Question

1. Mohammad Hasan is a partner in a Big 4 accounting firm, he hired accounting students from your University to conduct the audit of Bank of Palestine. When the audit was done he received the audit report and signed it. The report was issued one day later.

2. Your mother in law is a majority shareholder in Jawwal, you are hired by the company to conduct an audit you conducted the audit and issued your report.

3. Ahmad CPA and Ali a CMA formed a Partnership to provide Audit services. The company was named the nice Audit CPA firm.

4. Samir a CPA advertised has practice on web siting several prominent clients of his firm, he also included links to the client’s websites and quotes from his happy clients.

5. Hania a CPA was talking with her husband about her work she mentioned some client’s information to prove her point.

6. Hanin a CPA in a local accounting Firm when one of her clients did not pay his bills she informed them that she will not give them their records and supporting documents until they pay.

7. Adel a CPA to supplements his income by worked as a bartender at the Movenpick hotel.

8. Majed while auditing the Palestinian Leasing Company discovered a violation IFRS 16. The company indicated to him that this violation is not Material and that following IFRS 16 will make the financial statements misleading accordingly he issued a standard report.

9. Majeda audited a company for three consecutive years without receiving any fees. Required For each case indicate the violation of the code of ethics. Explain your answer by also indicating the standard violated. In case there is no violation indicate so with your reason for your answer

Answer 1

Violation of Code of Ethics in given above cases:

Case 1: Mohammad Hasan is partner if BIG 4 indicates that he is qualified Auditor. There is no violation of any rule. IT is assumed that the report is prepared by Mohammad Hasan only.

Note: If the report is not prepared by Mohammad Hasan, it is violation of Section 320 of 'Code of Ethics for Professional Accountants'.

Case 2: Auditor must be an external independent person. He must not be a 'related party' to the entity. In given case, Mother-in-law is related to auditor and she is a majority shareholder. This is violation of Section 290 of 'Code of Ethics for Professional Accountants'.

Case 3: Audit Firm must have all the qualified Auditors or at-least majority of partners must be a qualified Auditors. In the given case, one partner is qualified and other one is not. Hence the firm itself is void. This is violation of Section 200(12) of 'Code of Ethics for Professional Accountants'.

Case 4: Professional Auditor must not advertise his services. As this exposes a potential threat to the organization as well as to the auditor. This is violation of Section 250(1) and (2) of 'Code of Ethics for Professional Accountants'.

Case 5: Auditor must keep client's details confident. This should not be disclosed anywhere. This is basic principle of auditing practice. This is violation of Section 100 of 'Code of Ethics for Professional Accountants'.

Case 6: Records of the company belong to the company and they retain the right of lien. Audit Working Papers are the properties of Auditors and companies do not retain the right of lien here. Hanin is keeping their records with her. this is not correct. She has no right to keep companies records. Having Custody of Client's Records (Assets) is clear violation of Section 290(161) of 'Code of Ethics for Professional Accountants'. This may cause self-interest threats.

Case 7: Auditor if is employed by an employer should not be working for other employers. This results in ethical conflict. Section 300 (3) is violated of 'Code of Ethics for Professional Accountants'.

Case 8: Auditor must not be influenced by others. Majed is influenced by company and hence violation of Sections 200, 290(27), 290 (105), 290 (109), 290(143) are seen of 'Code of Ethics for Professional Accountants'.

Case 9: Audit Engagement cannot be recurring. Maximum of two terms can be employed. Majeda is employed for more than two terms. Thus, violation of Section 290(44) is seen of 'Code of Ethics for Professional Accountants'.

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