The basic aspect of the task is to analyse the given case study based on the ASX corporate governance principles and provide certain recommendations to the company in case of any breach. The assignment also analyses the code of ethics for professional accountants based on the template and finally states if the company is following the auditing standards.
The term corporate governance is considered as a comprehensive system of key rules and regulations, procedures which enables the company to adhere to the necessary standards for the benefit of all stakeholders, the governance essentially tends to balance the interest of the business enterprises so as to reap the benefits to both internal and eternal stakeholders. The key pillars of the corporate governance is mainly stated as accountability, fairness in conducting the business, enhancing the transparency of business operations, assurance and leadership. (ASX, 2014)
As per the case study it is noted that the company FFA has board of directors which comprises of the company CEO, CFO and three non-executive directors. Based on the ASX corporate governance principle 2 – Structure the board to add value, it is stated that the board
Need to have atleast three members with majority are independent directors and also the board needs to be chaired by an independent director
The company has adhered to this principle as there are 5 directors of which 3 are independent and is also chaired by an independent director.
Furthermore, the skill set of the board is diversified, as per the recommendation 2.2 of ASX corporate governance it is stated that the business enterprise need to possess and disclose the skill matrix of the board by setting out a mixture of key skills and talents of the board who currently has and are looking to achieve in the membership. This recommendations are also being fulfilled as one of the directors is a former executive of a bank, 1 was a surgeon and another director was a farmer and a major supplier to the company. So, the board possess various skill sets which can enable in providing utmost guidance for the benefits of the stakeholders.
However, the ASX corporate governance has stated that there are key factors which needs to be considered and are highly relevant to assess the independent director of a company and one of the key aspect is that the director
Should not possess a substantial securities in the company or associated with any other entities which possess a substantial security holding with the company, and
the directors does not possess any material contract with the business or its related child entities.
Has been in material relationship with the business in past three years like a key supplier or customer of the business etc. (Ward, 2014)
As per the case study it is noted that Kevin Oliver one of the independent director possess 11% of the company shares and Kevin is also the chair of the board, also identified is that Matthew James was a farmer and a major supplier to the company, the case study does not specify whether Matthew has been providing the supplies to the company in the past three years. Furthermore, the ASX guidelines states that the holding of the securities of the independent director need to assist in aligning the interest of the director with that of other security holders, and it is stated that such holdings are mainly important and not to be discouraged. The example which was stated is considered to reflect that the director who is holding a substantial interest in the company is more likely seen to possess different interest when compared with the share holders who possess only smaller stakes in the company. (AASB, 2017)
Hence, it is noted that these are not considered as breach of corporate governance as per the ASX common guidelines and the board of the company need to focus in disclosing Kevin and Matthew relationship with the company in a detailed report.
The key principles of the code of ethics for the accountants are mainly considered as the overall integrity, possessing relevant professional competencies and executing them with due care, professional and ethical behaviour, objectivity etc. The American Accounting Association model is considered as seven step process which assist the professional accountants to understand the key ethical issues in the organisation and enable in taking proper decisions as per the stated guidelines. (Ahmed, 2012)
As per the case study, it is noted that the company current method of recognising the revenues are not as per the accounting standards. The person in charge of reviewing the revenue cycles is stating that the cattle sales accounts for more than 50% of the total sales also the accounting policies are in place for more than 10 years and is not willing to state the material impact in the annual report
The key ethical issues are non-compliance as per the auditing standards of AAA and not disclosing the relevant facts to the stakeholders. The senior partner was also supporting that the method of accounting policies are in existence for more than 10 years, it was clearly identified that Steve reports that he stated to Skye on the decision which was accepted but needs to include in the dissenting statement in the audit papers however she refused to state them in the working papers rather tends to write a separate letter to and acknowledge the full responsibility, it was also noted that there was some issues about the auditor chances in getting promoted. These clearly shows that the ethical issues are raising as there was not proper ownership on the revenue recognition, the auditor is being threatened to accept the complete ownership of the accounting treatment and also on negative comments towards the chances of being promoted as a partner in the near future.
