Matthew Damon has been appointed as a junior auditor of AwesomewaterhouseCoopers
ID: 2542399 • Letter: M
Question
Matthew Damon has been appointed as a junior auditor of AwesomewaterhouseCoopers (AwC). One of his first tasks is to review the firm’s audit clients to ensure that independence requirements of APES 110 (Code of Ethics for Professional Accountants) are being met. His review has revealed the following:
(1) AwC has recently been approached by Metal Mining Limited (MML) to conduct its audit. The accountant at MML, Jennifer Lawrence is the daughter of one of AwC’s audit partner Brian Adams. Being aware of Brian’s relationship with Jennifer, AwC will not be assigning Brian to the audit team of MML.
Required:
Using the conceptual framework in APES 110 (Code of Ethics for Professional Accountants), identify potential threat(s) to independence & recommend safeguards (if any) to reduce the independence threat(s) identified. Also, provide an objective assessment of whether audit independence can be achieved.
Explanation / Answer
As per the normal course of practice it is not advisable nor accepted for a company to get its accounts audited by a firm in which his relatives etc are working or a part of the audit firm in any manner which can be said to be almost prohibited in other sense.
In the given situation, as accountant at MML was the daughter of one of AWC's partners it is not advisable to continue the audit by that firm , keeping in view the independence being challenged which at times but not always may lead to biased audit reporting by the auditors.
It cannot be clearly stated that the audit independence can be achieved due to the clause in the given scenario.
Hence, it is better advisable for the AWC to drop down the audit of MML..
This was the answer given in view of the above situation basing on the conceptual framework in APES 110.