Assurance and Forensic Accounting

Topic 2 – Regulatory Obligations of Auditors, Forensic

Accountants and their Reports
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Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports i

Contents

Contents ii

Introduction 1
Learning Objectives 1

An Understanding of Ethics 3

The Code of Ethics for Professional Accountants: APES 110 3

Professional Independence 4

Audit Quality 5
Example: An Australian Corporate Collapse 5

Fraud Offences: An Overview 7

Liability to Shareholders and Auditees 8

The Independent Auditor’s Report 9

Half-yearly Statements 10

The Regulation of Forensic Accounting 10

APES 215 Forensic Accounting Services 10

Summary 11

References 11

ii Assurance and Forensic Accounting

Introduction
Ethical behaviour requires consideration of more than regulatory activities
and rules of conduct. No professional code of ethics or regulatory
framework can anticipate all the situations for which personal judgement
on ethical behaviour is required. The key principles of professional ethics
are discussed in this topic, for the purpose of understanding professional
ethics and conduct. One of the distinguishing characteristics of any
profession is the existence of a code of professional conduct or ethics for its
members. With the implementation of force of law auditing standards on 1
July 2006, the current Code of Ethics for Professional Accountants
(APES110) issued by the Accounting Professional and Ethical Standards
Board (APESB) came into force.
Topic one gave students an overview of assurance services, and why we
need a profession to deliver these services; however, this topic emphasizes
how a profession is expected to behave and the ethics values it should hold.
Independence of auditors and audit quality are issues also closely
considered and developed in this topic.

The audit report is the key communication tool by the auditor in respect of
the auditing process that has been undertaken. The final phase of the
auditing process is the reporting of the findings. At this point we jump
forward to the final phase so you can view and understand what the final
product of the audit is, and therefore have this insight before the next set
of topics which focus on the actual audit process itself. In providing an
understanding of the standards required for an auditor’s report, we must
discuss the underlying concepts in financial reports. A general-purpose
framework means a financial report framework that is designed to meet the
common financial information needs of a wide range of users. The general-
purpose financial reporting may be a fair presentation framework or a
compliance framework. A financial report is a complete set of general-
purpose financial statements, including the related notes and an assertion
statement by those responsible for the financial report.

Learning Objectives
At the end of this topic you should be able to:
 develop an understanding of the role of the professional accountant
and the profession's code of conduct
 outline the significance of the ethical values of accountants
 develop a basic understanding of the significance of professional
independence for auditors
 generalise what audit quality is and why it is important to the
profession
 give examples of the facts about some corporate collapses where audit
failure was involved
 evaluate the auditor’s responsibility to form an audit opinion
 identify the different types of auditor’s reports

Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports iii
  discuss half-year statements and clarify how review engagements have
different audit reporting requirements to a full-year financial statement
audit

Recommended Text:
Audit and Assurance, 1st edition, Leung, Coram, Cooper and
Richardson (2019) Chapter 3, 4 & 6.

Albrecht et al., Fraud Examination, 6th edition, (2019). Chapter 1 &

2.

Additional Reading

The following report will assist you to understand the guidance

presented to audit clients regarding the audit process.

CPA Report (2013) A guide to understanding auditing and assurance:

The following research papers will assist you in understanding the

Australian audit independence reforms.

Houghton, K. A. and Jubb, C. A. (2003), "The market for financial

report audits: Regulation of and competition for auditor
independence". Law & Policy, Vol. 25:, pp. 299–321.

Houghton, K. A. and Jubb, C. (2002), "An Australian response to

recent developments in the market for audit services", Australian
Accounting Review, Vol. 12, No. 28, pp. 24-30.

The following reports will help you understand the specific

recommendations that were produced out of the HIH Royal
Commission.
The HIH Royal Commission Report, April (2003).

Houghton, K. Jubb, C. Kend, M. and Ng, J. (2010), 'The Future of

Audit: Keeping Capital Markets Efficient', EPress, Canberra,
Australia. Chapter 10.

