Question 1

The following are independent situations:

(i)Warren Smith is an audit partner of Smithies. Warren is the responsible auditor on the audit of a non-profit organisation, the Australian Bonsai Society (ABS) Incorporated.As a favour to ABS, he also serves on the Remuneration Committee. The committee advises the board of directors on board meeting fees and oversees attendances of directors to ensure they qualify for payment in terms of the number of meetings attended. Warren is not paid for his services on the committee and he does not consider his duties to be a 'management' function.

(ii)You are a senior partner in the audit firm AMG. AMG has performed the statutory audit of Grow Fast Pty Ltd, a large proprietary company for the last 10 years. Grow Fast has experienced phenomenal growth which resulted in them opening multiple branches. The scope and extent of audit procedures required to complete the audit has dramatically increased, resulting in Grow Fast becoming AMG's biggest client by far, with annual audit fees constituting the bulk of AMG's revenue.

(iii)You are the partner in charge of the audit of New Age Designs Ltd. Sean Rice is a student studying accounting at UTAS. Sean is employed as a 'holiday casual' in your audit firm.Sean is also the son of the storeman of New Age Designs.You have discovered that the manager in charge assigned Sean to the audit of New Age Designs to assist with the annual year-end inventory count and related procedures. The inventory count has not commenced.

(iv)You are nearing retirement and intend to sell your public accounting practice. The practice includes bookkeeping, tax services and auditing. As part of the negotiations in selling the practice, you make audit-related working papers, tax-related working papers, and management-services related working papers available for inspection by potential purchasers.

(v)Livingstone and Associates is a medium-sized audit firm located in Hobart, TAS. The audit firm performs a wide range of small audits. The firm has been approached by Western Mining Ltd, a large mining group with its headquarters in Perth, WA. The mining operations are spread out over a number of licences held in remote Western Australia. Livingstone and Associates have not previously carried out audits of mining groups nor mining activities. The partners of the firm believe this is an excellent growth opportunity to 'valuable to be missed'.

Required

Using Table 1 below, for each of the abovementioned independent situations:

a.Briefly describe the primary principle (if any) which breaches the underpinnings of the practice of auditing.

[5 marks]

b.Briefly explain the impact of the breach with reference to the relevant auditing standards or regulatory framework.

[5 marks]

c.Interpret how the auditing standards, or Corporation Law, or Code of Professional Ethics apply to each situation, by suggesting safeguards to address breaches. Reference where appropriate.