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.

QUESTION 2

The following situations refers to threats to the Auditor's independence.You are asked to state what the different threats to the Auditor's independence are and explain how these threats impact on the Auditor's independence and any other implications for yourself and your firm.

SITUATION 1

Enid Blyton has been working as an auditor for the Anthony Don Chartered Accounting firm for the past four years and has just started an audit on the Green Thumbs environmental company, a small newly listed public company which has just listed as a public company one month ago.The

Green Thumbs environmental company has just started using a new contractor to dispose of its toxic waste .You know that this new contractor has won tenders in the past and there have been several unfavourable articles about this contractor in the local press.

Your Audit Manager ,Peter Don , has stated that it is your responsibility just to provide an opinion on the financial statements with the emphasis being on providing an opinion on whether the financial statements are true and fair and whether there are any material misstatements.

SITUATION 2

Jean Douglas has just started to do the audit on the latest financial statements and has just made the following notes from your opening interview with John Dooley,CEO of Dooleys.

John has apologised for not making the final payment of 30% of the prior years audit fee but has explained that he will ensure the cheque is written once he is happy with the progress on the current audit. At this stage John Dooley has advised that the firm will be able to start deliberations about the selection of Auditor for the following year.TheDooleys audit comprises forty percent of the annual audit fees for the firm .

John has advised that they will be providing a free trip to Europe for an Auditor from the Audit firm and his partner once the audit is successfully completed.

Jean is concerned with several aspects of the current audit as Dooleys do not appear to be following the accounting standards in their valuation of inventory as they are not taking into account the reductions in fair value of inventory and the impact on the financial statements is material.