Web resource
All Auditing and Assurance Standards are available from:
http://www.auasb.gov.au/

iv Assurance and Forensic Accounting

An Understanding of Ethics
Professional ethics extends beyond rules and theories. They include
standards of behaviour for professional people that are designed for both
practical and idealistic purposes. The word itself 'ethics' is derived from the
Greek word ethos, meaning 'character'. Ethics focuses on what is 'right' and
'wrong', and how and why people act in certain manner. It focuses on the
study of choices, standards and behaviour.
There is a special need for ethical behaviour by professionals to maintain
public confidence in the profession and in the services provided by
members of that profession. A professional accountant acts as both a
responsible individual and a person who operates within a set of
professional norms and values. A professional code of ethics, therefore, is
designed to encourage ideal behaviour and should be both realistic and
enforceable. In the next section, we discuss the Code of Ethics for
Professional Accountants issued by the APESB. Sometime it is referred to as
the Code of Ethics APES110.

The Code of Ethics for Professional Accountants:

APES 110
The Code of Ethics has three parts. Part A (Sections 100-150) provides an
introduction and fundamental principles that are applicable to all
professional accountants. Part B (sections 200-291) applies to professional
accountants in public practice. It contains the most important aspect of the
ethical requirements for professional accountants in public practice,
namely, independence of assurance engagements (discussed under the next
section). Finally, Part C (Sections 300-350) applies to professional
accountants in business, and looks at cases where potential conflicts arise
in business organisations.
The fundamental principles from Part A of the Code of Ethics are as follows:
1. Integrity - auditors must be straightforward and honest
2. Objectivity - auditors must not compromise their professional judgement
3. Professional competence and due care - auditors must be diligent in the
application of their knowledge and skills
4. Confidentiality - auditors must not use confidential information acquired
as a result of their professional relationships or work to their personal
advantage
5. Professional behaviour - auditors must refrain from any conduct that
might bring discredit to their profession.

Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports v

 The APESB's Code of Ethics adopts a principles approach because it is
impossible to anticipate every situation that might generate an ethical
problem for a professional accountant. It therefore provides a framework
for identifying, evaluating and resolving threats to the fundamental
principles. Most threats that arise are from one of the following sources:
self-interest, self-review, advocacy, familiarity and intimidation. In
response, the Code identifies two broad categories of safeguards that
reduce these threats to an acceptable level. These safeguards relate to (1)
the professional and regulatory environment, and (2) the professional work
environment which relies substantially on the culture and processes
developed in an audit firm.

Professional Independence
The ethical requirements for accountants are similar to the ethical
requirements of other professions. All professionals are expected to be
competent, perform services with due professional care and recognise their
responsibility to clients. The major difference between other professional
groups and auditors is independence. Because auditors have a responsibility
to financial statement users, it is essential that auditors be independent in
fact and appearance. Most other professionals, such as lawyers, are
expected to be an advocate for their clients.
Independence in auditing means taking an unbiased viewpoint in the
performance of audit tests, the evaluation of results and the issuance of
the audit reports. Independence is the cornerstone of the auditing
profession and one of the auditor's most vital characteristics. It relates back
to the fundamental principles of integrity and objectivity. If auditors lack
independence, then users will not rely on the external auditors' reports on
the truth and fairness of financial statements. Independence in
appearance is how independent the auditor appears to outsiders such as
users of financial statements. Independence in fact (or mind) refers to
whether the auditor has maintained an attitude of independence
throughout the engagement. For example, an auditor could possibly
maintain an attitude of independence in fact even though he or she held
shares in a company and performed the audit. However, the auditor would
not likely be independent in appearance in such a situation. Both
independence in appearance and fact are essential and the Code of Ethics
concerns both. In sum, independence in fact exists when the auditor is
actually able to maintain an unbiased attitude throughout the audit,
whereas independence in appearance is dependent on others' interpretation
of this independence and, consequently, their faith in the auditor.

