2-16 Brief References to HKICPA Code ofEthics and HKSAsSally Jones' Actions Resulting in Failure to Comply with HKICPA Code of Ethics and HKSA HKICPA Code of Ethics: 1.The Code of Ethics requires thatthe accountant performs his or herprofessional responsibilities withcompetence.A professional accountantshould also take steps to ensure thatthose working under his or her authorityin a professional capacity haveappropriate training and supervision.1.It was inappropriate for Jones to hire the two students to conduct the audit.The examination must be conducted by persons with proper education and experience in the field of auditing.Although a junior assistant has not completed his formal education, he may help in the conduct of the examination as long as there is proper supervision and review. 2.The Code of Ethics requires thatpractitioners should be both independentof mind and in appearance for audits.Independence is related to the basicprinciples of integrity and objectivity aswell as professional scepticism.Contingent fees for audit engagementscreate threat to independence.2.To satisfy the Code, Jones must be without bias with respect to the client under audit.Jones has an obligation for fairness to the owners, management, and creditors who may rely on the report.Because of the financial interest in whether the bank loan is granted to Boucher, Jones is not independent in either of mind or in appearance with respect to the assignment undertaken. 3.The Code of Ethics requires thatthe accountant performs his or herprofessional responsibilities with duecare.Due care means that theprofessional accountant and thoseworking under his or her authority should observe technical and professional standards. 3.The Code requires Jones to perform the audit with due care, which imposes on Jones and everyone in Jones's organization a responsibility to observe the auditing standards. HK Standard on Auditing: 1.Auditing standards requires thatthe engagement partner is satisfied thatthe engagement team has theappropriate capabilities and competenceto perform the audit (HKSA 220).Theengagement partner shall also takeresponsibility for direction, supervision and performance of the audit (HKSA 220).The auditor shall plan the audit so that the engagement will be performed in1.Jones accepted the engagement without considering the availability of competent staff.In addition, Jones failed to supervise the assistants.The work performed was not adequately planned.
an effective manner (HKSA 300). 2.The auditor shall obtain anunderstanding of internal control relevantto the audit (HKSA 315).2.Jones did not study internal control, nor did the assistants.There appears to have been no audit examination at all.The work performed was more an accounting service than it was an auditing service. 3.The auditor shall obtain sufficientappropriate evidence to be able to drawreasonable conclusions on which to basethe audit opinion (HKSA 500).3.Jones acquired little evidence that would support the fairness of the financial statements.Jones merely checked the mathematical accuracy of the records and summarized the accounts.Standard audit procedures and techniques were not performed. 4.The report shall state that theaudit was conducted in accordance withthe ISAs or relevant national standards(HKSA 700).4.Jones's report made no reference to the ISAs.Because Jones did not conduct a proper examination, the report should state that no opinion can be expressed as to the fair presentation of the financial statements in accordance with the financial reporting framework. 5.The report shall state that theaudit includes evaluating theappropriateness of accounting policiesused and the reasonableness ofaccounting estimates made by management, as well as evaluating the overall presentation of the financial statements (HKSA 700). 5.Jones's improper examination would not enable her to determine whether accounting policies have been consistently applied. 6.The report shall contain either anexpression of opinion regarding thefinancial statements, taken as a whole,or an assertion to the effect that anopinion cannot be expressed.When anoverall opinion cannot be expressed, thereasons therefore should be stated.Inall cases where an auditor's name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor's work (HKSA 700).6.Although the Jones report contains an expression of opinion, such opinion is not based on the results of a proper audit examination.Jones should disclaim an opinion because she failed to conduct an examination in accordance with ISAs.