Question

Case Data: Smit & Ng Chartered Accountants You are a junior manager at Smit & Ng, a firm of Chartered Accountants. You are responsible for reviewing ethical matters which arise with the firm's portfolio of clients. During recent investigations you identified the following matters:

Aroma Pty Ltd

Aroma is a manufacturer of bottled drinks, and has been an audit client of Smit & Ng for five years. Two audit juniors attended the annual inventory count on the 28th February 2020. They reported that Brenda Ann, the new production manager of Aroma, wanted the inventory count and audit procedures performed as quickly as possible. As an incentive she offered the two juniors ten free bottles of 'Power Boost Juice' from the end of the production line. Brenda also invited them to join the Aroma office party, which commenced at the end of the inventory count. The inventory count and audit procedures were completed within two hours (the previous year's procedures lasted a full day), and the juniors then spent four hours at the office party.

(please answer using Australian law)

Require:

Identify and discuss the ethical and other professionals issues found in the above cases.

Answer 1

Audit procedures should not be reduced as per clients request. An auditor must use professional judgement to decide the extent and scope of audit procedures. It cannot be considered as sufficient and appropriate audit evidence.

Moreover accepting hospitality or gifts from the clients creates self interest and familiarity threats, unless the value is clearly insignificant, the threats to independence cannot be reduced to an acceptable level. Consequently, a firm or member of the audit team should not accept such hospitality or gifts.