Standard

PSA 200 (R&R)

PSA 220 (Red)

PSA 220 (Red)

Part of Standard Violated The auditor is subject to relevant ethical requirements, including those pertaining to independence, relating to financial statement audit engagements. In the case of an audit engagement it is in the public interest and, therefore, required by the Code of Ethics, that the auditor be independent of the entity subject to the audit. The auditor s independence from the entity safeguards the auditor s ability to form an audit opinion without being affected by influences that might compromise that opinion. Independence enhances the auditor s ability to act with integrity, to be objective and to maintain an attitude of professional skepticism. The engagement partner shall be satisfied that the engagement team, and any auditor s experts who are not part of the engagement team, collectively have the appropriate competence and capabilities to: (a) Perform the audit engagement in accordance with professional standards and regulatory and legal requirements; and (b) Enable an auditor s report that is appropriate in the circumstances to be issued. The engagement partner shall take responsibility for: (a) The direction, supervision and performance of the audit engagement in compliance with professional standards and regulatory and legal requirements

Reason for Violation The auditor must be independent in mind and in appearance. Kim, the hired auditor, hired two unqualified persons to do the work. He relied so much on the work of the students. Being independent means that you don't allow other factors to affect the opinion you may form at the end of the audit and that means doing the entire process to make sure that you form the proper and right opinion. This is not what's happening in the case of Kim and he clearly violates the standard.

PSA 265

PSA 300 (Red)

PSA 500 (Red)

It was not appropriate for Kim to hire two accounting students to prepare the audit report since they don t have the necessary capabilities and competencies of an auditor. Accountants only provide reports on factual findings which are not enough to provide assurance to the reports. And also, the output that the accounting students prepared did not comply with the PFRS which the report should have been made in accordance with. Kim as the auditor has the responsibility to supervise and perform the audit. Kim only made a review of the output of the students hired as part of the audit staff and failed to supervise the actual audit performed. Not only Kim failed to supervise the audit but also failed to engage into the performance of the audit. The auditor is required to obtain an Kim as well as her assistants did not obtain understanding of internal control relevant to an understanding of internal control which the audit when identifying and assessing the means that there has been no audit at all. risks of material misstatement. In making The work performed was more an those risk assessments, the auditor considers accounting service than it was an auditing internal control in order to design audit service. procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. Planning an audit involves establishing the This standard recognizes that early overall audit strategy for the engagement appointment of the auditor has advantages and developing an audit plan. Adequate for the auditor and the client but Kim planning benefits the audit of financial accepted the engagement without statements in several ways which includes considering the availability of competent assisting in coordination of work done by staff and even hired students. In addition, auditors of components and experts. Kim failed to supervise the assistants and the work performed was not adequately planned. The auditor has the responsibility to design Kim acquired no evidence that would and perform audit procedures to obtain support the financial statements. Her sufficient appropriate audit evidence to be assistants merely checked the mathematical able to draw reasonable conclusions on accuracy of the records and summarized the which to base the auditor s opinion accounts. Standard audit procedures and techniques were not performed.

PSA 700 (Red)

The auditor shall evaluate whether the financial statements adequately refer to or describe the applicable financial reporting framework.

PSA 700 (Red)

PSA 705 (R&R)

Kim s report did not refer to PFRS or another FRF. Since a proper audit was not performed, it should be stated that no opinion, as to the fair presentation of the FS in accordance with PFRS or any other FRF, can be made. The auditor shall evaluate whether the FS Since management did not have adequate adequately disclose the significant accounting disclosures in the FS, it becomes the policies selected and applied. auditors role to make such disclosures. In this case, both the FS and auditor s report lack the adequate disclosures. The auditor shall disclaim an opinion when Kim should not have prepared an the auditor is unable to obtain sufficient unqualified auditor s report because his appropriate audit evidence on which to base opinion was not based on a proper audit. the opinion, and the auditor concludes that Instead, a modified report would be the possible effects on the financial appropriate because he should have made a statements of undetected misstatements, if disclaimer of opinion due to the improper any, could be both material and pervasive. audit that they have done.

Code of Ethics Principle Violated

Description of Principle

Reason for Violation

Integrity

Objectivity

Professional Competence and Due Care

An accountant should not be associated with reports, returns, communications or other information where they believe that the information omits or obscures information required to be included where such omission or obscurity would be misleading. In the case, the footnotes were not included when in fact financial statement footnotes are an integral part of the financial statements, so you must issue them to users along with the financial statements and without this, financial statements would be misleading. Also, Kim prepared an unqualified auditor s report with insufficient bases (not undergoing testing and sampling and checking of internal controls). A professional accountant should not allow In the case, objectivity was impaired bias, conflict of interest or undue influence of because of the company owner s promise to others to override professional or business give a bonus if the loan was granted. An judgments. unqualified report was prepared despite improper audit that was performed and the flaws it had like the lack of review on the controls and the lack of sufficient audit evidence due to the little time provided. A professional accountant has a continuing Professional Competence requires acting duty to maintain professional knowledge and diligently and in accordance with applicable skill at the level required to ensure that a technical and professional standards when client or employer receives competent providing professional services. In the case, professional service based on current there were violations to certain standards developments in practice, legislation and like PSA 120 wherein it was stated: In techniques. A professional accountant should forming the audit opinion, the auditor act diligently and in accordance with obtains sufficient audit evidence with applicable technical and professional appropriate criteria. As illustrated in the standards when providing professional case, they acquired no evidence that would services. In addition, they should conform support the financial statements. They with the technical and professional standards merely checked the mathematical accuracy

A professional accountant should be straightforward and honest in all professional and business relationships.

of the following: y Board of Accountancy (BOA) / Professional Regulation Commission (PRC) y Securities and Exchange Commission (SEC) y Financial Reporting Standards Council (FRSC) y Auditing and Assurance Standards Council (AASC) y Relevant legislation A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession. Professional Behavior

of the records, summarized the accounts and standard audit procedures and techniques were not performed. Exercise of due care requires critical review at every level of supervision of the work done and the judgments exercised by those assisting in the audit. However, in the case, the CPA failed to supervise the accounting students he hired well. He gave an inappropriate instruction of not spending time in reviewing the controls which is important in conducting an audit. Kim immediately accepted the engagement offered to him by JC without knowing the facts and situation first. This might be the reason of the time constraint of preparing the audit report within 3 weeks, in which he readily agreed. Omitting disclosures and not reviewing the internal controls may be inconsistent with this principle because it brings discredit to the profession when third parties become aware of the misstatement made by the accountant.