Question Tag: Auditing

You have just been appointed the Auditor of Sheerahmog Manufacturing Company Limited, which manufactures 2.0 ml syringes specifically used by veterinary doctors. Recently, it was discovered that the 2.0 ml syringes are used on human beings due to the shortage of syringes for human use.

The Federal Government has decided to phase out the 2.0ml syringe in the next three years. In order to diversify into production of carbonated water, the Finance Director suggested that the company approach a bank for a complementary N1.26 billion required to finance the diversification program.

In spite of their proposal and cashflow to Bank of Akowonjo Plc, which was described as being fantastic, their loan application was not granted. As a result, the company is likely to go into liquidation with its numerous staff disengaged, if viable alternative is not provided to raise the required fund.

In carrying out the analysis of the sources of funds at the end of the year under review, you found that the company made much money from human trafficking to enable it accomplish the proposed plan of diversification.

At the next meeting with management of the company, you brought your findings to their knowledge and threatened to disclose it as an extraordinary item in the income schedule. Management frowned at it and were considering reviewing your appointment including fee which is currently 52% of your annual income.

Required:
a. Identify the ethical issues involved as they relate to the auditor. (2 Marks)
b. What are the THREE elements of fraudulent practices presented in this case? (6 Marks)
c. What are the safeguards for the ethical issues identified? (4 Marks)
d. List the issues that should be brought to the attention of the company by the auditors as regards the disclosure of the illegal act. (3 Marks)
(Total 15 Marks)