1) Accounting bodies’ code of ethics:
Case:
After recently completing professional examinations, you have formed a partnership with an existing sole practitioner. Your partner is a registered company auditor and has decided to move into partnership as a means of offering a wider range of services. In particular he is looking to increase the amount of consultancy work the firm is undertaking. The firm’s largest client is a small public company that originally joined the firm when your partner commenced practice. Over the years the services that your firm provides have grown to include taxation and financial advice.
You have just assisted this client to identify and negotiate an acquisition of a business. As the financial year-end is approaching, the managing director approaches you to undertake valuation of the brand names of the business acquired. The directors intend to include your valuation in the statement of financial position of the company as an independent valuation. They have indicated that it will save them a great deal of audit firm if this matter can be resolved before the audit.
After the acquisition, the company will be an even more important client of your firm from both an audit fee and consulting perspective. There is also the prospect that they will undertake some form of capital raising in the future to fund further expansion.
Required:
Outline five ethical issues relevant in assessing the relationship with the company and in deciding whether to continue offering the current range of services to this client. Cite relevant references where appropriate.
(No introduction, no conclusion, straight to the main point, 1 page, may use ‘Accounting and Auditing handbook 2005-2006 volume 2 of CPA or CA version as reference)
2) Audit independence:
Case: The following are independent situations:
(A) Chad is an audit assistant currently undertaking university studies. While auditing the books of DelTel, he comes across certain financial information that he believes will assist him in completing one of his university assignments, he copies the information and uses it in his assignment, carefully removing all reference to DelTel in order to preserve the client’s confidentiality.
(B) Ms Wang has been the engagement partner on the Plimosl Ltd audit for a number of years. Some time ago, Plimsol Ltd’s longstanding company secretary retired and it took six months to find a replacement. At Plimol Ltd’s request, Ms Wang performed company secretarial duties for this period of time. Ms Wang was not company secretary at the time the annual audit report was signed.
(C) Tim is the eldest son of the factory foreman of one of your firm’s major audit clients, Enz Ltd. Enz Ltd operates in the manufacturing industry. During vacation work, Tim is assigned to the audit of Enz Ltd. Tim’s work comprised testing the internal controls of the cash payments system.
(D) Caz is an audit supervisor at Goodsell Partners. For the last two years, Goodsell Partners has been engaged by Sundew Pty Ltd to audit certain summarised financial information for submission to Sundew Pty Ltd’s bankers. The summarised financial information is prepared on a quarterly basis. While filing other work papers, Caz notices that there is a typographical error in the report issued for the quarter ending 31 March 2002. This has resulted in a serious overstatement of net profit. As several months have passed since March, and neither the client nor the banker has queried the figures, Caz decides to ignore the error.
Required
For each of the independent situations (A) to (D):
(i) List any professional standards and regulatory requirements breached.
(ii) Advise as to possible alternative course of action the auditor should have taken in order to properly discharge their professional responsibilities.
(Use ‘Accounting and Auditing handbook 2005-2006 volume 2 of CPA or CA version as reference and with section numbers, no introduction, no conclusion, straight to the main point, 1and half pages)