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Auditing

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Auditing
Introduction
Situations often arise where accounting professionals are faced with ethical issues and dilemmas. Resolving these ethical issues can often be complicated due to the lack of guidance provided by the Code of Ethics for Professional Accountants. Ethical theories present frameworks to assist in the decision making process.
The 6-Step Ethical Framework outlines an approach to take towards the ethical issues not addressed by the Code of Ethics. The 6-Step framework is demonstrated with the following.
Step 1: Relevant Facts
The relevant facts can be obtained from the case “The Subsidiary”: * Diane is a Principle Auditor working in the firm of Blott and Twiggy (B & T). * Doug Blott is Diane’s Audit Manager who has 9 years audit experience. David Blott is the senior partner in B & T. * Diane is auditing a plastics subsidiary which is a material component of a large Australian unlisted public company. It is Diane’s responsibility to complete the yearend audit of the company on behalf of B & T. * The plastics market is in mature stage and the company’s results have been stable for a number of years. However, recent competition has threatened the company’s future. * Harry is the CFO for the subsidiary who is anxious about the future of the company due to the company’s failure to meet targets and word from a reliable source within the parent company, that the parent entity are seeking to divest in the subsidiary. Harry will soon provide Diane with the latest financial pack. * The subsidiary company employees Harry’s son Michael. Michael and Diane have become good friends and have decided to purchase a house together. * Michael and Doug Blott often engage in social activities together, and Blott is currently unaware of the relationship between Michael and Diane. * Harry has re-viewed the financial pack and wishes changes to be made to the accounting treatment of unearned revenue and to increase the useful life of

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