the board meeting for the dividend to be paid

      During the course of audit if the client business is found to be fraudulent or the transactions entered by the client are found against or breaching any of the laws and guidelines the audit should report the same to the board immediately. In that case if the auditors independence and objectivity was made to compromise then it is advised that the auditor should step down from the assignment as soon as possible.