Ethics, Independence & Governance Question

You have been asked to advise on the following ethical concerns that have been referred to you, as

manager of the Technical Department of GWIZ, a large audit firm:

1. Tyler has discovered that one of GWIZ's clients has deferred recognition of some current year

income until the following year, because this will reduce current year income tax and ease

cash flow difficulties. The client claims this is 'just a timing thing' and has also threatened to

find another auditor if Tyler raises it as an audit issue.

2. Hayley is the lead partner on the audit of Fedup Ltd, a company listed on the New Zealand

Stock Exchange (NZX). She has been in charge of this audit since GWIZ accepted this client

in 2010.

Identify and explain which fundamental ethical principle(s) has/have been breached in each of

the above scenarios. Include in your explanation what is expected in terms of the fundamental

principle concerned. Where threats to independence exist, these should also be identified and

explained.