QUESTION 2 ( 12 marks)The following situations refers to threats to theAuditor’s independence.You are...QUESTION...

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Accounting

QUESTION 2 ( 12 marks)
The following situations refers to threats to theAuditor’s independence.You are asked to state what
the different threats to the Auditor’s independence are and explainhow these threats impact on the Auditor’s independence andany other implications for yourself and your firm.
SITUATION 1
Enid Blyton has been working as an auditor for the Anthony DonChartered Accounting firm for the past four years and has juststarted an audit on the Green Thumbs environmental company, a smallnewly listed public company which has just listed as a publiccompany one month ago.The
Green Thumbs environmental company has just started using anew contractor to dispose of its toxic waste .You know that thisnew contractor has won tenders in the past and there have beenseveral unfavourable articles about this contractor in the localpress.
Your Audit Manager ,Peter Don , has stated that it is yourresponsibility just to provide an opinion
on the financial statements with the emphasis being on providing anopinion on whether the financial statements are true and fair andwhether there are any material misstatements.
SITUATION 2
Jean Douglas has just started to do the audit on the latestfinancial statements and has just made the following notes fromyour opening interview with John Dooley,CEO of Dooleys.
John has apologised for not making the final payment of 30% of theprior years audit fee but has explained that he will ensure thecheque is written once he is happy with the progress on the currentaudit. At this stage John Dooley has advised that the firm will beable to start deliberations
about the selection of Auditor for the following year.The Dooleysaudit comprises forty percent of the annual audit fees for the firm.
John has advised that they will be providing a free trip to Europefor an Auditor from the Audit firm and his partner once the auditis successfully completed.
Jean is concerned with several aspects of the current audit asDooleys do not appear to be following the accounting standards intheir valuation of inventory as they are not taking intoaccount the reductions in fair value of inventory and the impact onthe financial statements is material.

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3.7 Ratings (547 Votes)

Independence means a state that allows a person to provide opinion free of mind without being affected by any views and advices or pressures of others Auditors independence ensures creditibility of auditors work that how honestly he presents a view about the financial statements of the clients As investors before investing in any business read the fianancial statements thourughly and rely upon the opinion submitted by auditors But auditor See Answer

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In: AccountingQUESTION 2 ( 12 marks)The following situations refers to threats to theAuditor’s independence.You are...QUESTION 2 ( 12 marks)The following situations refers to threats to theAuditor’s independence.You are asked to state what the different threats to the Auditor’s independence are and explainhow these threats impact on the Auditor’s independence andany other implications for yourself and your firm.SITUATION 1Enid Blyton has been working as an auditor for the Anthony DonChartered Accounting firm for the past four years and has juststarted an audit on the Green Thumbs environmental company, a smallnewly listed public company which has just listed as a publiccompany one month ago.The Green Thumbs environmental company has just started using anew contractor to dispose of its toxic waste .You know that thisnew contractor has won tenders in the past and there have beenseveral unfavourable articles about this contractor in the localpress.Your Audit Manager ,Peter Don , has stated that it is yourresponsibility just to provide an opinionon the financial statements with the emphasis being on providing anopinion on whether the financial statements are true and fair andwhether there are any material misstatements.SITUATION 2Jean Douglas has just started to do the audit on the latestfinancial statements and has just made the following notes fromyour opening interview with John Dooley,CEO of Dooleys.John has apologised for not making the final payment of 30% of theprior years audit fee but has explained that he will ensure thecheque is written once he is happy with the progress on the currentaudit. At this stage John Dooley has advised that the firm will beable to start deliberations about the selection of Auditor for the following year.The Dooleysaudit comprises forty percent of the annual audit fees for the firm.John has advised that they will be providing a free trip to Europefor an Auditor from the Audit firm and his partner once the auditis successfully completed.Jean is concerned with several aspects of the current audit asDooleys do not appear to be following the accounting standards intheir valuation of inventory as they are not taking intoaccount the reductions in fair value of inventory and the impact onthe financial statements is material.