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QUESTION 1(24 marks) The following situations involve potential violation of the general ethical principles as outlined...

QUESTION 1
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 .

a) Jenny Wang is the Senior Auditor on the audit of Panania Cars Pty Ltd , a large car dealership,a which sells new and used cars .The Sales Manager advises Jenny Wang that there is a sale to long established customers of the car dealership and since she has audited the company for the past six years she can purchase the new cars at a twenty percent discount on the discounted sales price.

b)Katrina Wearne is the auditor on the audit of Lancom Cosmetics .Katrina is auditing the company during November and December 2018 and has been given a Christmas gift of $350 cosmetics from the company .

c)A client requests the assistance of D.Marron ,a chartered accountant ,in the installation of a computer system for maintaining production and inventory records .As Marron has no experience in this type of work he engages  a computer consultant who he has confidence in to carry out the review.Due to the highly technical nature of the work Marron is not able to review the computer consultant’s work and once the client has agreed Marron gives the go ahead for the installation of the computer system.

d)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.

e)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 .

f)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.        

Solutions

Expert Solution

a.Purchasing goods at discounted price by auditor is not violation of ethical principles if it is in ordinary course of business.In this case auditor gets the discount because he is long established dealer with Company ,thus there is no violation of ethical principles.

b.As an auditor have to maintain dignity and not to accept any such gifts from client which is hazardous for integrity .Auditor should not accept such gift from clients as it is violation of ethical principles

c.Such an act of Maron is clearly violation of ethical principles ,it is the duty of auditor to verify the whole computer system and after assuring the genuiness of such system whether it is useful for client or not then only maron has to allow for installation

d.Such an act is not at all violation of ethical principles as it is part of review process and for that only reviewer generally discusses with the auditor of other firm

e.as a Chartered Accountant bill Holland cannot set up insurance agency business it is violation of ethical principles though in another person name it affects the dignity of Chartered Accountant

f.Keeping books of account and auditing the same books for a client is violation of ethical principles and punishable it affects the independence of auditor and affects integrity also


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