“Auditing and Assurances Services”
This paper gives the brief understanding about the significances of adhere the APES 110 code of conduct for the professional accountant and auditors (Martinov-Bennie & Mladenovic, 2015). In regards to this, the study explains the necessity to follow the standard through basis on the given case study of fancy furniture manufacturing and BO professional standard group.
As per the APES 110 code of conduct, it is identified that confidentiality is the major standard which a professional accountant should adhere with it. The principle of APES 110 stated that the professional accountant should value the confidentiality of the client information which is acquired under the auditing of company. Likewise, it is a duty of the auditor to not disclose any such information to third parties without taking proper authority. Thus, professional and business relationship should be used by the auditor for their personal gain or profit (Brooks & Dunn, 2011). Moreover, it is also stated that accountant should adhere with the relevant laws and perform their actions accordingly.
In the given case, if the auditor disclose about the practices of their own client i.e. Fancy Furniture then it is considered as an ethical issue as per the APES 110 principle standard. As this standard clearly defines that professional auditor have a responsibility to keep their client information confidential instead of using the information for their personal gains (Sadowski & Thomas, 2012). Similarly, if the BO would inform the confidentiality of the fancy furniture then it indicates the ill professional behaviour of them which could ruin the BO company image in market. Thus, such actions of the BO will be considered as an unethical if BO do not adhere with the principle of APES 110 standard principle.
Impact of identified ethical issues on the parties
Every action of the professional accountant or auditor has a deep impact on the different parties. In regards to this, it is necessary for the auditor to adhere each code of conduct and principle of the APES 110 so that actions of the individual influences positively to the parties. Thus, it is must for the auditing company to firstly analyse the process and perform their actions ethically (Uşurelu & Loghin, 2010). Similarly in context to the BO auditing company of fancy furniture, there are various parties that can be affected if the auditing engagement team disclose their practices of the fancy furniture to its suppliers and customers. However, the auditing team find some variation in the financial statement of fancy furniture and it could also affect its primary supplier (Eucawood Lumber Supply) or its primary customer (Nobert Harvey). So in that case team would need to disclose their client confidential information to the third parties in order to protect them. In regards to this, if the auditing team reveals the information about the fancy furniture then it would mainly the three parties, BO auditing company, shareholders of fancy furniture and investors of company. Such step could portray the negative image of the company as they disclose their client personal information which is considered as an unethical as per the standards so this affects the company ability or trustworthiness (Baker & Bufka, 2011). Besides that, fancy furniture goodwill also gets affected when its suppliers and their client get to know about their ill-practices and it would also affect their other stakeholder relationship. With the spreading of negative image which leads to decline in share price will also affect the investors to achieve the expected return. Eventually in future none of them will take interest to re-continue their contract with the fancy furniture. Therefore, it clearly indicates that parties would have an adverse impact with the occurring of ethical issues. Hence all the three parties i.e., fancy furniture, so auditing team and investor get affected with the ethical issues.
Define the right in regards to given situation
The best suited way for the BO professional auditing team is to keep stay with the professional code of conduct for the auditor. It is because code of conduct provides support to the company in terms to take the proper decision making (International Federation of Accountants IFAC, 2010). At the same time, stick with the principle is considered to be right as it provide proper flow of work performances and avoid the high chances of frauds and misleading. That’s why, for the BO auditing team it is most right if they follow the auditing standard for reaching towards the fair outcomes. Furthermore, the reason behind to pursue towards the following this decision is because BO auditor by adhere the principle of not disclosing the client confidential, it will help them to find the actual outcome. Based on that they could take relevant actions and such process would also consider as a professional as per the code of ethics for professional accountants (Trevino & Nelson, 2016). This exercise would also help the BO auditing to protect their goodwill and able to achieve fair outcome.
Alternatives to solve the dilemma
In regards to the issue related to confidential and professional practices, there are alternatives are available to the Alex (Professional auditor of BO). It is recommended to the Alex is that he should firstly need to contact the top-level management of fancy furniture in order to communicate about the variation in their financial statement. Likewise, auditor should provide the information to the company about their policy and arrears that is occurring in their financial report so that fancy furniture could make necessary improvements (Wines, 2011). For this, Alex required to present company audit statement to the management of the company with aim to define the areas where company to bring the best.
In addition to this, it is also suggested to the Alex that he should disclose the errors and variations to the shareholder of the company so that accordingly the management take their future actions. Such practices does not affect the auditor image and it is also not consider as a unethical for the auditor as he reveal the real picture of company in front of management. That’s help the company to find their mistake and make correction as per that (Thorne, 2017). Thus, these both are proved to be effective for the fancy furniture in terms to solve the dilemma.
The above mention alternative will provide the positive consequences. Likewise, the solution in which auditor should directly contact to the top management will considered as a quite effective for the both fancy furniture and for Alex (auditor). It is because with the communication to the management allows the management to understand their actions and based on that take necessary decisions (Burritt & Tingey-Holyoak, 2011). For the auditor, with this step they can get benefit as they perform their actions as per the standards without spread their negative image in market. Such practices also help the company to control their internal operations and able to maintain their long terms relationship with suppliers and clients. Besides that, another alternative in which auditor is suggested to disclose the practice of the company internal operations in front of management. This solution allows the fancy furniture supplier and client to know about the real financial position of the company. At the same time, it also guides the fancy furniture to make an improvement in their weaknesses so that their relationship with stakeholder could be sustained in a longer term (Duska et al., 2011). Therefore, it can be stated that both the alternatives will provide positive influences to all parties without affecting any party goodwill.
Appropriate course of action for the case
According to this case, the best solution for situation will be that the auditor (Alex) follows principle and as per that without disclosing their client information to other party like supplier. Instead of that, he can directly contact to the management of fancy furniture. This exercise assists the company to identify the area where they are lacking while it helps the auditor to provide the right auditing report to the company and this action will also assist the auditor to achieve high goodwill in market. At the same time, company’s shareholder and their other stakeholders could easily find out the actual position of the company through the directly contacting to top management (Levack et al., 2011). Based on that, future decision will be taken by the company and its stakeholder. Therefore, for this case, the alternative first is appropriate one which provides benefit to all the parties and also protects the image of the parties (Allen, 2010). This is the right action for the auditor instead of breaching the duty of confidentiality of their client.
From the above discussion, it is concluded that adhere the professional accounting code of conduct is the necessary for the auditing company in order to achieve the relevant and accurate outcome of the audit. Similarly, Alex also follows the standards of confidential in their auditing process and based on that, it prepare the relevant auditing report which assist all the parties in terms to understand the fancy furniture actual performances.
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