This assignment task presents a number of complex questions which will help you to consolidate your understanding of some of the key concepts covered in this unit.

Unit Learning Outcomes assessed:

- Demonstrate knowledge of theories and regulation regarding audit and assurance services of both a financial and non-financial nature.

- Evaluate appropriate audit and assurance procedures and responses that should be applied to different contemporary business scenarios.

- Use professional and ethical judgement in applying relevant legal and professional pronouncements to all stages of a given assurance engagement.

Question 1 - Ethics

In 2013 a broker office realised that one of his clients was making sizable bets on the Australian dollar, minutes and sometimes seconds before the announcement of significant economic news. Suspicious that this could be a case of insider trading with currency exchange, the chief executive of the broker office called the ASIC. The ASIC told that the allegations were outside its jurisdiction and asked the chief executive to contact the AFP.1

Finally in 2014 two men were sentenced to jail terms of 7 years and 3 months, and 3 years and 3 months respectively in the Victorian Supreme Court for their roles in Australia's largest insider trading scheme totalling $7 million. The two men were charged with insider trading, money laundering and abuse of public office offences. This large and complex investigation by the Australian Federal Police (AFP) and Australian Securities and Investments Commission (ASIC) began after suspicious trading was identified in the foreign derivatives market.

The AFP and ASIC, working together through the AFP led Fraud and Anti-Corruption Centre, discovered that an employee of the National Australia Bank (NAB) was receiving sensitive information from an employee of the Australian Bureau of Statistics (ABS). They were then using this information to enter into foreign exchange derivative products and profit from favourable movements in market prices. The nine-month illegal trading activity resulted in profits of approximately $7 million dollars, which was restrained by the AFP led Criminal Assets Confiscation Taskforce.

(a) What is the role of ASIC, and why it is responsible for investigating such allegations of insider trading?

(b) The investigation found that the employee of the NAB and the employee of the ABS were friends in Facebook as well as LinkedIn. Please define professional independence and explain if being friends in online networks is related to problems of independence of mind and independence in appearance.

(c) Considering the Code of Ethics for Professional Accountants (APES 110), which kind of threat to independence does this insider trading relates to, and how can companies safeguard from such threat(s)?

Question 2 - Auditor's liability

TNT Limited is a company listed on the ASX. On the 20th October 2015 the external audit partner signed an unqualified (unmodified) audit report for TNT Limited. On 15th December 2015 TNT Limited declared bankruptcy. The company share price fell considerably following the declaration. Creditors are expected to receive only 10 cents in each $1.00.

A shareholder who held 15,000 shares in the company on 30th June 2015 and purchased a further 5,000 on 25th October 2015 decides to sue the auditor. In addition, a supplier who provided $20,000 of inventory to the TNT Limited on credit on 30th October 2015 decides to sue the auditor.

Discuss the potential liability of the auditor under common law and the Corporations Law to:

(a) Shareholders;

(b) The company; and

(c) Individual creditors.

When answering questions (a), (b), and (c) you should refer to any relevant Australian Auditing Standards and case law.

Question 3 - Audit expectation-performance gap

The Fédération Internationale de Football Association (FIFA) is an association which aim is to improve international football. There has long been adverse media speculation about corruption in FIFA. In 2015, US prosecutors disclosed cases of corruption by officials and associates connected with FIFA. The auditors had provided an unqualified (unmodified) audit opinion for the latest set of financial statements, but the auditors had disclosed an emphasis of matter.

Explain how the elements from the audit expectation-performance gap provided by Porter (1993) fit in the example of FIFA.

Question 4 - The annual report and the auditor

Find the latest annual report of your company in http://www.asx.com.au/prices/company-information.htm

(a) What is the name of the company and the company's financial year end?
Information regarding audit and risk committee5 and independence:
(b) What is the total number of members in the audit and risk committee?
(c) Are the members of the audit and risk committee independent?
(d) Why does the ASX recommend audit and risk committees to be independent?
(e) Does the non-audit service fee exceed 10% of the annual external audit engagement fee?
(f) Does the audit and risk committee discuss the auditor's provision of non-audit service? If yes, provide details of their discussion.
(g) Explain the problems that are perceived to arise when non-audit service fees are high relative to audit engagement fees.
Information regarding external auditor:
(h) Which firm provided the external audit service?
(i) What is the name of the audit partner who signed the Auditor's Independence Declaration and Auditor's Report?
(j) What date were the Auditor's Independence Declaration and Auditor's Report signed?
(k) Which standards and regulations does the external auditor refer to in the Auditor's Report?
(l) Which is the opinion6 in the Auditor's Report?

Find the latest transparency report published by the firm which provided the external audit service to your company:

(m) What is the name of the firm which provided the external audit service to your company, and what is the reporting year of the transparency report?

(n) Why does the firm which provided the external audit service to your company have to publish a transparency report, and why are transparency reports important?

(o) How much is the revenue relating to audits services and total revenue of the external auditor, as shown in the latest transparency report?

(p) Is the transparency report audited by an external auditor?

Question 5 - Audit planning and assertions

Consider the following two independent material events:

i. Bartholomew Mumford was the Chief Executive Officer (CEO) and director of Little Lion Ltd, until he suddenly passed away. After his death, his son Benedict Mumford became the new CEO of Little Lion Ltd and begun on a cost-cutting exercise throughout the organisation, which included a reduction in key staff in the credit department.

ii. During the planning stage of the audit of Little Lion Ltd, the audit senior assessed the sales control systems to be effective. But when testing sales, the audit assistant traced two sales to supporting documentation (sales invoices) with dates for the prior financial year.
For each of the two events described above:

(a) Provide a brief explanation as to why the situation constitutes an audit risk.

(b) Indicate and justify the component of the audit risk model affected (i.e., inherent risk, control risk, or detection risk).

(c) Indicate the key account balances(s) affected.

(d) Indicate the audit assertions(s) to be tested.