Audit Quality
When auditors face pressures from management or time constraints, the
audit quality may be compromised. In this section we focus on the
vi Assurance and Forensic Accounting
importance of technical and ethical competence in enhancing audit
judgement and quality. Audit quality means how well an audit detects and
reports material misstatements in financial reports. The level of concern
for audit quality is driven largely by corporate failures and related
reporting deficiencies. In these cases, it is often perceived that the auditor
has been ineffective because of either a lack of capacity or willingness to
detect (and prevent) the deficiencies. Audit competence means having the
knowledge and skills required for carrying out an auditing task or function,
and the ability to apply them. This includes appropriate technical
knowledge, and the ability to interpret complex evidence and form an
appropriate opinion. The professional accounting bodies provide guidance
on competencies required and processes to be followed in achieving the
required level of competence.

Example: An Australian Corporate Collapse

Westpoint was a property developer specialising in retirement villages,
medical centres and shopping centres around Australia. All was going well
until the business collapsed in April 2006, and ASIC was appointed to
commence an investigation into the cause of WestPoint’s detrimental end.
It was found that the company faced losses of over $320 million, whereby
most of their investors were retirees who put their life savings in
WestPoint. WestPoint’s finances raised were not ‘ring-fenced’. This conduct
could have led to unethical issues, as there was no rule stating that the
finance raised for a development could only be used to develop that
project. Hence it would have allowed senior management to unethically use
those funds for other expenses, thus evoking independence issues and self-
interest threats. According to APES 110, management here would be seen
to be ignoring Integrity, as the quality of work conducted by management
was somewhat distorted.
CEO of WestPoint, Norm Carey, was known as the ‘Dominant Character’ or
the chief personnel behind the corporate collapse. During his time of reign
at WestPoint, Mr Carey committed certain negligent misconducts that
contributed to questionable ethics in the company i.e. uncommercial
transactions and insolvent trading. Mr Carey micro-managed all components
of Westpoint’s business. Mr Carey thought he was always correct and
nobody debated against him in the company. Furthermore, Mr Carey was
ruthless in dealing with his staff. According to APES 110, it can be seen that
Mr Carey indeed did not act with objectivity or competency and had set a
poor ‘tone at the top’ for Westpoint.
The liquidator also concluded the reasons of Westpoint’s failure, indicating
the questionable ethical behaviour of the company. They found that
Westpoint had inappropriate and ineffective risk management. Thus it can
be seen that management was somewhat careless and not acting with
integrity, leading to unethical and unfair behaviour to the general public.
Independence issues of self-interest and conflicts-of-interest threats (APES
110) was also predominant when it was found that financial planners
received commission for recommending WestPoint funds to clients.
All these negligent actions carried out by senior management of WestPoint

Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports vii
 clearly showed their lack of integrity and objectivity. Public interest was a
last priority and it seemed like they had self-interest for the profits of
WestPoint. Self-interest and self-greed is thus immoral and unethical
especially as the role of a director of such a once reputable company.

Reflection
Access the online article "ASIC Wins Case Against Centro Directors" by
Leonie Wood in The Sydney Morning Herald,

Read this article, and be ready to answer questions from your

lecturer in class. Relate your comments back to APES 110, see the
Westpoint example above for guidance.

Fraud Offences: An Overview

Fraud offences in Australia are covered by the Crimes Act 1958. Note that fraud
offences also exist under various Commonwealth legislation, including the
Corporations Act that relate to corporate governance and the Trade Practices Act
that relate to the conduct of business affairs. Each fraud offence is made up of
elements that must be proven, otherwise there is no offence.
S81. (1) A person who by any deception dishonestly obtains property
belonging to another, with the intention of permanently depriving the other
of it, is guilty of an indictable offence and liable to level 5 imprisonment
(10 years maximum).
Forensic accounting can identify deception in the form of missing or
unexplained journal entries; a double set of books or convoluted journal
entries designed to conceal the substance of fraudulent transactions. In
some cases, these acts are performed by the alleged offender. In other
cases, unsuspecting parties act upon instructions received from the alleged
offender to carry out the deception.

