Code Of Ethics In Professional Accounting: APESB Standards And Ethical Doctrines

The Importance of Code of Ethics in Professional Accounting

The code of ethics gives the precise areas where the overall ethical aspects are conducted in the professional accounting field. In Australia, “Accounting Professional and Ethical Standards Board (APESB)” is the independent organisation founded in the year 2006 with the higher form of initiatives. The primary role of this body is to develop and solve all professional issues with the ethical standards associated with the public interest that could be applied to the CPA Australia members. The primary objective of this assignment is to improve the ethical doctrines about the different situations that occur in the accounting organisations. In addition, there has been inclusion of different audit opinions, which might be issued on the caused situation for the relevant cases.

(a):According to the provided information, Ernie Dengate has sold his accounting practice that constitutes of tax, auditing and bookkeeping services. Even though permission has been taken for releasing the tax working papers, no approval has been obtained for the other practices. However, all working papers have been provided to the new accountant without any kind of approval. In this situation, Ernie Dengate has breached the ethical requirements of APES 110 requiring professional behaviour and integrity. As tax working papers are released without approval, it means that the individual could not be relied upon with company information. However, it is extremely crucial for any staff to keep the secrets of the organisation (Akrom and Firmansyah 2018). According to “Section 100.5(a) of APES 110”, an employee is required to be diligent and straightforward in business and professional relationships. On the other hand, “Section 100.5(e) of APES 110” cites that for ensuring professional behaviour, it is necessary to adhere to the pertinent laws and regulations along with avoiding any action discrediting the profession (Apesb.org.au 2018). Thus, violating these two principles would result in conflict of interest and bias along with misleading information.

(b):In this situation, Fred Nerk has not followed one ethical requirement, which is professional competence and due care. This principle enforces the obligation on all accountants to maintain skills and professional knowledge at the needed level for ensuring sound professional services and act responsibly to comply with applicable professional and technical standards at the time of providing professional services, as per “Section 100.5(C) of APES 110” (Apesb.org.au 2018). The case information states that Fred Nerk is a public accountant for which he has task responsibility, continuing awareness of pertinent business and technical development for carrying out competently within the aspect of accounting; however, it does not include auditing or others. In case, he offers other services like auditing, the individual needs to have suitable training and supervision for avoiding threat to professional competence and due care in situations, in which audit service is not dependent on identical group of available facts (Cha, Hwang and Yeo 2016). Moreover, he needs to analyse the importance of any threat along with applying safeguards, if necessary, to minimise or mitigate them to an acceptable standard.

(c):According to “Section 290(B) of APES 110”, offering accounting and bookkeeping services result in threats of self-interest and self-review at the time the financial statements of the same client are audited (Apesb.org.au 2018). However, when there is offering of any technical assistance, these services do not lead to independence threat. In this case, the Allgood Chartered Accounting firm is involved in maintain various accounting records of the Branch Company on its computers. In addition, it carries out the audit of the Branch Company as well. This has breached the independence principle of APES 110, since Section 290 requires independence when an opinion is issued on the financial statements. However, since the Allgood Chartered Accounting firm is engaged in maintaining the client’s accounting records, the opinion might not be neutral owing to the relationship with the client. Therefore, it is not possible for the audit organisation to provide honest and unbiased opinion on the financial statements (Chandler 2014).

Role of APESB in Australia

(d):In the provided case, James Jameson, a public accountant, has fought with an individual in a hotel, for which assault charges have been brought against him along with disorderly behaviour. As a result, he has been imprisoned for three months. This has violated the professional behaviour principle, in accordance with “Section 150.1 of APES 110”. This is because an offence has been committed due to which James was imprisoned and this has created disrepute to the profession.

