Auditing and Assurance Services Assessment Task 1

Issue 1: Ethics, Independence, and Regulation

Beyond Enron, there have been countless cases of audit firms failing to detect accounting misstatements, fraud, and other misconduct by company executives. Although some audit firm may not have been deemed negligent or publicly named as culpable for the failure, there may still be ethical, or independence issues linked to the audit engagement during the period of accounting misconduct. Below are real-world cases which had involved financial misstatements and potential failure of oversight by the external auditor:

A. EY and NMC Health (UK) 
B. BDO and Dubber Corporation 
C. Deloitte and Freedom Foods 
D. Grant Thornton and iSignthis 

Required: For one of the cases listed above, conduct research and address the following questions:

1. Were there actual or alleged ethical and independence issues associated with the engagement between the audit firm and the company?

2. What issues could have contributed to the failure of the audit firm to discover and report the accounting and financial misreporting that occurred?

3. What types of regulatory and legal rules and regulations could have been implemented to avoid these audit failures (if any)? This can include strengthening auditor independence or expanding the duties of the audit firm.

Summary of Assessment Requirements

This assessment requires students to explore ethics, independence, and regulation in auditing by examining real-world audit failures. The task focuses on analyzing one of the listed cases involving major audit firms and companies with financial misstatements. Students are required to research and respond to three critical questions:

1. Identify actual or alleged ethical and independence issues between the audit firm and the company.

2. Analyze the reasons behind the failure of the audit firm in detecting and reporting financial misreporting.

3. Suggest regulatory and legal measures that could prevent such audit failures, such as improving auditor independence or broadening audit responsibilities.

The overall objective is to enhance students’ understanding of professional ethics, accountability, and the role of auditors in safeguarding public trust.

Approach Guided by the Academic Mentor

Step 1: Understanding the Case Selection
The mentor first guided the student to choose one case from the four options provided (EY & NMC Health, BDO & Dubber Corporation, Deloitte & Freedom Foods, Grant Thornton & iSignthis). The student was encouraged to select a case where enough publicly available information and literature could be sourced.

2: Identifying Ethical and Independence Issues

The mentor instructed the student to investigate whether there were conflicts of interest, close client relationships, fee dependence, or lapses in professional skepticism. Using case documents, media articles, and professional reports, the student highlighted key ethical breaches or independence concerns.

3: Exploring Causes of Audit Failure

The mentor emphasized critically analyzing why the audit firm failed to uncover misreporting. This included weak internal controls, reliance on management representations, insufficient audit testing, and potential complacency of auditors. The student was guided to provide evidence from the case to support arguments.

4: Suggesting Regulatory and Legal Solutions

The mentor encouraged the student to evaluate the role of regulatory frameworks such as the Corporations Act, ASIC, APES 110 Code of Ethics for Professional Accountants, and international standards. Recommendations such as stricter independence rules, mandatory auditor rotation, stronger audit committees, and expanded reporting duties were considered.

Step 5: Structuring the Report
The mentor helped the student align the response in a structured format—

• Introduction to the selected case

• Ethical and independence issues

• Reasons for audit failure

• Regulatory/legal recommendations

• Conclusion linking back to professional accountability

Step 6: Academic Writing and Referencing
The mentor emphasized the importance of evidence-based discussion, correct APA 7th referencing, and clarity in writing to meet academic standards.

Final Outcome

The student’s final work successfully met the assessment requirements by:

• Presenting a well-researched case study with real-world examples.

• Identifying clear ethical and independence issues faced by the auditor.

• Explaining the systemic causes of audit failure.

• Proposing robust regulatory and legal measures to prevent similar occurrences.

Learning Objectives Covered

Through this guided process, the student achieved the following learning outcomes:

• Developed critical thinking about the ethical responsibilities of auditors.

• Understood how independence is central to audit quality and trust.

• Learned how regulatory frameworks protect stakeholders.

• Improved academic research, structuring, and referencing skills.

• Gained practical insights into the link between audit practice, governance, and ethics.

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