Assessment item 1 Case A (ethics and the legal environment) Value: 10% Due Date: 04-Aug-2019 Return Date: 20-Aug-2019 Length: 1,250 words Submission method options: Alternative submission method Task...

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Assessment item 1

Case A (ethics and the legal environment)

Value: 10%

Due Date:04-Aug-2019

Return Date:20-Aug-2019

Length:1,250 words

Submission method options:Alternative submission method



You are an experienced audit manager at Samway Baker Fitzgerald (SBF), an accounting firm with offices in Orange, Wagga Wagga, Tamworth, Port Macquarie and Albury in NSW, Toowoomba in Queensland and Ballarat in Victoria. Although a medium-sized firm by national standards, SBF includes Australia’s largest regionally-based auditing practice. Most of SBF’s audit clients are in the manufacturing and service industries.

It is a late summer afternoon in February 2019 and you are meeting with your audit team to discuss the 30 June 2019 year-end audit for Bletchington Limited, an innovative defence industry manufacturing company based in Orange, listed on the Australian Stock Exchange (ASX), and one of SBF’s largest clients by fee revenue. Bletchington often has to go through a competitive market tender process to win large government contracts and only does business with countries that have a recognised democratically elected government. Its main product is a highly specialised light armoured vehicle known as the Bush-Basher. Given the sensitive nature of its designs and clients, Bletchington maintains a highly secure environment.

William Albanese has been the engagement partner on the Bletchington audit for the last 5 years. Andrew is a specialist in the defence industry and intends to remain as the review partner when the audit is rotated next year to Skye Larke, who is to be promoted to partner in early 2020 to enable her to sign off on the 30 June 2020 Bletchington audit.

In September 2018, Bletchington installed an off the shelf costing system. The new system replaced a system that had been developed 'in-house' but could no longer keep up with the complex and detailed manufacturing costing process that provides tender costings. The old system also had difficulties with the company's broader reporting requirements. Bletchington's information technology (IT) department, together with the consultants from the software company, implemented the new manufacturing costing system. There were no customised modifications. Key operational staff and the internal audit team from Bletchington were heavily involved in the selection, testing, training, and implementation stages.

Bletchington has a small internal audit department which is headed by an ex-partner of SBF, Kev Kevanna. Kev joined Bletchington after leaving SBF 6 years ago. He is assisted by three junior internal auditors, all of whom are completing Bachelor of Accounting studies at Charles Sturt University.


Write a memo to William Albanese, the current Bletchington engagement partner, that advises him on the following:

Question 1 (4%)

The expectations gap that could exist for the audit of Bletchington, including the existence of any special users of Bletchington's financial reports.

Question 2 (6%)

With reference to relevant legislation and the auditing standards:

  • threats to independence for SBF in its audit of Bletchington

  • safeguards against any potential threats to SBF's independence.

Answered Same DayJul 31, 2021ACC568Charles Sturt University

Answer To: Assessment item 1 Case A (ethics and the legal environment) Value: 10% Due Date: 04-Aug-2019 Return...

Khushboo answered on Aug 02 2021
144 Votes
Internal Memo:
TO:        Auditing department
DATE:        2nd August, 2019
CC:        Engagement Partner
SUBJECT:     Ethics in auditing
    From a discussion I have had with various p
artners in the recent past, it is prudent to share the findings with you.
Expectation Gap:
The expectation gap can be defined as the gap between the public perception of the role and responsibilities of the auditor in context to the audit engagement and the actual legal responsibility of the auditor. In other words users of the financial statements believe that the auditor are responsible for preventing and detecting all the fraud related to the financial statement and auditor test the transactions and balances in more detail as compared to the actual practice followed by the auditor. There are two types of the expectation gap which includes performance gap and liability gap (Najeb Masoud 2017). There are various reasons for the expectation gap in the auditing process because audit procedure is having various inherent limitations such as auditor employs sampling method instead of testing all the records during any financial year. Thus there is chance that the chosen sample does not truly represent the population. Another reason is that the evidence of the auditor sometimes are persuasive and not conclusive. Further the opinion expressed by the auditor is based on the judgment of the auditor. Thus due to the limitation of the auditor there is existence of the expectation gap. Further effort has been made by the profession to overcome such limitation and educate the users of the financial statement of the company regarding the role and responsibility of the auditor which includes that the responsibility to prevent and detect the fraud is the sole responsibility of the management of the company and the auditor is only responsible for detecting the fraud which are having material impact on the financial statement. The auditing standards are also made more comprehensive which will increase the scope of the auditor (Robin Litjens, Joost van Buuren, Ruud Vergoossen 2015).
Similarly in the audit of the Bletchington there are various expectation gap such as the auditor will use the sampling technique for the auditing process related to various manufacturing and costing details. The opinion of the auditor is based on the persuasive evidence. Another reason is that the users of the financial statement of the given entity want the comfort of the forward looking information whereas the auditor will...

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