Auditor Independence: Case Studies And Analysis

Gifts and hospitality provided by clients

Part a

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As per the case which is provided in the question, Jenny Wang has been the auditor for Panania Cars Ltd for a period of last six years. The company is offering considerable discounts to customers who have been long term customers of the business. The management of the company has offered to sale a car to the auditor at 20% discount offer. As per the provisions of section 260 of APES 110 which deals with Gifts and Hospitality, if an auditor is provided with any gifts or hospitality or any service which does not form part of the scope of audit, can affect the fundamental principles of auditing (Martinov-Bennie and Mladenovic 2015). The auditors of a business are not supposed to accept any kind of gifts or hospitality or any services from their clients as the same will be affecting principle of Objectivity of business. As per the case, which is provided in the question, the auditor of Panania Cars Ltd has accepted the discount offer on cars which is provided by the management and therefore it can be said that the principle of Objectivity is in violation.

Part b

As per the case which is provided in the question, Katrina Wearne has the responsibility of undertaking the audit process of Lancom Cosmetics for the month of November and December. The company is engaged in cosmetics business and therefore offers Katrina cosmetics worth $ 350 as a Christmas present from the company. The provisions which is stated in APES 110, section 260, any gifts or hospitality from the business to the auditor will affect the fundamental auditing principles. This will create a threat on the principle for objectivity of the business. In addition to this, gifts and hospitality will create a self-interest threat. This will be affecting the overall objectivity of audit. As per the case which is provided, Katrina Wearne has accepted the gift which is provided to the auditor and thus it can be said that the auditor is in violation of the relevant provisions which is covered under APES 110 and therefore, the same will be affecting the principle of objectivity of the business (Carey, Monroe and Shailer 2014).

Part c

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The situation which is present in the case study shows that D. Marron is a Chartered Account and is currently engaged as a computer consultant for carrying out review program for an installation of new computer system for the purpose of production and inventory records. D. Marron is unable to review the installation process due to lack of adequate knowledge and expertise in the field and therefore appoints a consultant for reviewing the system and trusting the work of the consultant gives permits to the company to carry out the installation process. As per section 130 of APES 110, an auditor is required to exercise professional skills and due care while carrying out any audit process. This means that the auditor should have adequate knowledge and technical competence for carrying out the audit process along with the fact of following the relevant standards of auditing and accounting for carrying out the process of audit. In this case, D. Marron is unable to carry out his duties with due skills and competence as the auditor lacks technical knowledge of the filed. The auditor should not have accepted the review program as the auditor lacks the required technical knowledge for the same. The scenario suggest that the auditor has not complied with the provisions of APES 110 and therefore has violated the principle of Professional Competence and Due Care.

Part d

Provision of non-audit services

The situation which is provided in the question, six chartered accountancy firms are engaged in a joint review for the overall quality of audit working papers of each auditor. Quality Assurance Review (QAR) is one of the essential part of auditing operations and it is considered it is capable of maintaining overall quality of an audit. In the case which is provided in the question, the purpose of the six firms is to identify one another’s strength and weaknesses (Arnold et al. 2016). This is an essential part of an audit process and thus the reviewing process of the six audit firms are not in way violation of audit ethical principles as reviewing of audit working papers are necessary for judging the overall quality of an audit through review program.

Part e

As indicated in the case, Bill Holland is a chartered Accountant who is engaged in casualty and Fire insurance service agency and for the purpose of management of the business, Bill has appointed a manager Simone Taylor. Bill Holland also wants to include adequacy of insurance program as a part of the audit program in order to establish whether the client is underinsured or not. As per the provisions of APES 110, Section 290.156 which deals with provision of Non-Assurance Services to Audit Clients states that non-audit services should not be considered by the auditor and especially to those clients to who the auditor is providing audit services (Clayton and van Staden 2015). This will affect the principle of audit independence. Moreover, the provisions of APES 110 also provides that the principle of confidentiality should be ensured by the auditor which states that no information about the process of audit should be disclosed to anyone. In the case, Bill Holland has violated the provisions stated in APES 110 as the principle of Confidentiality and Provision for Non-assurance services to audit clients are not followed (Kuan 2014).

