Question

Matthew Damon has been appointed as a junior auditor of AwesomewaterhouseCoopers (AwC). One of his first tasks is to review the firm’s audit clients to ensure that independence requirements of APES 110 (Code of Ethics for Professional Accountants) are being met. His review has revealed the following:

(1) AwC is soon planning to commence its audit work for Blue Metals Limited (BML). James Grage will be the engagement partner for the BML audit. Paul Levesque is also a partner at AwC and sits in the same office as James. Paul’s wife Stephanie has recently purchased shares in BML. Paul is not involved in the BML audit.

Required:

Using the conceptual framework in APES 110 (Code of Ethics for Professional Accountants), identify potential threat(s) to independence & recommend safeguards (if any) to reduce the independence threat(s) identified. Also, provide an objective assessment of whether audit independence can be achieved.

Answer 1

As we are all well aware that the audit cannot be performed by a firm in which any of its members having interest directly or indirectly I.e, by himself personally or through his relatives or other closely associated family members because there arises a situation challenging the independence of the auditor.

As we have seen in this case that, wife of one of the partners Mr James of the audit firm has bought shares in BML.

The most important line is given at the end I.e PAUL IS NOT INVOLVED IN.THE BML AUDIT. and this was the exempted rule which allows the audit firm to continue the audit though onebof its partners have substantial interest in the clients firm if that specific member is not involved in audit.

Hence, in this case as Paul is not involved in the audit, there are less chances of the independence being questioned or we can say that the independence of the auditor can be achieved or fulfilled.

Therefore, AWC can continue with the audit of BML since Paul is not involved in the audit and can safeguard the interest of auditors independence.