Question

Case : read to the end please.

Majdi has a degree in accounting from BZU and works for a local accounting office. He was asked by a friend to prepare Financial statements for a small company in Ramallah.
To help his friend Majdi prepared the financial statements and a report indicating that the financial statements were audited by him.
What standards were violated and why?

Is there a violation of the elements of audit quality control, briefly discuss?

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so briefly, if you audit on your own business,is that acceptable? and if it doesn't, what is the standard from audit standards that you have been violated and why?

Answer 1

Here no external audit was done of the financial statements and hence this is in direct violation of The Companies Law No. 12 of 1964 of Palestine. It also violates the international standards of GAAP and IFRS which makes external audits compulsory (if the company falls under the purview of the international standards).

Yes, there is a violation of the elements of audit quality control. One of the most important elements that are being violated here is the element of “independence, integrity and objectivity”. This element states that the firm and its personnel must be free from any obligation to or interest in the client. Here the person who has prepared the financial statements is also doing the audit of that statement and hence objectivity cannot be ensured.

No, if you audit your own business then it is not at all acceptable. This is because it violates the standard of “independence, integrity and objectivity”. The firm’s personal and the client are one and the same and hence there is not even an iota of independence present. Integrity can be compromised as the person will be biased towards his own work and his pre-conceived notions can prevent him from giving clear and unbiased audit judgements.