S.82 (1) A person who by any deception dishonestly obtains for himself or
another any financial advantage is guilty of an indictable offence and liable
to level 5 imprisonment (10 years maximum).
Forensic accounting can uncover false information provided by an alleged
offender, such as declaring false sources of income, overstated or non-
existent assets or understated or undisclosed liabilities when applying for
loans or other forms of finance, such as trade finance.
S83. (1) Where a person dishonestly, with a view to gain for himself or
another or with intent to cause loss to another- destroys, defaces, conceals
or falsifies any account or any record or document made or required for any
accounting purpose; or in furnishing information for any purpose produces
or makes use of any account, or any such record or document as aforesaid,
which to his knowledge is or may be misleading, false or deceptive in a
material particular- he is guilty of an indictable offence and liable to level
5 imprisonment (10 years maximum).
viii Assurance and Forensic Accounting
Liability to Shareholders and Auditees
Liability to clients under common law has remained relatively unchanged
for many years. If an auditor breaches an implied or expressed contract
with a client, there is a legal responsibility to pay damages. Under the
Corporations Act, auditors are liable under both statute and common law to
the auditee for any negligent performance of statutory duties. The
interpretation of due care and reasonable skills and diligence has changed
over time. The classic statement on the extent of auditor responsibility in
examining the accounts to be reported is contained in the Kingston Cotton
Mill Co. (1896) case. The reasonable person concept states that a person is
responsible for conducting a job in good faith and with integrity, but is not
infallible. Therefore, the auditor is expected to conduct an audit using due
care, but does not claim to be a guarantor or insurer of financial
statements.
The auditor's legal liability to the client can result from the auditor's failure
to properly fulfil his or her contract for services. The legal actions can be
for breach of contract, which is a claim that the contract was not
performed in the manner agreed upon, or it can be a tort action for
negligence. An example would be the client's detection of an error in the
financial statements, which would have been discovered if the auditor had
performed all audit procedures required in the circumstances (e.g.,
misstatement of inventory account resulting from an inaccurate physical
inventory not properly observed by the auditor). The narrow interpretation
of the Kingston Cotton Mill Co. (1896) case concerning some audit practices
was finally laid to rest by the Pacific Acceptance Corp. Ltd v. Forsyth
(1970) case. This case showed the changing expectations in respect to the
auditor's responsibility, with the standards of reasonable care also being
altered. This case in 1970 also established some of the key features of
professional due care expected of an auditor. Following the Pacific
Acceptance case, the Australian accounting bodies issued more
comprehensive and specific auditing standards and practice statements
concerning the conduct of the audit. In terms of due care and
independence, the HIH Royal Commission (2003) highlighted that auditors
need to maintain high standards of honesty, acting in the interests of the
shareholders of the company to whom they are reporting and exercising
independence of mind to ensure that financial statements provide a true
and fair view of the financial position and performance of the company. In
sum, an auditor's defences to actions taken by clients are:
 lack of duty to perform service
 non-negligent performance
 contributory negligence (explained in next section).

Contributory Negligence
Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports ix
 Contributory negligence means another person (usually the plaintiff) has
contributed to his or her own loss by failing to take sufficient reasonable
care. Contributory negligence used in legal liability of auditors is a defence
used by the auditor when he or she claims the client or user also had a
responsibility in the legal case. An example is the claim by the auditor that
management knew of the potential for fraud because of weaknesses of
internal control but refused to correct them. The auditor thereby claims
that the client contributed to the fraud by not correcting material
weaknesses of internal control structure. This has been employed
successfully in Australia only for non-statutory audit work (see AWA v.
Daniels [1992]).
Proportionate liability means the various parties whose negligence
contributed to a loss are liable for an appropriate share of the damages.
This means auditors should not carry the full burden for losses resulting
from a misstatement when other parties contributed to the level of losses
incurred by failing to take adequate precautions. This was introduced by
state legislation because there was a common perception that the courts
were placing insufficient weight on the reasonableness or taking
precautions to prevent or reduce the risks.

