Week 2 Tutorial 2

Brief description of principles Holmes’ action resulting in non-compliance

Responsibilities It was inappropriate for Holmes to hire two
accounting students to conduct audits. Audit
1. Auditors are responsible for must only be performed by people with
appropriate competence and professional qualifications and experience in
capabilities to perform audits. the auditing field.
2. Auditors are responsible for complying In order to meet the independence
with relevant ethical requirements requirement, Holmes must not be biased
against the audited client. Due to the financial
benefit of the bank loan, Holmes was in fact
neither independent nor independent in terms
of the task undertaken. In addition, due to
several actions (hiring unqualified people,
failing to supervise those people, etc.), Holmes
does not appear to have exercised due care.
3. Auditors are responsible for Holmes simply accepted the financial
maintaining professional skepticism and statements without challenging or questioning
exercising professional judgement any of the evidence, demonstrating a lack of
throughout the planning and professional skepticism (and a lack of good
performance of audit professional judgment).

*Require critical review

Performance
4. The auditor must adequately plan the
work and must properly supervise any
assistants
* did not review the work
This element recognizes that early appointment
of auditors benefits both the auditor and the
client. Holmes accepted the offer without
considering the availability of staff. Holmes also
failed to supervise his assistants. The work done
was not adequately planned.

*Availability of competence staff

5. The auditor must determine and apply
appropriate materiality level
6. The auditor must assess the risk of
material misstatement based on the
entity and its environment
There was no discussion of whether Holmes or
the two accounting students had established or
applied for an appropriate level of materiality. It
is therefore difficult to assess compliance with
this element.
Holmes didn't study the client's internal
controls, and neither did the assistants. No
audit checks appear to have been carried out at
all. The work done is more of an accounting
service than an audit service.

*Work performed was more than an accounting

services
7. The auditor must obtain sufficient No evidence was obtained to support the
appropriate audit evidence about financial statements. Auditors simply check the
whether material misstatement exist records for mathematical accuracy and
summarize the accounts. Standard audit
 procedures and techniques were not
implemented.
Reporting In the absence of a proper review, the report
should indicate that an opinion cannot be
8. The auditor expresses, in the form of a expressed on the fair presentation of the
written report, an opinion in financial statements in accordance with IFRS.
accordance with the auditor’s findings
or states that an opinion cannot be Management is primarily responsible for
expressed. The opinion states whether adequate disclosures in the financial
the financial statements are presented statements, but when the statements do not
fairly, in all material aspects, in contain adequate disclosures the auditor should
accordance with appropriate reporting make such disclosures in the auditor’s report. In
framework this case, both the statements and the auditor’s
report lack adequate disclosures

Information risk > possibility of FS results in business decisions

Firewall between who did account, tax, consulting > auditor needs to be competent and
independent.

Point 6 and 7 can combine