Ethical Decision of American Accounting Free-Samples for Students

Questions: 1.Using the American Accounting Association (AAA) Ethical decision model explain the Ethical Issues involved here and recommend a course of action for Jacqui. 2.With reference to relevant case law, prepare a report for the Managing Partners of MYH on the strength of any negligence case that Oasis might bring against MYH. Answers: Introduction American Accounting Association (AAA) founded in 1916 is seen to have a rich and reputable history for holding a premier community of accountants in academia. The diversity of the membership has been able to create an environment with collaboration and innovation (Aaahq.orgm, 2017). The report is intended to address the various types the ethical and legal issues which need to be considered at the audit divisiosn at Miller Yates Howarth (MYH). The study will include the application of American Accounting Association (AAA) ethical decision model explains the ethical issues involved in the given case study. The various types of the recommendation for the study have been also considered on the use of model. The latter part of the report has applied the relevant case law and prepared recommendations for the managing partners of MYH. 1.AAA Model Determination of Facts The give case is based on MYH accounting firm, which majorly operates in NSW and Queensland. Morgan Fertilisers Pty is recognized as one of the long standing client of the company, with its operations located across Tamworth and Toowoomba. Morgan Fertilisers had recently changed its contractor for waste management to Dumparound Ltd. Jacqui, one of the senor audits has knowledge about the community activities and she also knows that local council are investigating Dumparound Ltd. for level of toxic waste at one of its sites. Identification of ethical issues The considerations of the ethical issues have been mainly seen to be based on Morgan Fertilisers Pty who has changed its contractor to Dumparound Ltd. for waste management. The main form of the ethical concerned has been raised by Jacqui Leak, who is acquainted with the fact that Dumparound is being investigated by the local council for the level of toxic waste at one of its sites. The contract between Morgan Fertiliser and Dumparound is not seen to specify for any damages and it hasnot been signed by Dumparound. The contract is seen to be held substantially for 3 years and Jacqui is concerned about the implications. Identification of major principals and rules, values Apart from the prevailing of ethical issue, the main legal issue has been identified with AASB 102 on valuation of inventories. The cost of the valuation needs to be identified and recognized in terms of asset and the same needs to be carried forward for the revenue recognition. The applicable code under APES 110 Code of Ethics for Professional Accountants has been seen to be applicable with Section 310 conflicts of interest. As per the application of this rule the members are of MYH are expected to support the legitimate and ethical objectives in terms of the application of the relevant procedure in the organization. Specification of the alternatives The main specification of the alternative has been further seen to be based on evaluating whether the adjustment the adjustments in the inventories between the years end and the dates of physical count are recorded appropriately. In addition to this, the auditor needs to analyze the outward and inward movement of stocks with the date of cutoff date, until count date is established with the validity of the date based on the closing date of the year. Comparison of values and alternatives The comparison of the values is based on the application of APES 110 Code of Ethics for Professional Accountants has been seen to be applicable with Section 310 conflicts of interest vs. AASB 102 on valuation of inventories. Based on the application of APES rulings the members responsibility to an employing organization needs to base on professional obligations to comply with the fundamental principles which are in conflict. It has been further seen that a member in the business needs to support employer and the rules and procedures appropriate to an organization (Doxey et al., 2015). Based on the considerations of the rulings of AASB 102, the main considerations has been based on the measuring the net realizable value or cost of an asset which needs to be carried forwarded with the revenue recognition. The cost of the inventories needs to further consider the various evaluations which have been relied on the factors such as cost involved in making the assets ready for use (Gaynor et al., 2015). Identification of the alternatives access the consequences In case the inventory value is overvalued, the net income needs to be overstated as per the gross profit of the company. The overvaluation of the retained earnings needs to overvalue as per the retained earnings. The value of the equity, total assets and the current assets of the company may be overvalued with the retained earnings (Abernathy et al., 2015). Recommended Decision The main recommendation has been seen with Oasis Ltd bring forward the negligence charged in terms of the audit of MYH. However, this needs to be based on the sole decision of court to deal with the case on its way where MYH may or may not be held for the negligence. 