Auditor And Committee Independence In India -Myassignmenthelp.Com

Question: Discuss About The Auditor And Committee Independence In India? Answer: Introduction Auditing refers to the process of inspecting the financial accounts of the business organizations in order to ensure the fact that they are free from material misstatements (Louwers et al. 2015). In this process, auditors have the responsibility to ascertain the level of materiality that will be harmful for the companies. At the time of conducting the audit operations of the business organizations, it is the responsibility of the auditors to comply with the code of ethics of Accounting Professional and Ethical standards 110 (APES 110) issued by Accounting Professional Ethical Standards Board Limited (APESB) (apesb.org.au 2018). According to this standard, the auditors are required to maintain the integrity of auditing principles and they need to be honest in this process. In addition, it is the responsibility of the auditors to be independent from the any kind of interest in the property of audit client (Arens, Elder and Mark 2012). It also states that the auditors are required to p rovide appropriate audit opinions after carefully analyze various audit matters. This report takes an honest attempt to analyze various situations related with auditing ethics, auditing independence and auditing opinions. Lastly, some recommendations are provided based on the whole analysis. Situation In the provided situation, the assurance of getting tax refund to the audit clients can be seen from Berowra Accountants through a special advertisement. The difference between tax payment and tax owned is regarded as tax refund. Companies can avail tax benefits in case tax payment is more than tax liability (Mendenhall et al. 2012). In companies, income, profit and taxation are responsible for tax refund and the auditors have not role to play in tax refund. The duties of the auditors do not include the guarantee of tax refund as the auditors are responsible for determining whether there is any material misstatements in the financial statements or not. The assurance of tax refund would breach the code of ethics of auditing. Thus, according to APES 110 Code of Ethics for Professional Accountants, Section 130, this particular action of Berowra Accountants has violated the principle of Professional Competence and Due Care in which the auditors has crossed the limit of audit profession ( Han Fan, Woodbine and Cheng 2013). According to the case study, Jamie Harvey conducts the audit operations of large public firms and has been asked to hold the position of treasurer of the local club. Athletic clubs fall under the category of not-for-profit societies. APES 110 Professional Appointment, Section 210 states that the auditors should determine that whether their new client appointment can harm auditing fundamental principles of ethics (Ottaway 2014). In regards to this particular case study, it is required to be mentioned that that Jamie Harvey will not violate any of the auditing fundamental principle of ethics by accepting the offer for the treasurer of local athletic club. The main reason is that Jamie Harveys holding of treasurer position has no relation with his audit works of large public companies. In addition, the appointment in any not-for-profit societies does not affect the fundamental ethical principles of auditing. For all these reasons, no ethical principle of auditing will be violated in thi s case. As per the provided situation, Monlec Ltd indicates to Pymble Accountants that their payment will be dependent on the delivery of appropriate audit report. This situation indicates towards the Monlec Ltds demand of favorable audit report from Pymble Accountants. The auditors are responsible for providing unbiased audit opinion as they represent the investors and creditors. APES 110 Principle of Objectivity, Section 120 states that there should not be any compromise of professional judgment from the side of the auditors due to any biasness, conflict of interest or influence. It indicates that fare audit judgment should not be compromised in any situation. In the given situation, there can be two situations. In the first situation, there will be a violation of auditing Principle of Objectivity if Pymble Accountants provide favorable audit report to their client, Monlec Ltd (Kuan 2014). In the second situation, there will not be any violation of ethical principle if Pymble Accountants d oes not provide favorable audit report to Monlec Ltd. The provided situation shows that Chadwick Chartered Accountants has received all the audit papers and reports of Motoring Services from Winton Accountants. The responsibility of Chadwick Chartered Accountants is to review the audit quality of Winton Accountants. As a part of this responsibility, various analytical audit tests need to be conducted. However, the received audit papers from Winton Accountants makes the work easy for Chadwick Chartered Accountants as they have already got the results and thus, the will not have to perform any audit tests. According to APES 110 Principles of Confidentiality, Section 140, it is the professional obligation of the auditors to maintain the confidentiality of the information of the audit clients (Wilson-Rogers, Morgan and Pinto 2014). However, Winton Accountants have not maintain the confidentiality of the information of Motoring Services by delivering them to Chadwick Chartered Accountants. Hence, in this process, Winton Limited has violated the ethical principle of Confidentiality with their specific action. The provided situation states that Jane Davis from Thornleigh Accountants takes the place of Leona Ng for the completion of the audit operation of Jenkins Ltd as Leona Ng has fallen ill. After that, the intention of Thornleigh Accountants is to use Jane Davis for the audit operations of Jenkins Ltd in mid July. APES 110, Self-review Threat, Section 100.12 indicate towards the prohibition of using the results of any previous audit operation that was made by the audit member of the same audit team (Clout, Chapple and Gandhi 2013). It implies that any audit member does not have the right to use the audit opinion of any previous audit program. By applying all these principles in case of Thornleigh Accountants, it can be said that the company will violate the independence of the auditors by including Jane Davis in the audit team for Jenkins Ltd. Thus, this action of Thornleigh Accountants will pose the Self-Review Threat of auditors independence (Sarkar and Sarkar 