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Auditing – Client Acceptance

Threats to Independence of Bean & Associates and Required Actions

The case study of Bundy Service Station Ltd has been properly studied based on the principles of APES 110 Code of Ethics for Professional Accountants. The study has identified various threats that are challenging the independence of Bain & Associates and their association with one of their auditing client, Bundy Service Station Ltd. The auditing firm is providing taxation and advisory services (apart from and along with the auditing services) to Bundy since its incorporation. The identified threats and the reasonable actions that Bean and Associates are required to be taken as an auditing partner of Bundy and while following the APES 110 Code of Ethics are as follows:-

Threats

Action

Self-review Threat: Bean & Associates have not provided the firm with the required tax regulations that should be adopted & are committing tax fraud as has been reported by Jenna, an accountant

Doug Bean here is closely involved with formulating & preparing the financial statements of the firm & is the father of Doug who can turn things in favour of Bundy Service Station Ltd. by ignoring all the problems & misdoings by Bundy Service Station Ltd. while preparing financial statements. The firm as the auditor should closely vouch the material misrepresentations made by the company.

Familiarity threat: Bundy Service Station Ltd is the auditing client of Bean & Associates since its incorporation. It is also providing advisory and taxation services to the firm

 Doug Bean of Bean & Associates due to a long or close relationship with the company can be too sympathetic to the interests of the company, and can affect the independence to the current auditor (Josh) who is the son of Doug.

Since Josh & his father are both considered to be close family in the auditing relationship between Bundy Service Station Ltd, they can help each other with maximizing the financial interests of the firm by overlooking crucial components.

Self-interest, familiarity or intimidation threat: The firm is not focusing on its internal regulatory services & is not efficiently monitoring the operations of the firm & reviewing & suggesting improvements & not complying with the required rules & regulations that are to be complied with according to the law of the state. It is not providing necessary suggestions for the audit team from Bean & associates to act upon.

The firm should consider changing their auditing team as Josh & Doug are close family & it threatens the independence of the auditors for family members to be a part of the client team i.e. Bundy Service Station Ltd. & a part of the auditing team as well & more professional & ethical regulations can be imposed by the senior management of Bundy Service Station Ltd. for a more compliant corporate governance system within the company & for ensuring that all tax regulations & internal auditing is taken care of by the company as required by the law.

Intimidation threat: Bundy Service Station Ltd. is getting its accounting services done by its financial accountants & advisors & according to Jenna are not following the IFRS regulations that are to be adopted by every firm in preparation of financial statements, recording of transactions & payroll components.

The auditing firm is required to provide proper evidences as to why the company should follow the domestic GAAP (or AASB) instead of IFRS and why IFRS was not recommended previously.

Self-interest threats: Josh Bean is acting as the external auditor for Bundy Service Station Ltd since 2014. While his father Doug Bean is providing financial and taxation advisories to the company. Before 2014 Doug was providing auditing services. This is a clear case of conflict of interest as the auditing firm can hide the material misrepresentations in the client’s audit process to gain advantage in other than auditing services. For example, the firm can easily play things in favour of the firm to increase or manipulate his financial earnings

The members, employees and partners of Bean & Associates should discontinue providing additional services other than auditing to their clients. Before providing the unqualified opinion for the client company, the auditor (Doug Bean) should ensure that its firm is not indulging in providing any other service to the company. Doug should also scrutinize the activities of his father Josh Bean.

The Professional Conduct of Jenna

Jenna has applied her utmost professional judgement based on her skills and knowledge as a qualified professional Chartered Accountant (CA) and trained by Doug Bean, partner at Bean & Associates and the active auditor of Bundy. Also it is worth noting that Jenna is the wife of one of the director of Bundy, Mac, who is also the CFO of the company.

Jenna has used her professional judgement & has shown integrity, due diligence & honesty in analysing the firm and her assessing the financial statements. She possibly used her knowledge to help the company for her husband as this is the only relation of Jenna with the company.

With the link with both the parties, Bean and Bundy, Jenna makes some strong allegations about the financial activities of the firm including the various corporate governance & internal auditing regulations loopholes by the firm while keeping in mind that the nature of the activities is illegal. However none of her allegations could be proved. Later she offered Bundy (possibly forcefully) to become its auditor & also help the company with taxation and financial activities. She also offered her services in providing the most appropriate solutions for all the problems that the firm is currently facing due to unprofessionalism of Bean & Associates. Jenna has undertaken to improve the financial as well as regulatory activities of Bundy Service Station Ltd. by becoming the auditor and consultant of the company.

Professional Conduct of Jenna on The Basis of APES 110 Code of Ethics for Professional Accountants

  1. Integrity

Jenna is not the external auditor of the company and has not been associated with the company at any level except she is the wife of Mac, the director and the Chief Financial Officer of the company. However, she has been making allegations of mismanagement which could not be proved.

Apart from that Jenna is alleging Bean & associates for unprofessionalism but on the other hand she herself wants to conduct both auditing and consulting services for Bundy at the same time. Such activities can create conflicts of interests and shows unprofessionalism of Jenna. This point concludes that Jenna is under violation of the code of ethics as there will create conflict of interest and challenges auditor’s independence.

  1. Objectivity

The primary agenda behind such allegations might be to prove Bean and associates to be incompetent and so as to get her appointed as consultant and external auditor of the firm. You have not at all covered these points and written all irrelevant content.

On the basis of objectivity, Jenna is under violation of the professional conduct as she wants to gain business from Bundy where Mac (her husband) holds authoritative and decision making positions of a director as well as Chief Financial Officer.

  1. Professional Competence

 Jenna has attained utmost knowledge & skills and is a qualified chartered accountant. Also she got trained by the auditor of Bundy, Doug Bean, therefore she has the knowledge that the company is not following IFRS to prepare its financial statements.

  1. Confidentiality

Jenna has not maintained the confidentiality as she has gained crucial information as a trainee at Bean & Associates and as the wife of Director and CFO of Bundy. Also, she made false allegations on Bean as she could not prove them right and tried to acquire Bean’s business.

  1. Professional Behaviour

Jenna has not maintained professional behaviour. If she identified some error in the activities of Bean & Associates, she must not have directly made allegations without arranging valid proofs. Also, she misused her husband’s special position as a interesting partner in Bundy.

Audit Team’s Attendance of Cocktail Evening and Related Concerns

As per APES 110 Code of Ethics for Professional Accountants, Kevin, the trainee accountant at Bean & Associates is breaching the professional conduct and the confidentiality terms that an employee has with the auditing firm.

Kevin violates the ethical codes when he discusses a business deal (in progress) with the representative (Ms June Clarkson,) of the Cougar Services in the favour of Bundy Service Station Ltd. It is important to note that Kevin is not a Bundy’s employee, but is working with the current auditor of the company.

Also, Kevin personally knows Ms June Clarkson, which can cause threats of familiarity or self-interest for the firm (Bean & Associates). It is possible that Kevin & Clarkson indulge in some illicit activities that aim at serving their self- interests. Overall, Kevin must possibly be seeking some financial interest from Bundy if the deals get successfully closed. The other ethical factor that Kevin breached is the threat of confidentiality because he might have shared some material confidential information with Clarkson.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Auditing Assignment Help

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