(e):This situation has violated the confidentiality principle under APES 110. By confidentiality, it implies the secrecy of profession and not revealing information to the third parties without any appropriate authority (Chen, Zhang and Zhou 2017). In this situation, Mortdale Accounting conduct audits for public firms and Penhurst Accounting obtained the working reports of the audits. However, Mortdale did not seek approval from its clients before providing the same. Therefore, the duty of confidentiality has been violated, as the reports were provided to the third party without approval from the authorised clients. Any employee working in an organisation needs to possess the capability of understanding the position in the organisation and they need to place their profession on top. When any relevant information is provided to any third party without approval, this has breached ethical duties of APES 110 (Choi et al. 2018).

(f):This situation has violated the ethical code of conduct of Professional Behaviour, as per APES 110. In this case, Jan Dungog has applied for the position of public accounting by clearly mentioning about not to contact her current employer. However, every organisation has certain regulations that need to be followed at the time of recruiting staffs. This would not be suitable to the individual to understand that they were not provided with any information about anything (Davies and Aston 2017). A contract needs to be present between the organisation and the staffs for working in combination as a team. However, if no chance is provided to an individual, they might find the same to be disrespectful.

(g):Based on the provided information, this situation has breached ethical code of conduct related to objectivity under APES 110. Objectivity implies disallowing conflict of interest, unfairness and unjustified motivation of others for overruling business or professional judgements (Draeger, Herrmann and Lawson 2016). Wendall Sailor runs insurance and superannuation business along with carrying out audit work. The individual contacts organisations frequently for advising regarding his other services in the audit period. Any organisation has its own sets of regulations and in this case, there is violation of professional behaviour. There need not be any overrule professional judgement, as no individual has the right to pressurise on company selection. Wendall is not permitted to compel anyone for conducting their work activities.

(h):As mentioned by Duska, Duska and Kury (2018), the auditors are not liable for the financial statements on which an opinion needs to be provided. The liability for the presentation of the financial statements remains in the hands of the audited organisation. This clearly implies that the auditor should not be a management member; instead, he needs to be independent (Ferrell and Fraedrich 2015). In opposite, there is existence of threat to independence when an audit team member has close association with an individual working in the Board of Directors. The reason is that the individual could influence the accounting records or the financial statements of the client, on which an audit opinion is to be issued. However, Judith Durham is a member of the Board of Direct of a non-profit organisation and she could be a part of the audit team by not breaching the ethical code of conduct of APES 110, if certain conditions are fulfilled. It is necessary to fulfil these conditions for avoiding impairment of the independence of the auditor (Haji-Abdullah, Othman and Marzuki 2017). The member of Board of Directors needs to be mentioned clearly in the form of honorary director and the individual should not have the right to vote or participate in management functions or organisational activities.
(a):In this situation, the auditor is required to issue disclaimer of opinion, as adequate material information is not provided by the client for carrying out the audit report. According to Hayes, Gortemaker and Wallage (2014), this type of opinion is used when an auditor is not able to accumulate adequate audit evidence based on which audit opinion would be provided. In addition, it is inferred that the probable effects on the financial reports of the unidentified misstatements, if any, could be pervasive as well as material. For this case, the client has not provided information about the beginning balances of accounts at the initiation of the financial year. Even though the auditor is convinced regarding the absence of any material misstatement, the client has not provided considerable information for audit work. Thus, in this case, a disclaimer of opinion would be used.

Case Study: Breach of Ethical Code Related to Objectivity

(b):In this case, it is evident that the Australian Accounting Standards have not been followed by the client since its inception four years back. This implies the non-adherence to appropriate rules and regulations in accordance with the requirements of the government of Australia (Knechel and Salterio 2016). Although the auditor has obtained the accurate information from the organisation, correct standards have not been applied due to which qualified opinion needs to be issued. In this regard, it is noteworthy to state that an audit report contains a qualified opinion at the time an organisation is not complying with the accurate accounting standards (Louwers et al. 2015). Thus, it is not possible to gather true and fair view in the financial statements by having adequate or accurate information. Instead, there needs to be the application of accurate norms and regulations depending on the requirement of the reports in order to ensure its accuracy.

