Question

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Principles of Professional Conduct Responsibilities--in carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities. The public interest --Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism Integrity - To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity. There are six fundamental principles that auditors are expected to abide by. The first two serve to reinforce that the auditors are there principally to serve the public Integrity. 1. adherence to moral and ethical principles, soundness of moral character; honesty.

Answer 1

The fundamental responsibility of the Auditor is to give his opinion over the true and fair view over the Financial Statements of an entity. It is his responsibility to comment upon the state of affairs of an entity that is presented in the financial statements. While doing so, the auditor is entrusted with the responsibility to ensure that the financial statements are free from material misstatements that would effect the decision making of the stakeholder.

The auditors are expected to abide by the Principles laid down by the governing authority in performing their duties. The adherence to professional conduct is expected.

The six principles are explained below :

1. Integrity - Auditors has been entrusted with a responsibility that any other profession is not provided with. The opinion and assurance give by the Auditor effects the stakeholders at large including the tax authorities. The auditor as a professional is expected to work with the highest form of integrity without compromise on discharging his responsibilities.

2. Objectivity - Auditors are expected to observe independence and provide his unbiased opinion over the matters concerned as it effect the decision making of the stakeholders from the results published by an entity over its performance. The auditor should be free of conflicts of interest in discharging his responsibilities.

3. In Public Interest - Audit report is used by various stakeholders like employees, suppliers, customer, tax authorities and others to understand that the information presented in the financial statements is free from material misstatements and the audit opinion effect the users of the financial statements at large and hence auditors are expected to observe professionalism that serve the public interest and honour the public trust.

4. Due Care - Auditors are expected to demonstrate due care in discharging their responsibilities and stay competent with the changes in law to serve the interests of the public at large and to ensure the quality of the services provided as a professional.

5. Scope and Nature of Services - Not all the attestation services are same and auditors has to observe strict adherence with the Code of Professional Conduct in determining the scope and nature of the services and is required to document it for each of the assignment.

6. Responsibilities - Auditor has to discharge his audit and attestation functions to serve the public interest, Auditor has to be skeptical in nature and should exercise the professional judgements as and when required while discharging his responsibilities and should document such judgements that are significant in nature.

Explanation to the Case Study:

1. What are the relevant facts?

Ans: a. Juan has come across an instance of possible Fraud committed by the supervisor in the client's accounting department.

b. Juan discussed about his observation with Derek, Audit In-charge but derek didn't put such observation in the audit notebook rather he discussed in person and decided in the supression of the fact that Juan has observed.

c. Juan being a new employee and staff assistant in the audit firm is concerned over his questioning nature that would result in him being expelled from the firm.

2. What was the ethical issue?

Ans: Juan being a new employee and staff assistant in the audit firm is concerned over his questioning nature that might result in him being expelled from the firm. The ethical issue is to take a stand on his observation to take it forward or compromise on the issue based on the Derek's comments that this observation is immaterial.

3. Who is affected and how?

Ans: If the fraud is to be True, then the entire audit team to be held responsible and result in the disrepute and loss of public trust. If the instance is immaterial Juan can plead guilty of expressing doubt over the integrity over the client's accounting supervisor by being skeptical in nature.

4. What are Juan's available alternatives?

Ans:

a. To question Derek's call of not to take this matter forward as the same is immaterial and ask for inclusion in the audit notebook.

b. To stay satisfied with the Derek's reply of it being immaterial.

5. What are the consequences of each alternative?

Ans:

a. Being appreciated by the finding the instance of fraud if proved. Appreciation for being prudent in discharging his audit duties. If the fraud is not proved he may be expelled from the firm as he questioned the in-charge of audit and not being a "team player".

b. if the instance of fraud is real the entire audit team is held guilty for not being prudent in discharging their duties and Juan may be held for not observing objectivity in exercising his duties.

6. What is the appropriate action Juan has to take?

Ans: Juan has to discuss about this issue and should insist the inclusion of his observation in the Audit documentation. If Derek is not ready to do so, the matter to be escalated as it may result in the material misstatement of the financial statements.