Ethics Independence & Governance Discussion
Check your essay before you submit. See exactly what your professor sees.
See your AI and plagiarism results before your instructor does.Get the exact same report your professor uses. Trusted by 50,000+ students worldwide.
Assignment 2
(Learning Outcome 3, 4 and 5 i.e., Weeks 4 – 8)
Due – Monday 20
th September 2021, 23.55pm (NZ time)
This assignment must be submitted by all Internal and Distance Learning students
You are required to answer all the questions in this assignment.
The assignment has a word limit of 1,000 words, excluding references.
Note:
1. Answers over 1,000 words may be penalised up to 20% of available marks (i.e., 10 out 50);
2. Please ensure you explain your answers in your own words.
Question 1: Ethics, Independence & Governance
You have been asked to advise on the following ethical concerns that have been referred to you, as
manager of the Technical Department of RSVP, a large audit firm:
1. Blair and Emma, a newly qualified Chartered Accountant, are working together on the audit
of Sailrow Ltd, one of RSVP’s clients. Blair was overheard saying to a client staff member
that: “Yes, Emma qualified last week – I don’t know how she made it, as she is not too smart
and would not have qualified a few years ago when I wrote. I guess they are dropping
standards and letting just about anyone qualify these days.”
(2 marks)
2. RSVP has been asked to prepare a valuation of the factory owned by Twin Sisters Ltd, an
audit client so that the company has updated figures for incorporation in its annual financial
statements. The factory is used to manufacture all tennis goods produced by Twin Sisters Ltd.
(2 marks)
3. Mike Tan, an audit analyst, tells a tennis club friend not to buy a new software package for her
firm. Mike confides that Orex Ltd, one of his clients is developing a rival product that is far
superior and will be launched in a few months at a much lower price.
(2 marks)
4. Nina Jetson, an audit manager, is asked by a client to assist in finding a way to present the latest
results to shareholders and investors in a way that hides the true extent of the current downturn
the firm is experiencing.
(2 marks)
Required:
Identify and explain which one fundamental ethical principle has been breached in each of the above
scenarios. Include in your explanation what is expected in terms of the fundamental principle concerned.
Where threats to independence exist, these should also be identified and explained.
[Q1 TOTAL: 8 MARKS]
Question 2: Legal Environment
You are an audit partner at PMGK a leading audit firm. You have received call from your friend, Aimy,
who is an audit partner at another audit firm, BOD. She says that her firm has received a notice from
an audit client, Kongols Ltd, which has just sold 75% of its shares to Dongles Ltd. Dongles Ltd alleges
that the inventory valuation of Kongols was overstated by $20 million and they are now looking to sue
her firm, as auditors who signed off a clean audit report on Kongols five months before Dongles bought
the entity, to recover the $20 million. She wants your guidance in relation to this as well as a related
matter.
The new management of Kongols Ltd is unhappy with Aimy’s audit firm, claiming their attitude is
offensively inquisitive and that they ask for too many documents. The Chief Executive Officer (CEO)
has asked BOD to resign with immediate effect, as he has personally arranged to replace them with a
new auditor.
Required:
a) Identify and explain the factors necessary for a third party to successfully sue an auditor.
(6 marks)
b) Aimy has asked you to explain to the CEO, the legal requirements to be followed when replacing
an auditor.
(4 marks)
[Q2 TOTAL: 10 MARKS]
Question 3: Audit Planning
You are auditing, Bunny’s Ltd, a large manufacturing concern operating in Australasia. As part of the
planning work, you have performed analytical procedures on an annualised basis and compared the
results to industry averages and last year’s audited financial information. The results are given below:
Industry average Bunny’s Limited
Ratio 2019 2018 2019 2018
a) Days in receivables 29 27 52 48
b) Days in inventory 90 88 75 74
c) Gross margin 0.30 0.26 0.17 0.18
While familiarising yourself with the company and its environment, you learn that:
i. Bunny’s management remuneration is mostly incentive-based (reliant on meeting optimistic sales
targets) and inability to meet sales targets results in reduced sales commissions in the next period.
ii. The human resources department of Bunny’s has been short-staffed and unable to provide training
to newly hired staff responsible for warehouse administration and financial processing functions.
iii. One of the products manufactured by Bunny’s is a titanium bolt, which is small but very valuable
and in high demand in the market.
iv. There is no aging review of accounts receivable and an increasing percentage of total receivables
are falling into the 90 days+ category.
Required:
Briefly explain the audit implications of the above ratios and additional information, as well as the
effect they will have on your audit plan for: (a) Accounts receivable, (b) Inventory, (c) Gross margin
and related accounts, (d) General/ pervasive to all accounts
[Q3 TOTAL: 16 MARKS]
Question 4: Risk, Assertions, Materiality & Audit Strategy
Sleepyhead Limited is a large manufacturing firm located in Auckland, involved in producing a single
product used in power plants. The entity has been experiencing declining sales over the last 2 years.
Cutting the manufacturing cost has proved difficult due to the nature of the product as it requires the
use of high skilled labour, expensive and refined raw material (costs 75% of the total cost of
manufacturing), and a complex manufacturing process.
While the bankers are presently happy to continue providing Sleepyhead with loan facilities, they do
expect to see improved results in the next financial report. To improve its financial performance,
Sleepyhead has significantly reduced its debt collection staff, merged the raw material receiving and
issuance functions in the warehouse and recently moved some of its manufacturing out of Auckland
into regional areas. Staff cuts have also been made in Internal Audit and to roles which are purely
supervisory or controls related. While this saves around 20% on operating and salary costs, the accounts
receivable turnover has significantly decreased (nearly 80% of the sales are on credit) and the
manufacturing process takes longer. On several occasions, late delivery has resulted in lost sales.
Required:
a) Identify the three components of audit risk and explain what your assessment of risk is for each
component (use only ‘high’, ‘medium’ or ‘low’). Support your assessments with reference to the
above information. Also include in your explanation how at least two assertions are affected by the
above information.
(9 marks)
b) Explain how your risk assessments in (a) above would impact on the nature, timing and extent of
audit procedures.
(4 marks)
c) Explain the term materiality in audit and what will be the impact of the above-mentioned scenario
on the preliminary estimate of materiality for planning.
(3 marks)
[Q4 TOTAL: 16 MARKS]
Total Marks for Assignment 2, Part A: 50 x 2 = 100 marks
Assignment 2 counts 15% of your Course marks.
Essay writing help – Ethics Independence & Governance Discussion Online Essay Writing Agency – Grade Master-Pro.
DO MY HOMEWORK NOW!Write my Essay. Premium essay writing services is the ideal place for homework help or essay writing service. if you are looking for affordable, high quality & non-plagiarized papers, click on the button below to place your order. Provide us with the instructions and one of our writers will deliver a unique, no plagiarism, and professional paper.
Get help with your toughest assignments and get them solved by a Reliable Custom Papers Writing Company. Save time, money and get quality papers. Buying an excellent plagiarism-free paper is a piece of cake!
All our papers are written from scratch. We can cover any assignment/essay in your field of study.