Liability to Third Parties

The auditor's liability to third parties under common law results from any
loss incurred by the claimant due to reliance upon misleading financial
statements. An example would be a bank which has loans outstanding to an
audited company. If the audit report did not disclose that the company had
contingent liabilities which subsequently became real liabilities and forced
the company into bankruptcy, the bank could proceed with legal action
against the auditors for the material omission - the bank would have to
establish that it enjoyed sufficient proximity and its reliance was
reasonably foreseeable.
Traditionally the distinction between privity of contract with clients and
lack of privity of contract with third parties is essential in common law. The
lack of privity of contract with third parties means that third parties have
no rights with respect to auditors except in the case of gross negligence.
Liability to third parties under common law has been restrictively defined
in the High Court’s decision in Esanda Finance (1994) case to accord with
these notions of privity by employing a combination of proximity and
foreseeability test. The Caparo Industries Ltd (1990) case in the U.K.
likewise also has restrictively defined liability to third parties. In a majority
verdict, two of the judges held that a duty of care was owed only to third
parties who were existing shareholders that the auditors knew would
receive and rely on their report. The Caparo case establishes that the
auditor's duty of care is owed to a general body of shareholders as a group,
and not to individual shareholders. There have been fundamental shifts in
the legal liabilities of auditors. An in-depth investigation of the various
cases reveals that case law rulings in recent decades have moderated
previous decisions that had resulted in an expansion of the scope of auditor
liability. In Australia, the common law concerning the nature and extent of

x Assurance and Forensic Accounting

 an auditor's duty of care to third parties remains complex because
judgements contain differences of judicial opinion and interpretation.
However, the judgement in the Esanda Finance case was a positive
development for auditors, making it difficult for third parties to establish a
relationship of proximity.

Avoidance of Litigation
Some firms willingly settle legal actions out of court in an attempt to
minimise legal costs and avoid adverse publicity. This has a negative affect
on the profession when a firm agrees to settlements even though it believes
that the firm is not liable to the plaintiffs. This encourages others to sue
public accounting firms where they probably would not to such an extent if
the firms had the reputation of contesting the litigation. Therefore,
out-of-court settlements encourage more legal actions and, in essence,
increase the auditor's liability because many firms will pay even though
they do not believe they are liable. Some of the ways, it has been
suggested, in which the profession can positively respond and reduce
liability in auditing are:
1. Standards and rules must be revised to meet the changing needs of
auditing.
2. The professional bodies can establish requirements that the better
practitioners always follow in an effort to increase the overall quality of
auditing.
3. Improve peer review requirements.
4. Audit firms and their insurance companies should oppose all unfounded
lawsuits rather than settling out of court.
5. Users of financial statements need to be better educated regarding the
attest function.
6. Improper conduct and performance by members must be sanctioned.

The Independent Auditor’s Report

The auditor is required to form an opinion on whether the financial report
is prepared, in all material aspects, in accordance with the applicable
financial reporting framework. The auditor needs to conclude that they
have obtained reasonable assurance about the financial report as a whole,
and that it is free from material misstatement, either due to error or fraud.
Where the fair presentation framework is used, the auditor should also
ensure the financial report achieves fair presentation by the consideration
of the overall presentation, structure, and content of the financial report,
and whether the financial report, including the related footnotes, represent
the underlying transactions and events in a manner that achieves fair
presentation.
Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports xi
 Auditor's reports are important to users of financial statements because
they inform users of the auditor's opinion as to whether or not the
statements are fairly stated or whether no conclusion can be made with
regard to the fairness of their presentation. The auditor, being a qualified
and trained professional, is more competent to express a reliable opinion as
to the fairness of financial statements. So, using the auditor’s report,
rather than users relying on their own discernment, could reduce the
chances of coming to a wrong or fatal conclusion. Users especially look for
any deviation from the wording of the standard unqualified report and the
reasons and implications of such deviations. An unqualified opinion may be
issued when:
 The financial report is presented fairly, in all material respects, in
accordance with the applicable financial reporting framework (usually
Australian Accounting Standards).
 The financial information complies with relevant statutory and other
requirements.
 The view presented by the financial report is consistent with the
auditor's understanding of the entity and its operating environment.

