Assignment of

Advance Auditing

Q (a) What is professional competence and due care and outline how firms of
Charted Accountant can ensure that the principle is compiled with.
‘Professional competence and due care’ is one of the fundamental ethical principles explained as
part of the Code’s conceptual framework. It can be broken down into two parts.

Professional Competence
The Accountant must have the professional knowledge and skill at the level required to ensure
that a client or employer receives competent professional services based on current developments
in practice and technique.
Due Care
Members should act diligently and in accordance with applicable technical and professional
standards when providing professional services.
Compliance with principles
Attaining and maintaining professional knowledge: Firms can offer training on specific technical
matters, such as changes to tax rules or new auditing guidelines, which could be provided by
senior members of the firm or by external consultants.
(i) Contaminated Plastic
The Headford Co Manufacture Toys in which some of the plastic used which is contaminated
with a dangerous chemical which has the potential to explode if it is exposed to high temperature
and cause to serious injury even death of the consumer.
Confidentiality are arises if the auditor continue the audit of Headford Co.
1) Decline or Resign from the engagement
If continue the audit than the public interest arise
> The gravity of the meter;
> The reason for the client unwillingness to make the disclosures:
> Legal Advice obtained
Finally, in this situation the procedure of auditing must planned. The inventory still held by
Headford Co should be written off, and provision may be necessary for refund or return the
products and written in their financial statements as a contingent liability. The damages
claimed by the customer in the event of any injury the legal action being taken against
Headford Co.
B (ii) The invitation to audit Cong Co
Cong Co and Headford Co like as same industry so the ethical threat are arise like as
Objectivity and Confidentiality.
1) Separate engagement Team
2) Advice the clients to seek independent advice
3) Signed confidentiality agreement
4) Regular review of the application of safeguards by an independent person of appropriate

(a) Business arrangement with Murray Co
Objectivity arises because the audit committee not gives an independent opinion due to joint
Self-interest, Intimidation and Familiarity
Self-interest should be created because Becker and co provide finance to Murray Co. and
intimidation arises because Murray co can force to Becker Co due to joint business.
Familiarity threat may be arise due to business relationship. No safeguard reduce the threat in
this situation, Becker Co may not enter into the joint venture arrangement with Murray Co
because Murray still audit Client.
(b) Recruitment Services
It is not non audit services
Objectivity: Biasness and conflict may be arise due to provide of this services
Self-interest: Becker Co must charge fee for providing this services to their audit client so
the self-interest may be arise.
Familiarity: the auditor may be give relaxation to their co member so familiarity threat
Self-review: member of team must review their work.
1) Remove individual from the engagement
2) Performing an independent review of significant judgments’ made by that individual.
(c) Temporary Staff assignments
An audit firm should not provide employee services on short term basis for an audit client. If
audit firm provide this than several threat arise,
Objectivity: if a member of audit committee work in client co than he should not give an
independent opinion due to create biasness or conflict.
Self-review: if the members of audit committee provide services of temporary assignment,
the audit team reviews the work of their colleague.
Management Threat: if any member of audit committee works in finance functions than, it
is likely that individual involve in decision making related to the accounting system.
Familiarity: if the member of audit committee works in client co than the familiarity threat
arises at any time.

1) Remove individual from the engagement.
2) The work will not include making management decision and does not commit the audit
client to a particular position or accounting treatment.
3) When individual returns to the firm on completion of the staff assignments, they should
not be given any data or not telling about any activity which is performed during the

(a) Norman & Co
Objectivity: Norman & co not paid audit fee for the year ended 2007, it is perceived that
audit may be performed free of cost and audit opinion not independent.
Self-interest: this amount considered as loan to the client so the self-interest arise.
1) Receive cash in installment rather than demanding the total amount outstanding
2) Performing an independent partner/quality control review of the engagement.
3) The audit working papers on going concern should be review to ensure that sufficient
evidence has been gathered to support the audit opinion.
4) Smith & Co have already acted to improve credit control by making a manager
responsible for reviewing invoices and monitoring subsequent cash collection. It is
important that credit control procedures are quickly put into place to prevent similar
situations arising.
(b) Wallace & co
The audit manager entered into a private commercial transaction with client, the code of ethic
does not prohibit this in some condition
 In the normal course of business.
 The value is not material to either party.
Self-interest: Valerie Hobson is benefiting financially from position as audit manager, she
may compromise the audit opinion to keep the client happy

1) Evaluate the value of transaction
2) Benefiting from a discount on services provided by Wallace Co, which was not disclosed,
could result in disciplinary action.
3) The Valerie should be remove immediately from audit manager and appoint new audit
manager in Wallace & Co
4) Performing an independent partner/quality control review of the engagement.

(c) Software supply co
Objectivity: audit firm provide bespoke accounting software so it may be cause to create
biasness and may be audit opinion is not independent due to this.
Self-interest: audit firm getting financial benefit in the way of referral fee so self-interest
1) Verify from all individual who involve providing this services that they have no personal
or financial interest in software supply co.
2) Performing an independent partner/quality control review of the engagement.