Audit failures – NBC Institute

AA – May 2024 – L2 – SA – Q4 – The Role and Responsibilities of Auditors

This question explores the public interest, ethical concerns, and auditor responsibilities, particularly in the case of reduced maintenance costs at MetroPower Limited.

Question

MetroPower Limited, a major public utility company, was entrusted with providing electricity to millions of residents and businesses. Mr. Mark, the Lead Technician at MetroPower for many years, is responsible for maintaining the electrical grid to ensure reliable electricity supply to the city. MetroPower’s financial statements were subjected to annual audits.

When Mrs. Jennifer assumed her role as the department’s supervisor, she implemented cost-cutting measures aimed at reducing the budget allocated for routine maintenance. This decision raised significant ethical concerns, as Mr. Mark believed it would compromise the safety and reliability of the electrical grid. He knew that such actions could lead to power outages and electrical hazards.

Mr. Mark found himself in a dilemma, torn between his responsibility to make electricity available and the potential consequences of opposing his new supervisor’s cost-cutting measures. Mr. Mark documented his concerns, maintaining detailed records of previous maintenance schedules and their impact on the grid’s reliability.

The auditors came across the evidence of reduced costs of maintenance and inspections in MetroPower.

Required:

a. Describe public interest, using MetroPower as an example. (2 Marks)

b. Identify five matters with which public interest can be associated. (5 Marks)

c. In setting codes of ethics, it is stated that principle-based ethics are better than rule-based ethics. Justify this assertion. (5 Marks)

d. Explain why the concept of due care or reasonable care is important in a contract for the provision of services. (4 Marks)

e. State two likely implications of the auditors’ failing to act on the information they got in relation to reduced costs of maintenance and inspections at MetroPower. (4 Marks)

Answer

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Tags: Audit failures, Due care, Ethical Conflicts, Professional Ethics, Public Interest
Level: Level 2

Topic: The Role and Responsibilities of Auditors
Series: MAY 2024

AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability

Discusses the potential for audit failures to undermine the credibility of external audits and the responses the accountancy profession can implement.

Question

Recent cases of bank failures have called into question the professional competence and integrity of external auditors. Some have explained that an auditor might be misled about the existence of account balances that do not exist. Companies being audited might have furnished the auditor with a document confirming the account’s existence and balance as at the reporting date. Unfortunately, according to allegations, such balances turn out to be either an overstatement or an understatement and the auditor failed to detect a material overstatement of both assets and revenues. Such cases undermine the credibility of auditors and external audit generally in the eyes of users of audited financial statements.

Required:
Explain whether you believe it is possible for such events as the one described above to completely undermine the credibility of external audit. Your explanation should consider the responses that the accountancy profession can put in place in response to such criticisms. (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit credibility, Audit failures, Auditor Responsibility, External audit, Professional competence
Level: Level 3

Topic: Current issues, Professional responsibility and liability, Reporting
Series: MAY 2018

AA – May 2024 – L2 – SA – Q4 – The Role and Responsibilities of Auditors

This question explores the public interest, ethical concerns, and auditor responsibilities, particularly in the case of reduced maintenance costs at MetroPower Limited.

Question

The auditors came across the evidence of reduced costs of maintenance and inspections in MetroPower.

Required:

a. Describe public interest, using MetroPower as an example. (2 Marks)

b. Identify five matters with which public interest can be associated. (5 Marks)

c. In setting codes of ethics, it is stated that principle-based ethics are better than rule-based ethics. Justify this assertion. (5 Marks)

d. Explain why the concept of due care or reasonable care is important in a contract for the provision of services. (4 Marks)

e. State two likely implications of the auditors’ failing to act on the information they got in relation to reduced costs of maintenance and inspections at MetroPower. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit failures, Due care, Ethical Conflicts, Professional Ethics, Public Interest
Level: Level 2

Topic: The Role and Responsibilities of Auditors
Series: MAY 2024

AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability

Discusses the potential for audit failures to undermine the credibility of external audits and the responses the accountancy profession can implement.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit credibility, Audit failures, Auditor Responsibility, External audit, Professional competence
Level: Level 3

Topic: Current issues, Professional responsibility and liability, Reporting
Series: MAY 2018

Question Tag: Audit failures

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AA – May 2024 – L2 – SA – Q4 – The Role and Responsibilities of Auditors

This question explores the public interest, ethical concerns, and auditor responsibilities, particularly in the case of reduced maintenance costs at MetroPower Limited.

AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability

Discusses the potential for audit failures to undermine the credibility of external audits and the responses the accountancy profession can implement.

AA – May 2024 – L2 – SA – Q4 – The Role and Responsibilities of Auditors

This question explores the public interest, ethical concerns, and auditor responsibilities, particularly in the case of reduced maintenance costs at MetroPower Limited.

AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability

Discusses the potential for audit failures to undermine the credibility of external audits and the responses the accountancy profession can implement.

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AA – May 2024 – L2 – SA – Q4 – The Role and Responsibilities of Auditors

This question explores the public interest, ethical concerns, and auditor responsibilities, particularly in the case of reduced maintenance costs at MetroPower Limited.

You're reporting an error for "AA – May 2024 – L2 – SA – Q4 – The Role and Responsibilities of Auditors"

AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability

Discusses the potential for audit failures to undermine the credibility of external audits and the responses the accountancy profession can implement.

You're reporting an error for "AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability"

AA – May 2024 – L2 – SA – Q4 – The Role and Responsibilities of Auditors

This question explores the public interest, ethical concerns, and auditor responsibilities, particularly in the case of reduced maintenance costs at MetroPower Limited.

You're reporting an error for "AA – May 2024 – L2 – SA – Q4 – The Role and Responsibilities of Auditors"

AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability

Discusses the potential for audit failures to undermine the credibility of external audits and the responses the accountancy profession can implement.

You're reporting an error for "AAA – May 2018 – L3 – Q3b – Current Issues, Reporting, Professional responsibility and liability"

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