2.Report for the managing partners of MYH Based on the considerations of AASB 102 on valuation of inventories, the main issue has been seen with the error in valuation of the inventories at the cost of the asset recognized and the value carried forward with the revenue recognition. The inventory needs to be measured based on the realizable cost or value, which is lower. The cost of inventories needs to be considered based on the conversion cost, purchase cost and the cost which is incurred in making the asset ready for the specified purpose. It needs to be noted that the inventory cost may not be recoverable in case the portion of the inventories is damaged or obsolete. The inventory cost is not expected to be recovered in case the evaluated expenses of the completion or the assessed expenses to the sales policy have been expanded. The main consideration for the recording of the inventories below the cost to the net realizable amount is considered to be reliable in nature, which should not be carried with the excess of the a mount expected from the realization of the sales. In case the inventory is overvalued the net income and the gross profit needs to be overstated. The main impact will also lead to overvaluing of the retained earnings, total assets and the equity of stockholder. The net income has been also overvalued for the overvaluation of inventory with fewer number of the cost of goods sold which is charged for the revenue. The increased amount of the net profit further indicates on the equity of the stakeholders and the retained earnings. Due to the overvaluation of the inventory, the accounting period has been changed to the starting of the inventory towards the finishing of the accounting period which turns into starting inventory with the accompaniment of the time frame. The period of the cost of goods needs to be considered with the COGS, as this will be too high and will be able to bring the period of the net income and consider the gross profit to be too low. As per the per the case of Morgan Fertilisers, it has been identified that they carried high amount of value of the inventories in the balance sheet and it was taken over by Oasis Ltd., successfully. Despite of this, after two months, the inventory of the company was overstated. It has been further seen that more than 50% of the inventory was obsolete and were not supposed to include the valuation count as per the inventory. The various types of the considerations of the other inventories were seen to be based on the actual value. In addition to this, MYH needs to be valued as per the stock valuation of the management. The physical confirmation of the inventories is the responsibility of management for the entity. The duty of the management has been further seen to build on the strategy for checking of the inventories once in a year in order to establish the financial statement formulation. The auditor further needs to do a complete review of the technique to get the adequate and suitable for the audit confirmation and tallying the same with the physical inventory. The auditor needs to be present physically for the investigation and inspect the inventory and survey to check the systems set around the management to record the changes in the dependability of such procedures. The auditor cannot opt for inventory count which is available as per the alternative measures and the adjustments in the inventory with the date of count which are seen to be accurately recorded. The auditor needs to review the various types of the management information and the internal control in terms of re-counting, tagging, stock sheets and the identification of the obsolete and non-moving or the rejected items. He also needs to consider the cut off procedures for the valuation of the WIP along with the movement of the inventory. As per the general rule the auditor is not liable towards the third party and liable to their clients. The consideration for the third party has been shown below as follows: The financial statement is not seen to be true The auditor has intentionally or recklessly ignored a certain fact which is seen to be untrue Errors has been committed in the final accounts preparation Negligence on the part of by auditors employee Preparation of the financial statement intentionally so that the third party may take proper action As per the case Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997), it has been observed that the corporation lent money to a company based on the audit report. However after the default of the payment, Esanda claimed to the auditors of providing a loan as per the issued audit report, which breached the mandatory accounting standard. Conclusion As per the given case the auditor of the MYH verified the stock correctly, they also accepted the valuation however the management did not consider the obsolescence of the stock. It has been further seen to be evidenced that Oasis Ltd. got under significant pressure by the client for the completion of the audit with the limited time period, for completion of audit within one month from the date in the balance sheet. It has been further seen that the Oasis Ltd bring forward the negligence charged in terms of the audit of MYH References Abernathy, J., Hackenbrack, K. E., Joe, J. R., Pevzner, M., Wu, Y. J. (2015). Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Staff Consultation Paper, Auditing Accounting Estimates and Fair Value Measurements: Participating Committee Members.Current Issues in Auditing,9(1), C1-C11. Doxey, M. M., Geiger, M. A., Hackenbrack, K. E., Stein, S. E. (2015). Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2015-004, Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit Participants on a New PCAOB Form: Participating Committee Members.Current Issues in Auditing,10(1), C1-C10. Gaynor, G., Janvrin, D. J., Pittman, M., Pevzner, M., White, L. (2015). Comments of the Standards Committee of the Auditing Section of the American Accounting Association on IESBA Consultation Paper Improving the Structure of the Code of Ethics for Professional Accountants. The American Accounting Association. (2017).Aaahq.org. Retrieved 24 August 2017, from https://aaahq.org/