Auditor acts as an essential role when dealing in the capital market as they provide opinion which is fair and true on a company’s position

Auditor acts as an essential role when dealing in the capital market as they provide opinion which is fair and true on a company’s position. Therefore, auditor is expected to independence and professional. However, due to the financial markets crises, many issues have been revealed regarding to the professionalism of auditor which therefore cause the public to lose confidence on the credibility on auditor. In this assignment, ACCSYS technologies group was chosen to further explore on the fundamental profession of auditor in the aspect of ethics and audit risk.
PART 1
a) Identify ethical threat
Ethics was generally defined as the moral or values that derived the standards of behaviour to govern the action or decision when individual is encountering in different situations. In the respect of auditor, ethics acts as the regulations and principles of audit when dealing with its professional engagements, to ensure the attitude and performance of an auditor in order to uphold the reputation of auditor. (essays, 2013)
In accordance with the profession code of ethics, there are five principle laid out for auditors to implement under any situation during their practice. However, ethical threat would occur when an auditor cannot completely honour the principle on their practice that could have adverse impact on their objectivity while threat could further to be identify by referring to the conceptual framework.
Based on the annual report of ACCSYS technologies group, PWC was continuously appointed by ACCSYS as their auditor for 8 years since 2011. (ACCSYS, 2018) Hence, a long association relationship was considered to be found between ACCSYS and PWC. According to IESBA Section 940.2, familiarity threat and self- interest threat are said to be created when the same personnel was appointed on an assurance engagement for a long period of time. Hence, familiarity threat was significant to be identified in the case of ACCSYS as the length of time it associated with PWC (8 years) was considered to be incompatible with the ideal standards of independence and objectivity. Therefore, it is a higher potential of preconceptions on the opinion which compromised the desirable of independence on mind and appearance of an auditor.
b) Evaluate the significance of the identified threat
Meanwhile, familiarity threat is significant to be evaluated by obtaining the proportion of time that the auditor contributed to its client. (Anon., 2018) As this could potentially improve the closeness in the relationship between individual’s personal and assurance senior management. Referring to IESBA, section R111.1 suggested that auditor should be truly honest and straightforward during their audit practice of a company in order to comply with the principle of integrity. In the case of ACSSYS, not only the absence of alteration in audit firm, it has also appointed the same person as auditor over 2 years. (ACCSYS, 2018)Hence, a close relationship is developed between auditor and the same personnel in the company will therefore cause threat to occur. Due to the good relationship, auditor could have sympathetic toward the interest of the company and probably causes the auditor to release misstatement or impropriety information which is less integrity to include within the audit report. (limited, 2012)
Furthermore, familiarity threat will be detected by the frequency and extent of interaction between individual and assurance client. (Anon., 2018) Based on the case of ACSSYS, confliction between the information stated in financial statement and audit report would be created as there is frequent interaction between ACCYS and its audit firm PWC. According to the IESBA section 112, auditor is required to have objectivity which in the others words auditor should ensure the professional judgement they made do not contain any bias, conflict of interest and option that unduly influence by others. Indeed, familiarity threat is easily to be detected when there is a long association relationship which compromised the objectivity of the auditor in their judgement. Hence, the confidence and credibility in the independence of the auditor will be weaken and undermine.
However, there are argument continue debating on long association while indicating long association tend to improve the audit quality. Some of the research indicates audit firm are more likely to have audit failure during the early years of its audit appointment. Due to the deficiency knowledge on the company, the new audit firm may have miss out some important category or information which lead to higher possibility of risk to occur that outweighs any other perceived advantages to obtain a “fresh look”. (IFAC, 2012) Research stated that audit firm with cumulative knowledge of the company such as the company’s business model, business risk may help the audit firm to promote its audit quality, even though familiarity with client can potentially create a threat to the audit firm’s objectivity.
c) Safeguards
In order to safeguard from familiarity, audit rotation could be applied by changing the role, nature or extent of the task of the individual that involved in audit team. In UK, public listed company are required to rotate its mandatory auditor after every 20 years and change a mandatory tender after every 10 years. Further, on every firth year detailed explanation should also be provided by the company if the same individual or audit firm are continuously involved in the engagement team. (Anon., 2018) Besides that, entity should appoint an independent individual to provide review on the work of the audit team. As per said, the individual should not be the member of the engagement team. Moreover, a regular independent review should be performed on the work that done by every individual of the engagement team internally or externally in order to maintain the quality of the engagement. (Anon., 2018)