Auditing and Ethics Independent Operation

The major responsibility of the auditors is to find out that if there is any materials misstatement in the accounting operations of the audited organization. There are some responsibilities of the auditors. They need to be ethical and honest at the time of audit operation (Louwers et al., 2013). In this regard, Accounting Professional & Ethical Standards Board Limited (APESB) has issued the APES 110 article that states the responsibility of the auditors. On the other hand, this article also includes the details of threats that an auditor can face and its safeguards (apesb.org.au 2016). The second situation indicates that Fellowes and Associates have valued the intellectual properties of HCHG on 1 March 2014 that is worth 30 million. Another important factor is that the intellectual properties are shown as material to HCHG. On 30 June 2014, the consolidated balance sheet of HCHG includes that same amount of intellectual property. This act of Fellowes and Associates has created a possible threat for Fellowes and Associates. As per the rules and regulations of Fellowes and Associates, an auditor needs to appropriately evaluate the results of previous judgment made by another audit partner. This process demands the revaluation of various assets of the audit client. When the auditors fail to do this, it creates the Self- Review Threat (Ojo, 2015). In the case of second situation, the auditors of Fellowes and Associates have taken the same amount of the intellectual properties on 30 June 2014. However, as per the rules of APES 110, the auditors need to revaluate the inte llectual properties. Hence, this act of Fellowes and Associates has created the Self-Review Threat for the audit firm. This threat is considered as a major offence in audit profession (Dobler, 2014). According to the first situation, the activity of one of the audit associates of Fellowes and Associates has created the threat of Self-interest. This type of threat is occurred when any member of the audit team has financial interest in the property of the audit client. In this particular incident, the corrective action will be to replace that particular account associate with another one. This only corrective action can be taken. However, some safeguards can be adopted to avoid this kind of situations. First, some policies and procedures need to be implemented that will help the organization to identify the staffs having financial interest in the properties of the audit client. Second, the non-audit services to the audit clients need to be minimized in order to prevent this. Last but not the least, there needs to be effective policies and principle that will prohibit the audit employees to establish financial relationship with the audit clients (Tahir, Idris & Ariffin, 2014). The second situation indicates that there is a Self-review threat by the wrong evaluation of the intellectual properties of HCHG. The rule states that other auditors must evaluate the valuation of assets. In the case of Fellowes and Associates, the only safeguards available are that the valuation of the intellectual properties needs to be evaluated by another audit team. There are some safeguards available to prevent this kind of incidents. First, it is necessary to minimize to provide non audit services to audit clients. Second, it needs to be made sure that the audit client takes decisions based on non-audit services on their own responsibility. Third, there should be a cooling off-period time before a senior auditor takes the responsibility of the audit operations. These safeguards can be taken to avoid these kinds of situation (Lawson, Spencer & Turek, 2016). As per the above discussion, it can be seen that the auditors need to maintain the rules and regulations of APES 110 at the time of audit operation. The above report states that there are major two kinds of threats in the audit operation. They are self-interest threat and self-review threat. These two are the major threats that have minimum number of safeguards. However, corrective measures are available to reduce these threats. On the other hand, APES 110 provides some safeguards that can be used to reduce the chance of the occurrence of these threats. APES 110 Code of Ethics for Professional Accountants. (2016).  apesb.org.au. Retrieved 29 December 2016, from https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf Bosse, D. A., & Phillips, R. A. (2016). Agency theory and bounded self-interest.  Academy of Management Review,  41(2), 276-297. Dobler, M. (2014). Auditor-provided non-audit services in listed and private family firms.  Managerial Auditing Journal,  29(5), 427-454. Lawson, B. P., Spencer, A. W., & Turek, M. (2016). Developments in Ethics Guidelines for CPAs.  Journal of Corporate Accounting & Finance,  27(6), 63-71. Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2013).  Auditing and assurance services. New York, NY: McGraw-Hill/Irwin. Ojo, M. (2015). Audits, audit quality and signalling mechanisms: concentrated ownership structures.  American Research Journal of Humanities and Social Sciences,  1(2). Svanberg, J., & Ãâ€"hman, P. (2013). Auditors' time pressure: does ethical culture support audit quality?.  Managerial Auditing Journal,  28(7), 572-591. Tahir, F. A., Idris, K. M., & Ariffin, Z. Z. (2014). Dimensions of Auditor Independence: A Pilot Study.  International Journal of Business and Management,  9(6), 72.