Essays24.com - Term Papers and Free Essays
Search

Moral Issue

Essay by   •  January 21, 2011  •  2,551 Words (11 Pages)  •  1,292 Views

Essay Preview: Moral Issue

Report this essay
Page 1 of 11

Background and related standards

According to this case, BTI became a public listed company in 1999, section 100 (general application of the code) and section 200 (members in public practice) of “code of ethics for professional accountants” should be considered during the analysis.

1. Three threats and safeguards

a) Based on these principles and the situations in BTI case, there are three main threats that AWC and Angela Metz have to face. They are self-interest threats, self-review threats and familiarity threats.

Self-interest threats:

Section 200.4 of the APES 110 states that a self-interest threat is created when “concern about the possibility of losing a client, or having a close relationship with a client”. That is, where the relationship between client and auditor firm does affect the independence of the auditor.

In BTI case, the auditor firm AWC and Angela Mets have to face this threats. There are two issues worried Angela. On one hand, the BTI Company is the main client for AWC in Toowoomba. Meanwhile, in early 2005, AWC have a plan to set an office in Toowoomba. On the other hand, there is a potential competitive from another company, which named Tanner, Lidiak & Co. This auditor firm has good reputation in this area and also worked on the high-tech industry. In addition, some directors of BTI have close relationship with this competitor.

Self- review threats:

According to section 200.5 of the code, some situations create self-review threats for a member in practice, such as, “reporting on the operation of financial systems after being involved in their design or implementation”, “performing a service for a client that directly affects the subject matter of assurance engagement”.

In BTI case, the auditor firm AWC not only engages in setting up the dad processing system, also assists in applying for list company with ASX. Both behaviors show that the auditor firm involved in the assurance engagement, and they are also independent threats.

Familiarity threats:

Section 200.7 and section 290.28.6 of the code state that the close nature of relationship with clients is another factor, which affects the independence for an auditor. According to Roger Hussey (1999, P.1- P.9), there are three aspects that the familiarity threats may be identified. First is the method to select an auditing firm. Second is the contact between the director and the lead person in auditing firm. Thirdly is the perception of finance directors about the relationship with the auditors.

In BTI case, the CFO Carson worked for AWC before him setting his new company. Even though the AWC have no office in their area, they still choose this auditing firm as their external auditor. In addition, Angela contact with them frequently during the auditor’s appointment. What’s more, Both CFO and CEO are enjoying with the relationship between BTI and AWC. Therefore, the familiarity threats may be presented in this case.

b) The safeguards should be considered, when the potential threats are identified. According to AUST S 290.28 of the code, the company should apply appropriate safeguards to reduce threats to independence in a satisfied level.

As stated in section 200.10 of the code, there are two categories of safeguards. One is created by the profession, legislation or regulation; the other one is in work environment. Section 200.12 (firm-wide safeguards), section 200.13 (engagement-specific safeguards) and section 200.15 (safeguards with client systems and procedures) contain further information relating to the types and examples of safeguards. Because of the different circumstances, the safeguards be applied will vary, according to section 100.15.

For self-interest threat, in the case of BTI, where Angela “”concern about the possibility of losing a client”, the auditor’s firm AWC provide a four-year fixed fee offer for benefits their clients and to protect themselves. However, reduce the fees is not the only way to reduce the threats. Another way is to reconsider about the quality of the audit service. In this case, AWC have a competitor, which is also have good reputation in this area and in the high-tech industry. AWC need provide a good auditing planning to attract the board of BTI and the audit committee.

For self-review threat, the financial preparer and the auditor should be separated. In BTI, because the AWC prepare the information for applying the listing company and also involved in BTIвЂ™Ð²Ð‚™s auditing activities, according to section 200.13, it is necessary to involving the third professional accountant to review the work done. And all these actions have to be disclosed in their annual report.

2. Two threats and safeguards

It is assume that BTI retained AWC as their auditor’s firm. There are still have two more threats need to be considered: intimidation threat and familiarity threat.

Intimidation threats and safeguards:

As stated in section 290.28.7, intimidation threat may be created by “pressure to reduce inappropriately the extent of work performed in order to reduce fees.” In BTI case, if AWC is still their auditor and the auditing fees become the four-year fixed fees. This may lead to a new issue about how to work efficiently by using the reduced fees. In fact, AWC’s auditing work is much more depending on the internal auditor department of BTI. In addition, AWC is more dependence on BTI, because it is the major client in that area for them. This also leads to intimidation threat existing, as explained in section 290.28.7, “being threatened with dismissal or replacement in relation to a client engagement.”

Therefore, in order to reduce this threat, some safeguards should be considered and applied. One method is to develop more clients in this area. As the company already have office in Toowoomba, it is necessary to plan their business development for getting more clients. Another method is to strength the communication with board and audit community. More information can get from the clients, more efficient on dealing with the problem or debates among them.

Familiarity threats and safeguards:

Under section 290.28.6, familiarity threats may occur when the relationship between the client and auditor’s firm is too close. For example, “long

...

...

Download as:   txt (16.7 Kb)   pdf (183.5 Kb)   docx (15 Kb)  
Continue for 10 more pages »
Only available on Essays24.com
Citation Generator

(2011, 01). Moral Issue. Essays24.com. Retrieved 01, 2011, from https://www.essays24.com/essay/Moral-Issue/30287.html

"Moral Issue" Essays24.com. 01 2011. 2011. 01 2011 <https://www.essays24.com/essay/Moral-Issue/30287.html>.

"Moral Issue." Essays24.com. Essays24.com, 01 2011. Web. 01 2011. <https://www.essays24.com/essay/Moral-Issue/30287.html>.

"Moral Issue." Essays24.com. 01, 2011. Accessed 01, 2011. https://www.essays24.com/essay/Moral-Issue/30287.html.