Question Tag: Anomalous behavior

You are the external auditor of Mankani Motors (MM), a listed transportation company that hires vehicles to different companies. MM has about 650 vehicles in total, consisting of Vans and Lorries. Occasionally, the vehicles break down or are involved in road traffic accidents. If a vehicle is badly damaged or suffers a serious mechanical fault, it is Segbefia’s job to inspect the vehicle and to make a decision either to have it repaired or written off and sold for the residual value. Segbefia is a qualified mechanic, with many years’ experience of working with heavy goods vehicles and has excellent contacts in the trade. In cases where he decides to scrap the vehicle, he will usually dispose of it to a contact in fairly close proximity to where it has broken down or been crashed.

The CEO of MM has been reviewing some statistics produced by the company. She has noticed an apparent anomaly in relation to Segbefia’s work. Up to about one year ago, Segbefia recommended scrapping about 15% of the vehicles he inspected, irrespective of whether they had broken down or been involved in an accident. However, in the last 12 months he has recommended scrapping nearly 90% of broken-down vehicles, but only about 10% of the vehicles that were involved in accidents. The CEO is concerned that Segbefia may be involved in some kind of fraudulent or “irregular” activity. The CEO has asked you, as an external auditor, to conduct a discreet investigation to discover if this is indeed the case and, if not, to produce a report that explains Segbefia’s seemingly anomalous behavior.

Required:

i) Appraise the extent to which the external auditor is the most appropriate person to carry out such an investigation. (6 marks)

ii) Analyze FOUR (4) matters to be taken into consideration before deciding whether or not to accept this appointment in addition to continuing as auditor. (4 marks)