Auditing and Ethics Health Care Holdings Group

Question: Discuss about the Auditing and Ethics for Health Care Holdings Group. Answer: Introduction Auditing is one of the most important aspects for a business organization. To get the attention of the investors, the annual report of businesses must be audited. Auditing is the process of testing and inspecting all the accounting and financial accounts of the businesses (Louwers et al., 2013). At the time of conducting the audit operations, the auditors need to be ethical towards their work. They need to be responsible towards their jobs and must obey the principles of auditors independence. AccountingProfessional Ethical Standards (APES) 110 contains the rules and regulations regarding the responsibility of the auditors (Ball, Tyler Wells, 2015). Threats As per the principles of auditors independence, the auditor should be free from every kind of financial interests from the clients property. It is the utmost requirement of audit profession that the auditors will be ethical and honest towards their work (Hoos, d'Arcy Messier, 2012). The given case of Fellowes and Associates indicates that two kinds of threats can be arrived. The potential threats are discussed below: First Situation: The given situation says that one of the accounts associates of Fellowes and Associates owns shares of Health Care Holdings Group (HCHG). The same accounts associate of Fellowes and Associates was the member of the audit team that intended to audit the accounts of HCHG. As per APES 110, one of the major principles of auditors independence is that the auditors cannot purchase any shares of the audit client. On the other hand, APES 110 also mentions that the auditors need to be ethical as well as responsible for the work they do. The auditors are the representative of the common people and there must not be any kind of biasness in their audit decision (Apesb.org.au 2016). The associate of Fellowes and Associates has breached the principles of APES 110 by purchasing the shares of HCHG. Hence, the potential threat that can be arrived is the Self-Interest Threat of the auditors. This is a major offence as this incident can influence the decision making process of the audi tors (Bosse Phillips, 2016). Second Situation: The second situation says that Fellowes and Associates were engaged in the valuation of intellectual property of HCHG. They have valued the intangible assets of the HCHG worth $30 million that was included in the balance sheet of the company on 30 June 2014; but the intellectual properties of HCHG was valued by Fellowes and Associates on 1 March 2014. On the other hand, the intellectual properties were considered as material to HCHG. There is a problem in the valuation of the intellectual properties of HCHG by Fellowes and Associates. Fellowes and Associates considered the same amount of $30 million on 30 June 2014 that was valued by Fellowes and Associates on 1 March 2014. Fellowes and Associates avoided the fact that the value of the intellectual properties might be changed from 1 March 2014 to 30 June 2014. The audit firm neglected the revaluation of the intellectual properties of HCHG. According to APES 110, this act of Fellowes and Associates poses the potentia l threat that is Revaluation Threat. On the other hand, Fellowes and Associates breached the principles of materiality by showing the intellectual properties as material in the books of HCHG. This act of Fellowes and Associates violated the integrity of audit profession that poses the threat of materiality (Cowton, 2013). Corrective Measures and Safeguards As per the above discussion, it can be observed that there are some major threats that can be arrived in the given two situations. They are Self-Interest threat, Revaluation of assets threats and Materiality threats. Although these are the major threats of auditing, with the help of effective corrective measures, these threats can be eliminated. As per the first situation, an accountant of Fellowes and Associates has purchased the shares of the audit client, HCHG. This implies that the accountant has financial interest in the wealth of HCHG and thus, it poses the threat of self-interest. As per the corrective action, Fellowes and Associates need to replace the position of the accountant with another one (Islam, 2015). This is the only action that can be taken to eliminate the threat of self-interest. In the second situation, Fellowes and Associates wrongly valued the intellectual properties of HCHG; on the other hand, the intellectual properties were shown in the books of HCHG as mat erial. This is a serious offence as it creates the threats of Revaluation and materiality. As a corrective action, Fellowes and Associates should revalue the intellectual properties of HCHG by another team of their firm so that the correct value of the intellectual properties can be shown in the books of HCHG. The next step will be to show the intellectual properties of HCHG as immaterial in the books of HCHG (iia.org.au 2016). Conclusion From the above discussion, it can be said that the auditors of the organizations need to maintain the rules and regulations of APES 110 that includes the principles auditors independence. As per the given situation, the acts of Fellowes and Associates toward HCHG poses three kinds of threats; they are Self-Interest threat, Revaluation threat and Materiality threat. All the threats are major threats. Three corrective measures are given to avoid these threats. Thus, from the whole study, it can be concluded that the auditors need maintain the standards of ethics at the time of auditing. Conversely, the auditors need to comply with the rules of APES 110. References APES 110 Code of Ethics for Professional Accountants. (2016).apesb.org.au. Retrieved 28 December 2016, from https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf Ball, F., Tyler, J., Wells, P. (2015). Is audit quality impacted by auditor relationships?.Journal of Contemporary Accounting Economics,11(2), 166-181. Bosse, D. A., Phillips, R. A. (2016). Agency theory and bounded self-interest.Academy of Management Review,41(2), 276-297. Cowton, C. J. (2013). Accounting ethics.The International Encyclopedia of Ethics. Hoos, F., d'Arcy, A. C., Messier, W. (2012, March). Serving two masters: Experimental evidence on internal auditors' independence. In1er WORKSHOP" Audit". Islam, M. A. (2015). Overview. InSocial Compliance Accounting(pp. 1-10). Springer International Publishing. 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. New ASX internal audit guidelines to bolster shareholder value. (2016).iia.org.au. Retrieved 28 December 2016, from https://www.iia.org.au/technicalResources/knowledgeitem.aspx?ID=274