Part f

As per the case which is provided in the question, a small business has appointed the same auditor for the purpose of providing audit services, tax services, management advisory services book keeping services. The provisions of APES 110, section 290.156 which is related to Provision of Non-assurance services to audit clients need to be followed. The provisions state that an auditor should not provide any sort of services which are not related to audit to any client as the same will be affecting the principle of independence of the auditor (Azimi and Naim 2015). The threats which generally arise in such a situation are self-review threat, self-interest threat and advocacy threat. It is very much essential on the part of the auditor to ensure that such a threat does not arise and therefore the auditor should not take non-audit services for a client. Thus, from the analysis of above discussion, it is clear that Emma Lawrence is in violation of the provision of Non-assurance services to audit clients as per APES 110 (Ball, Tyler and Wells 2015).

Part 1

Lack of technical knowledge and competence by auditors

As per the situation which is provided in the situation, Enid Blyton was an auditor of Anthony Don Chartered Accounting firm for the last four years and in current situation the auditor has taken the responsibility of providing audit services to Green Thumb which provide environmental services. The company has appointed a new contractor who is to dispose off toxic waste, however, the contactor does not have a good reputation in the market. The audit manager, Peter Don has advised Enid Blyton to focus on the main activities of an audit which is to ensure that the financial statements are free from misstatement and showing a true and fair view.

The general threats which affect the independence of an auditor are self-interest threat, self-review threat, Advocacy threat, Familiarity threat and intimidation threat (Iwasaki 2013). All these threats affect the independence of an auditor and therefore should be kept in check. The situation which is provided in the case, the main responsibility of the auditor is to exercise audit procedures for ensuring the financial statements are showing true and fair view. The case which is shown does not affect the independence of the auditor (Tepalagul and Lin 2015). However, if the auditor provides assistance to the company in selection of new contractor than the same might lead to a situation which will affect the overall independence of an auditor.

Part 2

The situation which is provided in the assessment, Jean Douglas is an auditor of Dooley company. The situation shows that the company has not made payments for around 30 % of audit fees for prior years for which the company promises to make payments once the audit for the current year is completed. The auditor is being indirectly pressurized for linking audit fees with audit performance and favorable audit report.

The case also states that the company will also be providing for a trip to the auditing firm which will be in violation of APES 110, Section 260 which is associated with Gifts and hospitality. The section states that the auditor should not accept any gifts or hospitality from the client as the same will result in affecting the principle of objectivity and independence of the auditor (Chapple et al. 2014). Moreover, the management of the company is creating a pressure on the auditor which is to provide favorable audit opinion in exchange of complete payment of audit fees. This creates a situation of self interest threat on the audit process and therefore will be creating a threat to overall independence on the audit process.


Arnold, B., Bateman, H., Ferguson, A. and Raftery, A., 2016. Partner-Scale Economies, Service Bundling, and Auditor Independence in the Australian Self-Managed Superannuation (Pension) Fund Industry. Auditing: A Journal of Practice & Theory, 36(2), pp.161-180.

Azimi, D. and Naim, M., 2015. Impact of Organization Internal Factors on Ethical Intensity of Accountants in Afghanistan.

Ball, F., Tyler, J. and Wells, P., 2015. Is audit quality impacted by auditor relationships?. Journal of Contemporary Accounting & Economics, 11(2), pp.166-181.

Carey, P.J., Monroe, G.S. and Shailer, G., 2014. Review of Post?CLERP 9 Australian Auditor Independence Research. Australian Accounting Review, 24(4), pp.370-380.

Chapple, L., Crofts, P., Ferguson, C. and Hronsky, J., 2014. Professional independence and attachment bias: an exploratory study.

Clayton, B.M. and van Staden, C.J., 2015. The Impact of Social Influence Pressure on the Ethical Decision Making of Professional Accountants: Australian and New Zealand Evidence. Australian Accounting Review, 25(4), pp.372-388.

Iwasaki, I., 2013. What determines audit independence and expertise in Russia? firm-level evidence.

Kuan, K.T.C., 2014. Auditor independence: an analysis of the adequacy of selected provisions in CLERP 9 (Doctoral dissertation, Queensland University of Technology).

Martinov-Bennie, N. and Mladenovic, R., 2015. Investigation of the impact of an ethical framework and an integrated ethics education on accounting students’ ethical sensitivity and judgment. Journal of Business Ethics, 127(1), pp.189-203.

Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.