Auditing and Ethics Performing Audit Operation

Question: Discuss about the Auditing and Ethics for Performing Audit Operation. Answer: Introduction At the time of performing the audit operation, the auditors have to take many responsibilities. On the other hand, the auditors need to comply with some major laws and regulations of the audit profession. In this regard, APES is an important document. APES stand for Accounting Professional Ethical Standards that contains all the responsibilities of the auditors along with potential threats and safeguards of these responsibilities. On a more precise note, APES 110 article contains the various aspects of auditors independence and the potential kinds of threats that can be arrived by breaching the principles of auditors independence (Han Fan, Woodbine Cheng, 2013). Threats The rules and regulations of Auditing state that auditors independence is an important aspect in the profession. As per definition of auditors independence in APES 110, the auditors must not have any kinds of financial interest in the financial properties of the audit clients (apesb.org.au, 2016). This is called Auditors Independence. The article also says that auditors independence comprises of two major aspects; they are Independence in Mind and Independence in Appearance. According to APES 110, there are five major threats that an auditor can face at the time of audit operation. They are Self-interest thereat, Self-review threat, Advocacy threat, familiarity threat and intimidation threat (Audits, 2013). As per the given case, there are two situations where the auditors of Fellowes and Associates can face some potential threats. They are discussed under (Whittle, Carter Mueller, 2014). In the first situation, it can be seen that one of the accounts associates of Fellowes and Associates has bought some shares of their audit client Health Care Holding Group (HCHG). Now, by considering the rules and regulations of APES 110, it can be said that the act of the particular auditor of Fellowes and Associates has created a potential independence related threat for Fellowes and Associates. As mentioned above, APES 110 says that an auditor must not have any material financial interest in any financial assets of the audited organization. This threat is called Self-interest threat. By the creation of this threat, people may assume that the report of the auditor is influenced by this financial interest and there is a presence of biasness in the report of the auditors (Ojo, 2014). In the second situation, it can be seen that the valuation of intellectual properties of HCHG has been done by Fellowes and Associates. However, there are some situation in the valuation. Fellowes and Associates have dome the valuation on 1 March 2014 and the value is $30 million. The same audit associates of Fellowes and Associates has made the revaluation of the same intellectual property of HCHG on 30 June 2014, and the same amount has been taken into consideration. This particular action of Fellowes and Associates has posed a potential thereat for the audit organization. It is natural that the value of the intellectual; properties of HCHG may have changed between the time span of 1 March 2014 to 30 June 2014. However, the auditors have ignored this fact and this is a major offence as per the guidelines of APES 110. This action leads to the rise of Self-review threat of auditors. This threat arises when the revaluation of the assets is not done in the appropriate way. Actions and Safeguards APES 110 have given the corrective steps and safeguards of the threats. In the first situation, it can be seen that there is a potential threat of Self-interest for Fellowes and Associates. In this situation, the only corrective measure that Fellowes and Associates needs to take is that they need to remove that particular employee from the audit team that has bought the shares of HCHG (Rahman, 2015). On the other hand, APES 110 have provided some safeguards that can be taken to avoid these kinds of threats. First, there needs to be rules and regulations that will help to recognize the employees that have material financial interest. The audit employees should not build any kind of business relationship with the audit clients. The audit services need to be reviewed on a regular basis (Maroun Atkins, 2014). The second situation implies that there is a threat of Self-review for Fellowes and Associates. As a corrective measure, Fellowes and Associates need to revaluate the intellectual properties of HCHG by another audit team so that the actual market value of the intellectual properties can be taken in the balance sheets of HCHG. Some safeguards are available in this case. The audit firms need to minimize to give non-audit services to the audit clients. The audit organization needs to make it clear that the audit client is responsible for taking any kind of non-audit services from the audit firms. A review of the audit teams and services on a regular basis eliminates the scope of audit threats from audit operation (Tahir, Idris Ariffin, 2014). Conclusion In the above discussion, it can be seen that there are two major auditing threats. They are Self-interest threat and Self-review threat. Both the threats are connected with the principles of auditors independence. The presence of financial interest in clients property is the potential of Self-interest threat. On the other hand, improper valuation of clients assets is the potential of Self-review threat. However, there are some corrective measures of these threats. On the other hand, some effective safeguards are also available that ensure the non-repetition of these kinds of audit related threats. 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A., Idris, K. M., Ariffin, Z. Z. (2014). Dimensions of Auditor Independence: A Pilot Study.International Journal of Business and Management,9(6), 72. Whittle, A., Carter, C., Mueller, F. (2014). Above the fray: Interests, discourse and legitimacy in the audit field.Critical Perspectives on Accounting,25(8), 783-802.