The major principles which were identified are the key revenue recognition of the company, furthermore the senior partner is not willing to provide the material content in the audit report and is stating that only a letter will be provided regarding the issue, also the auditor future of getting promoted as partner will also be questioned. These are against the rules of the independence of the auditors to review the accounting treatment and providing his guidelines and recommendations. (ASA, 701)
The auditor need to provide the revenue recognition of the cattle in the annual reports and need to place them in a detailed statement in the audit summary. The independent audit report intends to state the overall examination of the financial records, business accounts, key transactions and practices which are made by the organisation in order to prepare the financial reports. The issue pertaining to the recognition of cattle revenue which is more than 50% of the total income of the company need to be stated in detail in the independent auditors report, this will enable the auditor to state to all the stakeholders on the materiality aspect and keep them informed. (Kang, 2011)
The basic values is that the stakeholders will be informed about the materiality aspect which is contained in the annual reports, though the company management declines to state them. The audit responsibility is to provide in detail any material misstatement or any irregularities of implementing the relevant policies for preparing the financial reports. The current case states that the senior partner is not willing to make any notes or adjustments in the 2019 financial statement and arguing that the accounting methods were in use for 10 years. Also, the independence of the auditor is affected as there was a negative comment on promotion, hence the auditor can disclose these aspects in the Independent audit report of the financial statement which will help other stakeholders to understand about the issue and can take appropriate decisions. (Bédard, 2014)
The consequences is that when the auditor reports the material misstatement in the Independent audit report, he will be relieved of the issue and any consequences arising will be in the hands of the company management.
The auditor need to present in detail on the revenue recognition and other key aspects in the independent audit report which will enable in providing accurate financial information and implementation of accounting policies to all the stakeholders.
Some degree of care exercised by an ordinary and reasonable person in their own circumstances. The concept of neglect is used as a negligence test. This is also called standard care or reasonable care. Screening refers only to the care that a reasonable person expects under the circumstances. The auditor is not obliged or obliged to pay particular attention to the audit task. Due diligence means the usual effort of a normal rational person, that is, the effort required in a given situation. The auditor is not expected to act as a cautious person with the same competence and experience. Due diligence is one of the requirements that follows from the principle of due diligence. Storage means the task according to the mission's requirements, with care, completeness and punctuality. The mission requirements depend on the nature of the data and to some extent on the circumstances. Simply put, due diligence is compliance with legal requirements and other applicable requirements. Correct Due Diligence is much broader than screening and key areas include screening.
The opposite neglect is the joint defense of the law, through which the person contributed to his injury through his own negligence. Careful negligence on the part of the customer is to protect negligence in accounting responsibility. It should be noted, however, that customer failure almost contributed to the auditor's failure. Lybrand, 256 AD 226, 9 N.Y.Sdd. 554 (1939), the student started accounting accounting irregularities, claiming that he was not identified and reported as a company official. The court rejected the complaint because of the company's negligence. The Administrative Court reverses the statement of assurance. The Court found that the auditors were not free from the consequences of their negligence because the employers neglected the company.
It is the legal responsibility or obligation of a person or organization to prevent acts or omissions (which can reasonably be predicted) for others. The auditor confirms that the company's financial statements correctly present their financial position. Managers of the shareholders in the management of the company's resources for product safety from the manufacturer to the consumer and to all parties that have entered into agreements with the contracting parties. The obligation to care is the individual's or the organization's legal responsibility to avoid behavior or omission that can reasonably be expected to harm others. For example, an auditor should ensure that the customer's return is properly prepared to minimize the risk of IRS control. Similarly, manufacturers must provide consumers with the opportunity to make their products safe for general use. To consider the concept, consider the following definition of duty of care.
The term corporate governance is considered as a comprehensive system of key rules and regulations, procedures which enables the company to adhere to the necessary standards for the benefit of all stakeholders, the governance essentially tends to balance the interest of the business enterprises so as to reap the benefits to both internal and external stakeholders. The company has adhered to this principle as there are 5 directors of which 3 are independent and is also chaired by an independent director. Furthermore, the skill set of the board is diversified, as per the recommendation 2.2 of ASX corporate governance it is stated that the business enterprise need to possess and disclose the skill matrix of the board by setting out a mixture of key skills and talents of the board who currently has and are looking to achieve in the membership. The key ethical issues are non-compliance as per the auditing standards of AAA and not disclosing the relevant facts to the stakeholders. The senior partner was also supporting that the method of accounting policies are in existence for more than 10 years, it was clearly identified that Steve reports that he stated to Skye on the decision which was accepted but needs to include in the dissenting statement in the audit papers however she refused to state them in the working papers rather tends to write a separate letter to and acknowledge the full responsibility, it was also noted that there was some issues about the auditor chances in getting promoted.
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