(c):In accordance with the provided information, the organisation has been involved in using the LIFO method due to which there has been misstatement in the value of inventory. Initially, the organisation has violated the standards of accounting, since LIFO method could not be used for inventory valuation. Secondly, such usage has resulted in wrong figures in the financial statements, which are deemed to be important for the users in order to undertake effective decisions (Newton et al. 2015). This implies the presence of misstatement and at the same time, the report does not conform to the accounting standard. Therefore, the auditor needs to provide adverse opinion in this situation.
(d):In this situation, the report of the organisation is perfectly fine. There is absence of any misstatement and the financial reports have adhered to the appropriate standards of accounting. This implies that the auditor should issue unmodified audit opinion. Such opinion is used at the time the auditors are fully satisfied in all the material aspects (Simnett and Trotman 2018). The unmodified report does not require any modifications, as the actual source is deemed to be fine. The overall financial reports do not contain material misstatements owing to errors or ethics. The reports are developed by complying with the requirement of the applicable framework for financial reporting. Thus, a fair presentation is accomplished by conforming to the Corporations Act 2001 (Simnett, Carson and Vanstraelen 2016). However, in this case, as a major client of Numark is on the verge of bankruptcy, the going concern of the organisation is in question. As a result, there would be emphasis of matter. This is provided when the audit report of the organisation is dependent on unmodified opinion; however, going concern issue is evident.

Significance of Accounting Standards and Audit Opinions

(e):Based on the provided information, the auditor needs to express disclaimer of opinion. This is expressed in such situations, in which the auditor fails to gather adequate information or evidence associated with the case (Hayes, Gortemaker and Wallage 2014). The same situation is applicable, since the auditor did not manage to gather the confirmations from the major clients, which imply that adequate information was not gathered about the balances of the major clients. Despite the fact that other audit procedures used have satisfied the requirements of the auditor; they might not have adhered to the accounting standards. Thus, misstatements might be present in the financial reports for which it is necessary to express disclaimer opinion.

(f):This situation clearly demands the issuance of disclaimer of opinion. This is because the auditor is restricted by the client to examine the account associated with property, plant and equipment and therefore, the methods of verifying the accounts have been restricted. If the auditor is prohibited in observing the stock take, which includes property, plant and equipment, it might result in failure to obtain adequate information that guide in the form of supportive evidence. In opposition, it could have been used in the method of identifying whether the accounts are prepared in compliance with the accounting standards (Tsipouridou and Spathis 2014). The extent of materiality associated with the account has been 35% based on the provided information. Therefore, by considering all the above-stated aspects, there would be issuance of disclaimer of opinion until the client provides relevant information about the account to the auditor so that the opinion could be withdrawn.

(g):In the words of Wealleans (2017), contingent liabilities could be defined as those liabilities that an organisation might incur based on the results of uncertain future events. This kind of liability has major effect on the organisation. Therefore, the disclosure of liability is the significant part, as the investors and other users undertake decisions depending on investments. Therefore, in order to prepare financial information free from errors, it is necessary to make adequate disclosure of contingent liabilities. If there is no such disclosure, the auditor needs to provide adverse opinion. Therefore, as the management has not included the disclosure associated with contingent liabilities from the financial reports, the auditor is required to issue audit report, which is qualified in nature.
(h):It is necessary to maintain cash in sales properly and prepare the same in a timely manner in the books of accounts of the organisation. In case, it is not prepared timely, the auditor would not be able to carry out the auditing procedure (Zhang, Ge and Su 2018). In this situation, there is absence of any audit test that could ensure the accuracy of sales on cash or such sales are recorded correctly. Due to the absence of such confirmation, it is not possible for the auditor to initiate the audit work. Therefore, by taking into account these aspects, no opinion could be expressed by the auditor in this situation.

Conclusion:

Based on the above discussion, it could be inferred that the auditing firms are required to emphasise on the accounting standards, which are prevalent in the nation. This is because violation of these standards might have adverse impact on their business operations. Finally, it has been evaluated that there are different types of audit opinions as well as ethical requirements in accordance with APES 110 on various accounting organisations.

References:

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