Part A: Two fundamental principles of professional ethics as stated in APES110, which their

engagement partners had breached during the audit engagements for the periods 2009 through
2012.

Firstly, as the engagement audit team, Rubin and Bernstein must comply with relevant rules, laws
and regulations and act professionally when doing audit. However, intentionally, they did not follow
up requirements and guidance stated in auditing standards. In fact, Rubin, instead of getting
evidences as required, he advised and directed CRS’s actions to avoid potential liabilities if audited. In
addition, Rubin and Bernstein knew that particular issues could only be addressed by particular
standards and procedures, but, they did not perform or perform in contravention of those standards.
Therefore, the engagement partner breached the principle of “professional behavior”. Secondly,
Rubin did not act diligently, thoroughly and do the best of his ability when completed his roles. He did
not perform any audit procedures in some events such as a material related party agreement which
shown the obligation of CRS and TSE under the PEO arrangement, or perform inadequate procedures,
even he was aware of the existence of issues which required him to obtain evidences and resolve
issues, and then associated with the concurrence of Bernstein as EQR, issued audit reports containing
incomplete portions as well as unqualified opinions. Furthermore, the engagement team do not have
sufficient knowledge and skill at the level required to realize as well as identify misstatements and
frauds of CRS which not comply with accounting principles. For example, CRS did not comply with
standards of GAAP related to party disclosures. However, Rubin failed to realize and obtain audit
evidence, and Bernstein failed to identify the departure from GAAP in CRS’s related party disclosures.
Thus, they breached the principle of “professional competence and due care”.

Part B: Two potential threats to auditor’s compliance with the fundamental principles that might
have contributed to the false representation of the financial statements and audits.

As mentioned in the article, Rubin was a non-equity partner who may be offered equity partnership
if he performed well, Bernstein was a managing partner who has a direct ownership interest. In
addition, CRS was a significant client of the RSSM. So that, Rubin, Bernstein and RSSM, together they
should always concern the possibility of losing CRS, and try to make the client happy and stay in as
they can. This fact may cause a threat of “self-interest” when they did perform the auditing for CRS as
the engagement partner and the engagement quality reviewer. In fact, this threat occurred when
they hid CRS’s undisclosed liabilities for unpaid payroll taxes and misstatements of costs of revenue,
so that, the company may get a good financial position in the stock market as well as attract investors.
The second threat happened when Rubin and Bernstein were requested to re-evaluate works done as
when successor auditor identified deficiencies in audit reports of RSSM. However, Rubin was a person
who performed the audit procedure on these audit reports containing unqualified opinion, which
originally completed by himself. Additionally, a person who reviewed this procedure was Bernstein,
who previously reviewed the original one. Therefore, it is clear to say that they were kinds of checking
their own works. This fact creates a threat of “self-review”, and potentially not gains independent
judgements.
Reference

 Gay, Grant E, Auditing and Assurance Services in Australia, 7th Edition, McGraw-Hill Education
Pty Ltd, Australia.

 Accounting Professional & Ethical Standards Board, June 2006, APES 110-Code of Ethics for
Professional Accountants, viewed at 9 August 2019,
<https://www.apesb.org.au/uploads/standards/superseded_pronouncements/210920161459
01_APES_110.pdf>.

 Michael Evans, 14 November 2018, Equity Partners Vs. Non-Equity Partners, Career Trend,
viewed at 9 August 2019, <https://careertrend.com/equity-partners-vs-nonequity-partners-
27428.html>.

 Kimberlee Leonard, November 26, 2018, Definition of a Managing Partner, Chron, viewed at 9
August 2019, <https://smallbusiness.chron.com/definition-managing-partner-llc-39933.html>.