Audit reports may also contain an ‘emphasis of matter’ section where

appropriate. An unqualified opinion with modified wording includes an
‘emphasis of matter’ section in the report intended to provide additional
information to users of the report. Such a report is called an unqualified
audit report with an emphasis of matter. An adverse opinion is used when
the auditor believes that the financial statements are materially misstated
and do not present fairly the state of affairs, results of operations and cash
flows of the entity. Such an opinion may be required in the case of a
disagreement with management with respect to the appropriateness of
accounting policies and disclosures or a conflict between applicable
financial reporting frameworks. The relevant matter is considered
extremely material. A disclaimer of opinion is used when the auditor is
unable to determine whether the financial statements are fairly presented.
Such an opinion may be required where there is a limitation of scope
affecting a matter considered extremely material. A qualified opinion is
used when the auditor believes that the overall financial report is fairly
presented, except for an issue that is considered material. There could be a
disagreement with management, a conflict between applicable financial
reporting frameworks, or a scope limitation. However, the degree of
materiality of issues in question will be lower than that in cases of adverse
opinion and disclaimer of opinion.
The three conditions requiring a departure from an unqualified opinion
(unmodified report) are:
1. The auditor has a disagreement with management on the
appropriateness of accounting policies and/or their application, the
adequacy of disclosure in the financial statements, and compliance
with relevant statutory and other requirements. An example is where
the client refuses to consolidate one of its subsidiaries in the accounts
of the economic entity.
2. There is a conflict between applicable financial reporting
frameworks. Such a condition exists where accounting policies
required or permitted by relevant statutory or other requirements

xii Assurance and Forensic Accounting

 conflict with accounting standards. For example, legislation governing
a specific industry, e.g. Insurance schemes, may require valuation
methods to be applied that conflict with accounting standards.
3. There is a limitation of scope where, for example, the client will not
permit the auditor to inspect physical inventory at a certain location.
The three alternative opinions that may be appropriate when the client's
financial report is not in accordance with accounting standards are an
unqualified opinion, qualified opinion and adverse opinion. Determining
which is appropriate depends entirely upon materiality. An unqualified
opinion is appropriate only if the departure is immaterial. A qualified
opinion is appropriate when the deviation from accounting standards is
material but not extreme; the adverse opinion, when the deviation is
extremely material. Materiality refers to information which if omitted,
misstated or not disclosed separately has the potential to adversely affect
decisions about the allocation of scarce resources made by users of the
financial report or the discharge of accountability by the management
including the governing body of the entity. The auditor's determination of
materiality is affected by the amount of the relevant base (e.g. profit from
ordinary activities), the measurability of the misstatement, and the nature
of the item.

Class activity
Access the following CPA report and see appendix 2 for an example
of a full-year unqualified audit report.
http://www.cpaaustralia.com.au/~/media/Corporate/AllFiles/Docume
nt/professional-resources/auditing-assurance/guide-understanding-
audit-assurance.pdf
What do you see?
What is the format of the audit report? For example, complete the
following:- An unqualified audit report consists of:
Title, such as: Independent Audit Report
Addressee etc.

The lecturer will discuss further in class.

Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports xiii
Half-yearly Statements
According to s.302 of the Corporations Act, the half-year statements may
be either audited or reviewed, although the majority of Australian
companies opt for review. If a review engagement is needed, then it should
be performed in accordance with ASRE 2410 Review of an Interim Financial
Report Performed by the Independent Auditor of an Entity. There are no
requirements for the auditor’s report on half-year statements to be
circulated to the entity’s members. The review must be conducted in
accordance with the auditing standards applicable to review engagements.
The limited nature of the review procedures used provides a level of
assurance that is less than given in an audit. A disclaimer that no audit
opinion is expressed is included because no audit is performed.

The Regulation of Forensic Accounting

Forensic accountant reports are not likely to be admitted into evidence if
the court is not satisfied that it can rely on the accountants’ expertise to
guide its judgment or forms the view that the accountant does not have the
expertise to be considered as an expert witness. In order to maintain
impartiality and independence, forensic accountants must follow various
guidelines and regulations. The regulatory environment is essentially self-
regulating via Professional Standards and Court Rules/Directions. All
require the exercise of professional competence, independence and
integrity. There is no specific ‘forensic accounting licence’ or ‘formal
specialist designation’ that is required by the professional bodies.
The purpose of regulation is to guide forensic accounting services to be
impartial and not to advocate the cause. This ensures ethical and high
quality service.

