Solutions Manual

to accompany

Auditing: a practical approach 2nd edition

by

Jane Hamilton

CHAPTER 2

Ethics, legal liability and client acceptance

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John Wiley & Sons Australia, Ltd 2013
Chapter 2 –Ethics, legal liability and client acceptance

REVIEW QUESTIONS

2.11 Explain how compliance with each of the five fundamental principles in APES 110 contributes to the ability of the auditor to discharge the duty to act in the public interest.

The fundamental ethical principles that apply to all members of the professional bodies are to act with integrity, objectivity, professional competence and due care, confidentiality and professional behaviour (APES 110, 100.4).
The requirement to act in the public interest means that auditors should consider how their actions impact the client and their employer. They must also consider the impact of their actions on others such as the client’s employees, investors, credit providers, and those without direct financial interests in the client such as the broader business and financial community and members of the public. All these people could be reliant on the quality of the auditor’s work, even though they are not party to the contract between the client and the audit firm.
The reliability of the financial reports and the audit report is potentially damaged if the auditor does not act with integrity (honesty), objectivity (being independent), with professional competence and due care (executing the work with the required level of skill and attention), confidentiality (discussing the client’s affairs with others inappropriately), and professional behaviour (protecting their reputation and the profession’s reputation). A dishonest auditor could knowingly help publish a materially false, misleading, or reckless financial report. Auditors