Auditing

EXEMPLAR FOR ASSIGNMENT 1

Consider the following independent situation below:

(a) Shaun Peter is the partner in charge of the audit of Bluefin Ltd (Bluefin). Over the years, he

has become a golfing buddy of Bluefin’s CEO, Richard Sam. During the current year, Shaun

and Richard jointly purchased an exclusive holiday home in Brisbane. The holiday home

represents more than 10% of Shaun’s personal wealth.

Required

For the independent situation above, and using the conceptual framework in APES 110,

answer the following questions.

1. Identify potential threats to independence & recommend safeguards to reduce the independence threat.

2. Provide an objective assessment of whether audit independence can be achieved.

Threat (1) Safeguards (1) Objective Assessment (2)

(a) Self-interest threat or intimidation threat: A close business relationship between member of the audit team & its management, arises from a commercial relationship or common financial interest may create self-interest threat or intimidation threat. (APES110.290.123)

Per APES110.290.123 if one of the members of the audit team has a material financial interest in a joint venture with an officer who performs senior managerial activity, the threats created would be so significant that no safeguard will be able to reduce it to an acceptable level. So the possible solutions are:

 The business relationship needs to be terminated. OR

 It can be reduced to an insignificant level. OR

 The individual needs to be removed from the Audit team.

Shaun, the partner in charge cannot have joint investment in a holiday house with Richard (CEO of Bluefin Ltd). This is a business relationship with an officer of client’s business, who is in a position to influence the financial report of the client. And most importantly the value of the holiday house is quite significant. In this situation, Shaun needs to end this material business relationship with the CEO immediately or reduce his part of the investment to insignificant level. Otherwise he needs to be removed from the audit team of Bluefin Ltd.