APES 215 Forensic Accounting Services

APES 215 applies to all members of the professional accounting bodies
practicing forensic accounting in public and private sectors. APS215
recommends format of expert report.
APS215 provides guidance as to what are Facts, Assumptions, and Opinions.
Whether something is a fact or assumption or opinion can have a significant
bearing on the interpretation of forensic accounting findings.

xiv Assurance and Forensic Accounting

Summary
The foundation of a profession lies with its ethical values. We need to be
aware of the ethical issues embedded within accounting and auditing
practices. As part of a spate of reforms, the Accounting Professional and
Ethical Standards Board (APESB) released the current Code of Ethics
(APES110), which espouses the basic principles and expectations of
behaviour to which members of the profession must adhere. Ethical threats
and safeguards have been identified, and students must understand these.
Also detailed independence requirements have been issued to ensure that
auditors not only are independent in mind, but also will avoid any
circumstances which might compromise perceived independence
(independence in appearance). In sum, by reviewing professional ethics and
independence, it should be clear to students that quality audits do not just
involve technical competence, but require ethical competence and sound
judgement. This topic covered the auditors’ and forensic accountants’
reports, which represent the final responsibility for these professionals in
terms of completing an audit or completing a forensic investigation.

The auditor’s conclusion relies heavily on the work performed in completing

the audit. Given the signal it sends to users of the financial statements, a
modified report (qualified or more serious), should only be issued after
careful consideration. When expressing a qualified, adverse or disclaimer of
opinion, the report must contain a clear statement as to the reasons for the
qualification and the effect thereof. There are specific circumstances that
allow the issue of an emphasis of matter as part of the auditor’s report and
students should read further to understand those. In sum, the auditor must
exercise due care in conducting the audit so as to obtain a reasonable basis
for an opinion and to express the opinion justified by the findings.

Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports xv

References

Albrecht et al., (2019), Fraud Examination, 6th edition, Cengage.

APESB (2010), APES 110 Code of Ethics for Professional

Accountants.

APESB (2008), APES 215 Forensic Accounting Services.

AUASB (2013), ASRE 2410 Review of an Interim Financial Report Performed

by the Independent Auditor of an Entity.

Commonwealth of Australia, Corporations Act 2001 (Cth).

Commonwealth of Australia, Trade Practices Act 1974 (Cth).

Commonwealth of Australia, 'Corporate Law Economic Reform Program

Proposals for Reform (CLERP): Discussion Paper No. 9. Corporate Disclosure:
Strengthening the Financial Reporting Framework', September, 2002.

CPA Report (2013) A guide to understanding auditing and assurance: Listed

companies, available at:
http://www.cpaaustralia.com.au/~/media/Corporate/AllFiles/Document/p
rofessional-resources/auditing-assurance/guide-understanding-audit-
assurance.pdf

"Crimes Act 1958 - Act Number 6231/1958". Office of the Chief

Parliamentary Counsel. Government of Victoria.

Houghton, K. A. and Jubb, C. (2002), "An Australian response to recent

developments in the market for audit services", Australian Accounting
Review, Vol. 12, No. 28, pp. 24-30.

Houghton, K. A. and Jubb, C. A. (2003), "The market for financial report

audits: Regulation of and competition for auditor independence". Law &
Policy, Vol. 25:, pp. 299–321.

Houghton, K. Jubb, C. Kend, M. and Ng, J. (2010), 'The Future of Audit:

xvi Assurance and Forensic Accounting
Keeping Capital Markets Efficient', EPress, Canberra, Australia.
Leung, Coram, Cooper and Richardson (2019) Audit and Assurance 1st
edition, Wiley.

The HIH Royal Commission Report, April (2003).

Wood., L. (2011), "ASIC Wins Case Against Centro Directors." The Sydney
Morning Herald

Topic 2 – Regulatory Obligations of Auditors, Forensic Accountants and their Reports xvii