Impairments Of Auditor Independence During â€Myassignmenthelp.Com

Question: Discuss About The Impairments Of Auditor Independence During? Answer: Introducation In the question it has been said that Katrina Ng who holds the designation of the senior accounts manager from Jenkins Ltd has fallen sick and due to that there is a requirement of a replacement for the upcoming next four months and for this a replacement has been asked from Thornleigh Accountants. The replacement accountant that Thornleigh Accountants provided is a person named Ellen Davis and she had finished her tenure of being substitute accountant in the mid of May. Now the responsibility of conducting audit in Jenkins Ltd has been given to Thornleigh Accountants and Ellen Davis is intended to be a part of the audit team. The particular category of threat to independence under which the situation falls is Self-review threat (Tepalagul and Lin 2015). It is a self-review threat because she is already a member of Thornleigh Ltd and within this tenure she has been a part of Jenkins Ltd as a replacement of a senior accounts manager and now she will also be a part of the audit team th at will conduct audit of Jenkins Ltd. Therefore it is observed that one of the members of the audit team has been an employee of the client company and the job role or the position that he or she has been in can very easily manipulate or influence the financial matters to be assessed, thus it is a self-review threat. The condition mentioned in this question is that the Audit Manager of Dargin Associates Accountants has just received the accounts from Winmalee Ltd and has found out that the firm has taken an optimistic approach to the valuation of development expenditure capitalized in intangible assets. It has also been noted that the companys performance in terms of profit is directly related to senior staff bonus and that Winmalee have provided copies of details taken from various accounting standards which have also been prepared with a sympathetic approach for the valuation of the assets. As per the settings or the background of the case the category of threat under which this particular case study falls is familiarity or relationships threat (Blay and Geiger 2013). In simpler terms a familiarity or relationships threat is by definition a threat which is imposed when the auditor has business relationship or close family relation with the customer or client firm. Now in this situation the act of leniency while checking the financial statements that is while conducting audit of Winmalee may arise due to the fact that the firm has opted for a sympathetic approach for the valuation of bonus of senior staff as it is directly dependant on total revenue, thus this may lead to a relationship threat on the basis of emotional terms (Carson et al., 2012). The case study that is mentioned in this particular question is that a certain chocolate company is interested in carrying out its audit by a particular audit firm and if agreed to carry out the audit then the audit firm will also receive an invitation to visit the second chocolate shop where in defective chocolates are sold at a considerable discounted price. The condition will surely fall under self-interest threat of the threat to independence category. This is because if the audit firm refuses to cooperate or adhere to the unethical practices executed by the chocolate company in its second chocolate shop then the company may cancel the deal given to the auditing firm of carrying out audit of the financial statements of the chocolate company. Therefore the auditing firm is in the fear of losing upon a legible client (DeFond and Zhang 2014). The condition mentioned in this question is that a certain travelling company named Expert Travel Company presently is in the need of changing the auditor current appointed auditor as they require an auditor who is flexible in terms of checking the financial statements of the company and also flexible with the accounting standards used. This is the reason the management wants a final answer from the current auditor. As per the conditions of the case study it will definitely fall under the category of self-interest threat as it is clear from the case study that the auditor has financial interest in the client. In clearer terms there are high chances that the current auditor will succumb to the unethical proposals forwarded by the company as he or she has financial interests, thus it is a self-interest threat (Koch, Weber and Wstemann 2012). The case study as described in the question depicts a situation when executing the audit practices of Elmtree, it is found out that a senior member of the audit team, Elaine Ong is engaged to James Bing, a senior accountant at Elmtree. Thus it is very clear from the data provided that this case will fall under the category of familiarity threat as a member of the audit team has close family in the organization of the client. The result of such a close relationship might lead to influencing or manipulating the financial matter to be audited. Therefore it is a familiarity threat (Dhaliwal et al., 2015). The backdrop of the case study as mentioned in the question is that an auditing firm, MCM Accountants will execute the audit of Rangers Ltd. Further it is known that a senior auditor appointed in the audit team, Diane Polo plays softball with Elise Lift, the senior accountant and several staff members of Rangers Ltd. As no details have been provided about the fact whether Diane Polo and Elise Lift and other staff members of Rangers Ltd are a mere acquaintance or have known each other for long. If they are merely acquainted with each other then it will pose no threat but if they know each other for a long time then that is if a long association exists then it will fall under familiarity threat (Dart and Chandler 2013) References Blay, A.D. and Geiger, M.A., 2013. Auditor fees and auditor independence: Evidence from going concern reporting decisions. Contemporary Accounting Research, 30(2), pp.579-606. Carson, E., Fargher, N.L., Geiger, M.A., Lennox, C.S., Raghunandan, K. and Willekens, M., 2012. Audit reporting for going-concern uncertainty: A research synthesis. Auditing: A Journal of Practice Theory, 32(sp1), pp.353-384. Dart, E. and Chandler, R., 2013. Client employment of previous auditors: shareholders views on auditor independence. Accounting and Business Research, 43(3), pp.205-224. DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2), pp.275-326. Dhaliwal, D.S., Lamoreaux, P.T., Lennox, C.S. and Mauler, L.M., 2015. Management Influence on Auditor Selection and Subsequent Impairments of Auditor Independence during the Post?SOX Period. Contemporary Accounting Research, 32(2), pp.575-607. Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor Francis. Koch, C., Weber, M. and Wstemann, J., 2012. Can auditors be independent? experimental evidence on the effects of client type. European Accounting Review, 21(4), pp.797-823. Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing Finance, 30(1), pp.10