Hello can someone help me in this question by applying the requirements of APES

Question

Hello can someone help me in this question by applying the requirements of APES 110 to identify the threats and recommend safeguard to reduce threat and provide an objective assessment whether audit independence can be achieved for this scenario below.

Reign (an assurance company) has decided to start the audit work of Blue print. Sarah coo will be the engagement partner for Blue print audit. Danny Kon who is also a partner at reign and sit in the same office as Sarah. Danny ‘s wife has purchased shares in blue print. Danny will not be involved in the audit of Blue Print.

Explanation / Answer

First of all let’s know something basic about APES 110;

Accounting Professional & Ethical Standards Board (APESB) issued APES 110, which is associated with the Code of Ethics for Professional Accountants. In other words we can say that APESB issued this code for defining and explaining a proper code of ethics for the accountants so that they can follow these ethics while involved in auditing & accounting work of a company and firm.

This code of ethics was effective from July 1, 2011 for the accountants professionals.

Now let’s see the given case;

As per information of the question, it is clear that Reign (an assurance company) accepted audit work of Blue print. But it is also given that Sarah coo and Danny Kon are the partners in Reign (an assurance company) so definitely both partners will affect work of each other and audit work as well. As per information of the question it is also clear that Danny Kon is not involved in audit work and wife of Danny Kon have shares of Blue Print firm.

So on the basis of above information it is clear that Danny Kon has indirect interest in the firm which need to be audited.

And we know that as per guidelines of APES 110, it is known that when audit firm and its’ partners have direct or indirect interest in the firm that is being audited then audit independence can not be maintained properly. So overall we can say that due to indirect interest of a partner of the audit firm (Reign) we can not maintain audit independence in spite of no involvement of Danny Kon in the audit work because it is true that Danny Kon and Sarah Coo both share common office and member of same audit firm. Thus partner Sarah Coo independence is questionable here.

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