Auditing and Ethics Responsibility

Question: Discuss about the Auditing and Ethics Responsibility. Answer: Introduction: The auditors are entrusted with the sole responsibility to identify and determine materiality misstatements associated with the accounting operations of the audited firm. The auditors need to have certain responsibilities like maintaining the ethical integrity and honesty while conducting the audit-related operations and activities (Apostolou, Dull Schleifer, 2013). In this context, Accounting Professional Ethical Standards Board Limited (APESB) has published the article of APES 110, which deals with the duties and responsibilities of the auditors. Along with this, the report sheds light on evaluating the threats to an auditor and measures to mitigate the same (Apesb.org.au, 2016). Identification and explanation of potential types of threats to Fellowes and Associates in independent situations: The provided case includes information pertaining to Fellowes and Associates, which is an auditing organisation. It has carried out the auditing activities of Health Care Holdings Group (HCHG) in 2014. From the given case, it has been identified that an accounting associate of the audit firm has bought few shares of HCHG. Due to such purchase of the accounting associate, it has created latent threats associated with the independence of the audit firm. APES 110 clearly states that an auditor is debarred from showing any sort of financial attention in the asset of the audited organisation. This sort of interest or instance could be termed as the threat of self-interest of the auditors (Cowlishaw, 2014). In addition, it has been observed that the accounting associate of Fellowes and Associates possesses direct financial interest in HCHG, since the person has purchased the shares of thre latter firm. As a result, it could be considered as the threat of self-interest to the audit firm (Hay, Knechel Willekens, 2014). Hence, the accounting associate of Fellowes and Associates has committed an audit crime, since it could have direct impact on the decision-making process of the auditors. This is a considerable threat in auditing profession, as limited safeguards are in place to minimise the negative impact of such threat. According to this situation, Fellowes and Associates have conducted the valuation of the intellectual properties of HCHG on 1st March 2014, which is valued at $30 million. Moreover, another significant factor is that the intellectual properties are depicted as materials to HCHG. The consolidated balance sheet of HCHG comprises of the same intellectual property amount. Thus, it could be termed as a possible threat to the audit firm (Helin Babri, 2015). According to the regulations of the audit firm, it is necessary for the auditor to dissect the outcome of the past judgement made on the part of another audit partner. This procedure necessitates the need to revalue different assets of the audited firm. In case, the auditor fails to conduct asset revaluation, it leads to threat of self-review (Kaptein, 2015). The second situation depicts that the auditors have considered the identical amount of intellectual properties on 30th June 2014. On the other hand, APES 110 states that the auditors are required to conduct revaluation associated with intellectual properties. Thus, the threat of self-review is inherent in case of Fellowes and Associates, which is a key offence in the profession of auditing. Actions and safeguards to be taken for minimising the risk of similar independence: As observed from the above analysis, the action of an accounting associate of Fellowes and Associates has resulted in self-interest threat. Such instances take place during the time in which a member of the audit group has financial interest in the shares of audited firm. In order o eliminate such threat, Fellows and Associates needs to terminate that specific accounting associate and appoint a new person for the position. Along with this, specific policies and rules could be designed, which would help the audit firm in identifying the staffs showing financial interest in the assets of the audit client. Secondly, Fellows and Associates could reduce the provision of non-audit services to its clients for minimising such threat. Finally, the incorporation of appropriate policies and guidelines would help the audit firm to restrict its staffs in developing financial relationships with its clients (Reinstein Leibowitz, 2014). The second situation denotes the threat of self-review due to wrong asset revaluation relating to HCHG. According to the prevailing regulations, the other auditors need to evaluate the asset valuation procedures. Henceforth, in the context of Fellowes and Associates, the intellectual property valuation needs to be conducted on the part of a separate audit group as a safeguarding measure. However, other preventions are available as well to avert such kinds of instances. In the beginning, it is necessary for the audit firms to stop providing non-audit services to its clients. Secondly, it is crucial to ensure that the audit clients undertake decisions on their own risk from the non-audit services received. Finally, a cooling off-period time is necessary before appointing a senior auditor to undertake responsibilities associated with the audit operations of the organisation (Zadek, Evans Pruzan, 2013).Hence, Fellowes and Associates could implement the above-mentioned safeguarding measu res to prevent instances of inaccurate asset valuation. Conclusion: From the above discussion, it could be evaluated that the auditors are required to conform the regulations and policies of APES 110 during the conduction of audit operations. It has been found that the two major threats, which confront Fellowes and Associates, comprise of threat of self-interest and threat of self-review. Hence, in order to minimise such threats, preventive actions could be taken, as laid out in APES 110. The preventive measures include designing of specific policies and procedures, reviewing the asset valuation with the help of a separate audit team and providing cooling off-period time to the senior auditors. 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