Question

Case A - Report

Value: 15%

Due Date: 19-Aug-2018

Return Date: 07-Sep-2018

Length: 2000 words

Submission method options: Alternative submission method

Task

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Background:

You a member of the audit team at Miller Yates Howarth (MYH), an accounting firm with offices throughout the major regional centres of NSW and Queensland. Although a medium sized firm by national standards, MYH is the second largest regional accounting firm in Australia. Most of MYH’s audit clients are in the agriculture, mining, manufacturing and property industries. All those industries are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas competitors. MYH have now been appointed auditors of a community bank. Two audit directors have previous experience auditing in the banking sector and need to raise the awareness of staff with respect to the governance issues that have recently impacted the banking sector.

Question 1 (7%)

Required:

You have been asked to:

read audit standard ASA315 focusing on audit responsibility with respect to client governance,

read the web page on the ASIC report on the Commonwealth bank which details the governance issues raised by ASIC (http://www.apra.gov.au/MediaReleases/Pages/18_17.aspx), and

prepare a report that:

summarises and justifies the auditor’s responsibility to review the governance of an audit client, and

Includes a table for use in the audit which explains the impact of each of the ASIC identified Commonwealth Bank governance issues on audit risk. The table should further explain why each of the ASIC recommendations would reduce audit risk. The template below should be used.

Issue	Impact on raising audit risk	Recommendation	Reduction in audit risk because of the recommendation

Question 2 (3%)

David Little is a senor working at MYH and is part of a 3-person team working on a client’s material loan application that needs to be finished and delivered to the partner on Monday morning. The team are working all weekend to get it finished. There is a strong incentive for the team members, as a well prepared and successful application will ensure that this major client is retained within the firm and raise the standing of the team members in the firm. On Sunday morning, one of the team, John, calls in sick. The rest of the team work harder and get the job done. When David get home exhausted on Sunday night, his flatmate says, “I saw John and his girlfriend at that new restaurant in town today, I thought he was working in your team.”

What should David do? David doesn't think that it is fair if John gets the same kudos as the rest of the team when he did not put in the same amount of effort but he is David's friend. David and John play on the same touch football team and often spend time with each other after work and at weekends. Should David tell the partner or are there other options?

Required:

Outline the ethical issues and your decision using the American Accounting Association decision model. Use the following template to guide your answer:

American Accounting Association Model	Decision making process
1. Determine the facts	The facts are ...
2. Define the ethical issues
3. Identify the major principles, rules and values
4. Specify the alternatives
5. Compare values and alternatives
6. Assess the consequences
7. Make your decision

Question 3 (3%)

Required:

Explain the role that incorporation of auditors and a statutory cap on auditors’ liability have on the limitation of auditors’ liability.

Rationale

Answer 1

The following are the answers to the questions:

Question 1 (7%):

Issue	Impact on raising audit risk	Recommendation	Reduction in audit risk because of recommendation
Inadequate oversight and challenge by the board and its committees of emerging non financial risk	This shall arise the governance issues of having wrong culture and promote unethical ways of doing business which can be a basis for issuing qualified report.	More rigorous Board and Executive committee level governance of non-financial risks.	This shall help in improving the culture of the organization thus helping in reducing the audit risk.
Unclear accountabilities,starting with a lack of ownership of the key risks at the Executive Committee Level.	This shall prompt auditors to fix responsibilities of the actions on their own perception citing the reason on audit report and giving a qualified report.	Exacting accountability standards reinforced by remuneration practices.	This shall pose accountability thus making person responsible for his actions leading to improvement and reducing audit risk.

Answer to Question 2 (3%)

1. Facts of the Case:- In the given case there are 3 person team which were working on clients loan application which needs to be delivered to the partner. One of the team member that was John, who calls in sick, and unable to come to office to contribute to this work. The other member David got the information from his flat mate that he saw the john hanging out with his girlfriend.

2. Ethical Issue: - In the above case one of the team member took a leave in name of sickness and spent his day with his girlfriend and other two members were doing the hard to complete their work on time. As John was one of the member have to contribute in the work but the John wrongly inform about his sickness between the important loan application, where other two members contribute their full efforts.

3. Major Principles, rules and values:-

Competing Rights -"right versus right"-The debate over abortion is often spoken in the terms of the right of life versus the right of choice. In the above case it was right that John had his own life and his own choices of doing whatever he want to do. But for his own benefit he can’t use others for this. In the given case it was not ethical to take leave on the due dates with no genuine reason. Therefore the Right of life of John can’t overcome his wrong ethics in the environment of office.

4.“Unethical Behaviour”- In the above case John was pursuing unethical Behaviour by using untruth reasons for taking leave where incentive is connected with this work. If he tell the truth to other team member than it would be the right call from his end and also ethical.

5. Specify the alternatives: -Alternatively here John and Other two members can talk to each other about the incentive. If John is ready to distribute his share to other members without fail than it can be justifiable.

6. Comparing Values and alternatives:- If we see and compare values and alternatives with each other than values are more important than any alternatives. Alternative is the other way to resolve the problem. This is the third pay to resolve the problem without effecting any of the party and agreed by all.

Answer to Question 3 (3%)

The auditors of financial statements have the responsibility to conduct audits of financial statements in accordance with the applicable auditing standards to express their opinion on the financial statements correctly. The role of auditors does not change with the incorporation of auditors and with the statutory cap on auditors’ liability. The auditors’ liability is limited to the expression of opinion on the financial statements. The incorporation of auditors and a statutory cap on the liability of the auditors have certainly limited the liability of the auditors. Thus, it is the responsibility of the management to prepare and present the financial statements to the auditors thus, in case the management present false or misleading information to the auditors for financial statements then even if the auditors provide inappropriate opinion on the financial statements. However, the auditors must use appropriate auditing tools and techniques to conduct the audit in accordance with the auditing standards. Thus, provided the auditors use appropriate auditing standards and conduct audits efficiently then, the auditors’ liability will not extend beyond expressing opinion on the financial statements.          

Thus, auditors’ liability is limited significantly provided that the auditors conduct audits properly and efficiently. The incorporation of auditors and statutory cap on auditors’ liability have played significant role in limiting the liability of the auditors.