AUDIT CASES Essay Example

Safeguards

Objective Assessment

Self-interest and familiarity threat

Conflict of independency through a gift and hospitality, a client has offered a gift and hospitality to the audit team. The offer has the ability and possibility of creating a threat to compliance with the fundamental principle of audit.

APES 110:260.1 states that in public practice or a close family member or the auditor himself may be given a gift or hospitality from a client, it will compromise the fundamental principle of independency. The threat created would be so big and no amount of safeguard can protect it. The existence and significance of threat posed would depend on the nature and the value couple with the nature of the threat. Like in the case of Sara Adna, 65% sponsor of the out is capable of creating familiarity threat which will compromise the independence of an auditor

Sarah cannot accept a gift from the Sunrise Ltd’s chief executive officer since a APES states that a member of an audit team should not accept the gift from the client as this would creat familiarity threat to objectivity and may be created if the gift from the client is accepted. An intimidation threat to objectivity will arise hence resulting from the possibility of such gift being made public in future

Self-interest threat and intimidation threat: if there is a close business relationship between a member of audit team and their clients as this may result into creation of financial interest that may result into self-interest threat and intimidation. This is recorded in APES 290:122 and 123 where in 122 it states that there should be no commercial relationship between audit firm and the client should not have a close business relationship.

As per APES 11:122 and 123 in case, one of the members of the audit team has any financial interest in a joint venture or any business purporting to be like a joint venture with the client. The threat that would be created would be so material that no safeguard will be able to reduce it to an acceptable level. The possible solution should be:

Business relationship should be terminated

It can be reduced to an immaterial level

Individual needs should be removed from the audit team

Adam Parker who is a member of the audit ought not to have started promoting product of the Synergy Techno Ltd. This creates a business relationship with the manager of the client who is in a strategic position of influencing the financial report of the company. The virtue that he promotes the company product meaning that they involve in revenue generation of the company a significant objectivity which should not be overlooked

Familiarity threats:

This can arise in situations where by any member of the engagement team having a close family relationship with the client. The director or officer of the client or any of its employee is in a position of exerting material influence over the subject matter of the engagement and to some extend have recently served the engagement partner in any capacity; this is elaborated in APES 110:200.7

As per APES 110:200.7 states that a senior personnel is having a close relationship or association with the assurance clients might bring familiarity threats. It further states that the member of audit team should have not served the client in any recent past as this might bring familiarity threats. The threat that would be created would be so material that no safeguard will be able to reduce it to an acceptable level. The possible action is for the auditor to quit the engagement

Safeguards that may eliminate or reduce threats to an Acceptable Level fall into two broad categories:

(a) Safeguards created by the profession, legislation or regulation; and

(b) Safeguards in the work environment

Leon Ziller who is the current manager of TMG Ltd audit team used to work for TMG as financial accountant ought not to lead the audit team since he recently have worked for TMG and his position he is able to influence the outcome of the audit result therefore the objectivity of independence will not be realized as stated in the APES 110:200.7

Threat of independency , networks firms and other assurance services: since SGT is providing other non-assurance services, they should not provide assurance services to this company again further more since the company is network kind of there is threats of independency and familiarity which is against the APES 110:290.13-14

APES 290:13 states that in case a firm is deemed network firm, the firm shall be independent of the audit clients of other firms, which are branches of the network. The auditor should also not provide other services related to accounting services since this is a threat to the independency of the auditor. APES 290:14 states that this will enhance professionalism of the service and increases the independency of the auditor. The safeguards here is for the company to stop providing other assurance services, or stop providing auditing services and at the same time offer services to only one client since these are group of network companies so they should quit providing services to other subsidiaries since they bring conflict of interest

SGT should not provide both assurance services and non-assurance services to the same companies. This is also in conflict with the company policy since non-assurance department should not come in contact with the assurance departments. The SGT should also stop providing the same services to subsidiaries of the same company since this comprises the confidentiality and auditors independency.

Self-interest threat and intimidation threat: if there is a close business relationship between a member of audit team and their clients as this may result into creation of financial interest that may result into self-interest threat and intimidation. This is recorded in APES 290:122 and 123 where in 122 it states that there should be no commercial relationship between audit firm and the client should not have a close business relationship. It does not limit to business but also to other related benefits like gift or financial help

As per APES 110:200.7 states that a senior personnel is having a close relationship or association with the assurance clients might bring familiarity threats. It further states that the member of audit team should have not served the client in any recent past as this might bring familiarity threats. The threat that would be created would be so material that no safeguard will be able to reduce it to an acceptable level. The possible action is for the auditor to quit the engagement

Safeguards that may eliminate or reduce threats to an Acceptable Level fall into two broad categories:

(a) Safeguards created by the profession, legislation or regulation; and

(b) Safeguards in the work environment

to acquire loan to purchase land.Ashley Johns who is seniorauditor at SGT should not be help to acquire loan by the director of Beximco

since his position he is able to influence the outcome of the audit result therefore the objectivity of independence will not be realized as stated in the APES 110:200.7