Part (e) Discuss five ethical concerns you may have in terms of SAICA’s Code of Professional Conduct with regard to the actions of Delien.
Do not discuss any safeguards.
Answer
This comprehensive audit case for Beeprop, a property company, focuses on:
Investment Property Valuation: High audit risk due to COVID-19 impact on office vacancies and management's contradictory stance on valuation certainty. Auditors must scrutinize the external valuer's work and underlying assumptions.
Right-of-Use (RoU) Asset: A new leased office building (subleased as investment property) requires detailed audit of its recognition, fair value measurement, and proper classification under IFRS 16 and IAS 40.
Specific Misstatements/Risks:
Improper capitalization of "abnormal" construction costs.
A qualitatively material classification misstatement of a current lease liability, impacting the working capital ratio, requiring auditor judgment on report modification.
Undisclosed related party transactions (townhouses used by director's husband).
Construction started without zoning approval.
Complex tenant installation allowance accounting.
Ethical Concerns: Significant ethical dilemmas involving the financial director's actions (e.g., misleading tax deductions, non-arm's length transactions, pressuring staff), creating self-interest and intimidation threats.
The auditor's role is to apply professional skepticism, perform extensive substantive procedures, evaluate expert findings, and determine the appropriate audit opinion, considering both quantitative and qualitative materiality, as well as ethical compliance.
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