2012). The above situation indicates towards the responsibility of John Darrow for conducting the audit of Winmalee Ltd. It can be seen that John Darrow has received all the copies of accounting papers that includes accounting standards and computer files from Winmalee Ltd regarding to the intangible asset valuation. As per auditing standards, the auditors are not supposed to take the papers of the clients into consideration as it is their responsibility to get sufficient audit evidence after the examination of clients financial accounts. In the given situation, pressure can be build upon the auditors in order to become agree with the judgment of the audit client. Apart from this, by providing the accounting papers to the auditors, Winmalee Ltd can create unnecessary pressure on John Darrow to provide favorable audit opinion. According to APES 110, Section 200.8, all these actions of Winmalee Ltd have the ability to violated the independence of auditors and can pose the Intimidation Threat of audit independence (Ojo 2013). The provided situation states that the auditors have received invitation from the chocolate company for visiting their second chocolate shop and for visiting the social club of the chocolate company. The audit guidelines prevent auditor from involving any kind of entertainment related activities with the audit clients. APES 110, Self-interest Threat, Section 100.12 states about the rise of threat to auditors independence in case the audit opinion has the influence of any financial or non-financial interest in the audit clients (Deumes et al. 2012). In the given situation, the chocolate company may put influence on the auditors by indulging in entertainment activities so that they can obtain favorable audit opinion. Thus, there can be two situations. In the first situation, there will be Self-interest Threat of auditors independence in case the auditors accept the entertainment offers from the chocolate company (Kouakou, Boiral and Gendron 2013). In the second case, the auditors indep endence will not be affected in case the auditors do not accept the entertainment offers from the company. It is the main responsibility of the auditors to inspect the financial account of the companies so that they can be ensured that there are not any material misstatements. In addition, doing the compliance check is another responsibility of the auditors. Moreover, auditors do not pose any responsibility to make comment on the financial situation of the organizations. The case of Connor Company indicates the heavy dependency of the company on bank overdrafts for repaying the loans as they do not have any financing options left. In addition, the bank wants immediate repayment of their loans from the company. All these aspects do not pose any threat of material misstatements and the auditors have not found any material misstatements in the financial statements of Connor Company. For this reason, the auditors will provide Connor Company with Unqualified Audit Opinion due to the absence of material misstatements (Habib 2013). Companies have the obligation for the preparation of their financial statements by complying with the standards of Generally Accepted Accounting Principles (GAAP). Moreover, they are also responsible to make compliance with the operating countrys accounting principles. The given situation shows the adoption of LIFO method by the company as its parent company uses this method; but the company is required tom follow FIFO method for inventory valuation. Thus, material misstatement can be seen in the company due to the difference in LIFO and FIFO method for inventory valuation. In addition, the auditors have not found material misstatement in areas of the company except inventory. All these reasons lead to the issue of Qualified Audit Opinion by the auditors. Major similarities are there between qualified and unqualified audit opinion. However, in qualified audit opinion, the auditors are required to add another paragraph in the audit report by highlighting the reasons for the audit opin ion to become qualified (Rahimian, Tavakolnia and Karamlou 2014). As a part of accounting obligations, companies are required to carry out the valuation of plant, machinery, land, building and other fixed assets on a regular basis due to the fluctuation in the market prices of them. The provided situation indicates that Victorian Manufacturing Company has not done the valuation of their Melbourne factory for last five years due to the thinking of their directors that the market value of the plant has not changed over the years. This particular assumption of the directors of Victorian Manufacturing Company regarding the valuation of Melbourne factory can poses the threat of material misstatements in their financial statements. The auditors require the fair market value of land and buildings as the absence of fair market value can hamper the audit process that can be a hindrance in issuing correct audit opinion. In this situation, it is clear that the lack of information is creating hindrance in the audit process. For this reason, the auditors will p rovide Disclaimer Audit Opinion due to the incompletion of audit process in the absence of correct and sufficient information (Kachelmeier, Schmidt and Valentine 2016). Conclusion From the above discussion, it can be observed that it is the utmost responsibility of the auditors to comply with the APES 110 codes of ethics at the time of conducting the audit operations of the organizations as the absence of ethics can cause ethical issues. At the same time, non-compliance with the standards and principles of auditors independence can pose various threats to auditors independence like self-interest threat, self-review threat, intimidation threat and others. The above discussion also shows that the absence of sufficient information can cause obstacle in the audit process. Based on the whole discussion, some recommendations are provided below: It is the responsibility of the auditors to maintain honesty and integrity of audit profession by complying with all the necessary fundamental principles of ethics in audit process. It is recommended that the auditors should maintain the principles and standards of audit so that the threats of auditors independence do not develop. It is recommended to the auditors that they should consider all the relevant information before providing the audit opinion. References Apesb.org.au. (2018).APES 110 Code of Ethics for Professional Accountants. 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