Henry Wong is the audit partner of Wong, Judd & Co. James Swann, the MD of Evatt Ltd, a large public...

Question

Henry Wong is the audit partner of Wong, Judd & Co. James Swann, the MD of Evatt Ltd, a large public listed publishing company and Henry Wong are long time friends. Currently they are involved in a substantial joint business venture. James disclosed to Henry that Evatt Ltd is preparing tender documents for next year’s audit. He further indicated that the lowest tender bid received will secure the audit engagement. In addition to the usual audit services, Evatt Ltd is also requiring consulting services for designing and implementing a new financial information technology system that will generate information for the company’s financial statements.
Henry wants to tender for the audit of Evatt Ltd., so he met with his staff to discuss the potential threats to independence in relation to Evatt & Co as audit client. During the meeting, Alvin Turei, the audit senior commented that his aunty is the financial controller of the company.
Required:
Referring to PES1 (Revised) andPES3 (Revised), and citing the standards where appropriate:

Explain the ethical audit issues identified in the case facts above
Explain the specific threats to independence that Henry and his firm are exposed to in relation to Evatt & Co, and
Suggest safeguards that may reduce the audit team’s exposure to independence identified in (a) and (b)

Ensure that your answers are clear and specific.
Present your answer as follows:

Ethical audit issue

Specific threats

Safeguards

(4 points = 2 marks) (any 4 points = 2 marks) (any 12 points = 6 marks)

Ethical audit issue must contain integrity, auditing duties and responsibility
Ethical issue must contain objectivity, confidentiality, competence
Ethical issue must contain pes XXXXXXXXXXa), (b), (c), (d)
Safeguard must contain pes XXXXXXXXXX, 14,16

Word 600

Pes1 and 2 is in http://xrb.govt.nz/Site/Auditing_Assurance_Standards/Current_Standards/Professional_Ethical_Standards.aspx

Must relate to New Zealand auditing standard not the USA

005_lz2pbjo-ioq5ss1a.docx

David · Accepted Answer

In the given case, Henry Wong (audit partner of Wong, Judd & Co.) and James Swann (MD 
of Evatt Ltd.) are friends. Presently, both are involved in a substantial business venture. Evatt 
Ltd. is preparing for the tender documents for the next year’s audit and as per the tender the 
audit engagement will be secured by the one who has given the lowest bid. In addition to the 
usual audit services, Evatt Ltd is also requiring consulting services for designing and 
implementing a new financial information technology system that will generate information 
for the company’s financial statements.  
Henry wants to tender for the audit of Evatt Ltd., so he met with his staff to discuss the 
potential threats to independence in relation to Evatt & Co as audit client. During the 
meeting, Alvin Turei, the audit senior commented that his aunty is the financial controller of 
the company.   
a) Ethical Issues identified: 
As per the code of Ethics for Assurance Practitioners (PES 1) the following ethical issues 
can be identified as laid down in the PES 1 - 100.5:  
i) Integrity (Section 110):  
The principle provides that auditor should be honest and straight-forward. It means 
there should be truthfulness and fair dealing. Hence, it means that the auditor’s 
reports, returns should not contain any statement that is false or misleading, any 
reckless information, and obscure or omit any relevant information that requires 
disclosure. 
[1]
 
ii) Objectivity (Section 120): 
As per this principle, the auditors should not be bias and should not compromise on 
their judgement because of any conflicts or undue influence of management. 
[2]
 
iii) Professional Competence and Due Care (Section 130): 
The principle provides that the auditor should have professional skills and 
knowledge required to complete the audit engagement. It also provides that the 
auditor should comply with the standards issued by the external Reporting Board, 
the New Zealand Accounting Standards Board and the New Zealand Auditing and 
Assurance Standards Board while providing his services. 
[3]
 
iv) Confidentiality (Section 140):

Henry Wong is the audit partner of Wong, Judd & Co. James Swann, the MD of Evatt Ltd, a large public listed publishing company and Henry Wong are long time friends. Currently they are involved in a...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment