Chapter 2

The Hong Kong University of Science and Technology **We aren't endorsed by this school
Sep 15, 2023
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2-16 Brief References to HKICPA Code of Ethics and HKSAs Sally Jones' Actions Resulting in Failure to Comply with HKICPA Code of Ethics and HKSA HKICPA Code of Ethics: 1. The Code of Ethics requires that the accountant performs his or her professional responsibilities with competence. A professional accountant should also take steps to ensure that those working under his or her authority in a professional capacity have appropriate 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 that practitioners should be both independent of mind and in appearance for audits. Independence is related to the basic principles of integrity and objectivity as well as professional scepticism. Contingent fees for audit engagements create 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 that the accountant performs his or her professional responsibilities with due care. Due care means that the professional accountant and those working 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 that the engagement partner is satisfied that the engagement team has the appropriate capabilities and competence to perform the audit (HKSA 220). The engagement partner shall also take responsibility for direction, supervision and performance of the audit (HKSA 220). The auditor shall plan the audit so that the engagement will be performed in 1. 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 an understanding of internal control relevant to 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 sufficient appropriate evidence to be able to draw reasonable conclusions on which to base the 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 the audit was conducted in accordance with the 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 the audit includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting 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 an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated. In all 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.
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