Impact of Social Influence Pressure

Question: Discuss about the Impact of Social Influence Pressure . Answer: Introduction The independence of the auditors is an important aspect of the audit profession. Auditors independence indicates that the auditors of an organization must not have any kinds of financial material interest in the financial properties of the audit client. There must be integrity and honesty in the audit process (Blay Geiger, 2013). Two types of auditors independence can be seen. They are Actual independence and Perceived Independence. Actual independence is the state of mind of the auditors at the time of performing audit. On the other hand, perceived condition is the perception of the auditors to approach to a particular problem (Dogui, Boiral Heras?Saizarbitoria, 2014). Potential Threats The independence of the auditors demands that the auditors must be independent at the time of audit operation (Schmidt, 2012). However, it can be seen in the case study that the auditors independence is not maintained in the given case. The violation of auditors independence may cause several threats for both the parties. The potential threats are discussed below: Situation 1: The first condition of the auditors independence is that the auditors must be free from any kind of financial interest. In a broader sense, the internal as well as external auditors of the organization must not have any kinds of material financial interest in the property of the audit client. The auditors need to keep that in mind that they are the representative of public and their audit report must not have any kinds of biasness. As per the given situation, Fellowes and Associates are the official audit partner of Health Care Holding Group (HCHG). Hence, as per the rules of AccountingProfessional Ethical Standards (APES) 110, any member of the audit firm should not have any kinds of materials financial interest in the financial properties of HCHG. However, it can be seen that the one of the accountant of Fellowes and Associates owns shares in the company. This act poses a potential threat of breaching the independence principles of auditors (Hossain et al., 2016). Situation 2: As per the given case study, the intellectual property of HCHG was values by Fellowes and Associates on 1 March 2014 and the same amount of $ 30 million was shown in the consolidated balance sheet on 30 June 2014. On the other, the intellectual properties were considered as material to HCHG. In this situation, there are two potential threats in this situation. The first threat is the valuation of the intellectual property. The value of intellectual property could be changed between 30 June to 1 March; but the old value is taken in the new balance sheet. There can be biasness or the self-interest of the auditors in doing so and hence, it is against the independence of the auditors. On the other hand, the intellectual property is considered as material to HCHG while they may not be material due to the nature of the assets. This is a potential threat (Chapple et al., 2014). Actions and Safeguards According to the above discussion, there are some potential threats for Fellowes and Associates. However, with the help of proper corrective measures, the threats can be avoided. As per the first situation, an accountant of Fellowes and Associates has purchased the shares of the audit client, HCHG. This implies that the accountant has financial interest in the wealth of HCHG. As per the corrective action of this situation, the accountant should sale the shares of the audit client and Fellowes and Associates needs to replace the position of the accountant with another one (Clayton Staden, 2015). In the second situation, the valuation of the intellectual properties of HCHG was wrongly done; on the other hand, the intellectual properties were shown in the books of HCHG as material. This is a serious offence as it violates the principles of auditing independence. As a corrective action, Fellowes and Associates should take actions to make the valuation of intellectual properties in a rig ht way. The next step will be to show the intellectual properties of HCHG as immaterial in the books of HCHG (J. Clout, Chapple Gandhi, 2013). To avoid the future threats of the auditors independence, some safeguards need to be taken. In the presence of appropriate leadership in the field of audit eliminates the threats of auditors independence. The above case states the linear accelerator of TCCL has adverse radiation effects on the patients. Hence, it is recommended to Fellowes and Associates to test the condition of that linear accelerator before passing any kind of audit judgment. This needs to be done as a safeguard. Another important aspect is that the Fellowes and Associates should not perform the audit operation free of charges as it can indicate biasness of Fellowes and Associates towards the audit client, HCHG. This is another safeguard that can be taken (Townsend, 2014). Conclusion From the above discussion, it can be understood that it is the responsibility of the auditors to provide the audit report after performing the audit operation in an honest and ethical way. As per the given case study, it can be seen that one of the accounts associates of Fellowes and Associates is found having financial interest in the audited client. On the other hand, he did not value the intellectual properties in a proper way. Hence, based on the principles of APES 110, the threats are described and the possible corrective measures are provided along with various kinds of safeguards. References Blay, A. D., Geiger, M. A. (2013). 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