Audit and Assurance

Table of Contents

Part A: Breach of Fundamental Principles of professional ethics as per APES110.

Part B: Potential Threats to Auditor’s Compliance with the Fundamental Principles.

Reference.

Part A: Breach of Fundamental Principles of professional ethics as per APES110

As per my observation, Weinstein and the auditing firm WCPA are in breach of all the five fundamental principles including integrity while acting as an auditing professional in the financial industry. The fundamental principles include objectivity, integrity, professional competence, confidentiality and professional behavior.

As per the case study, the clients of WCPA formulated a fraudulent scheme in which they created and later sell shell companies, the stocks of some of which were publicly-traded. The auditor is responsible for validating the financial statements of the company and report if the company lacks in adhering the established set of procedures or standards, but WCPA concealed the unethical and illegal doings of its clients that controlled some shell companies which were lacking any intended or actual business.

On the basis of the above analysis, the 2 major fundamental principles of professional ethics as per APES110 2 that have been breached by Weinstein and his auditing firm WCPA are as follows:

  • Integrity: Weinstein did not maintain honesty in his professional conduct as his firm WCPA performed provisional reviews and poor audits for 4 companies of its clients that were basically created and sold fraudulent “shell companies”. Weinstein through his firm WCPA also performed poor audits and provided unqualified opinions for 9 other companies that were public listed companies.
  • Professional Behavior: the auditor did not comply with relevant laws and regulations of Auditing Standards Made under Section 336 of the Corporations Act 2001. Weinstein and his firm WCPA continually remain in violation of the standards of Public Company Accounting Oversight Board (“PCAOB” or “Board”) that were related with their audits and issuer’s interim reviews.

Part B: Potential Threats to Auditor’s Compliance with the Fundamental Principles

After reviewing the literature, I can state that Weinstein and his auditing firm WCPA are not compliance with the fundamental principles. The potential threats to their compliance include self interest threat and advocacy threat that can be held responsible for breach of fundamental principles including integrity and professional competence while acting as an auditing professional in the financial industry.

  • Self Interest Threat: It is a threat that can influence the behavior or judgment of an auditing professional for financial (or other) interest. Weinstein and the professional’s workings in his auditing firm WCPA did not work independently on their auditing projects especially the audits of the mentioned clients in the literature (SEC v Perlstein et al 2018). The auditors must have got involved in various unethical deals with its clients and earned the money from the unethical (or illegal) way.
  • Advocacy threat: It is a threat that the auditor will promote the position of its employing organization (or client) so that the objectivity of such auditor compromises. Weinstein performed poor audits, presented unqualified opinions and presented interim reviews for various companies of its clients that were engaged in fraudulent activities to create and sell shell companies.

Reference for Mandatory Audit Firm Rotation and Audit Quality

Australian Financial Review, 2020, Home Page, https://www.afr.com/companies/professional-services/asic-to-bring-why-not-litigate-approach-to-policing-audit-quality-20191016-p5315x

Cameran, M., Prencipe, A. and Trombetta, M., 2016. Mandatory audit firm rotation and audit quality. European accounting review, 25(1), pp.35-58.

Chang, K.H.V., 2017. Internal audit quality and its association with financial distress: An Australian context (Doctoral dissertation, Curtin University).

Knechel, W.R., 2016. Audit quality and regulation. International Journal of Auditing, 20(3), pp.215-223.

Krishnan, J., Krishnan, J. and Song, H., 2017. PCAOB international inspections and audit quality. The Accounting Review, 92(5), pp.143-166.

SEC v Sharone Perlstein, Aric Yerusalem: Swartz A/K/A Eric Yerusalem Swartz: And Hadas Miriam Yaron. 2018. https://www.sec.gov/litigation/complaints/2018/comp-pr2018-21-perlstein-et-al.pdf

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