Question Tag: Client Acceptance

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  • 30 Marks

AA – Nov 2023 – L2 – Q1 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Analyze ethical considerations for an auditor accepting a client, including MD's remarks on audit expectations and conflict-of-interest procedures.

Nigeria Water Resources Limited (NWR) is a limited liability company floated by the
Federal Government to control water related activities and resources. Its operations
cover surface and under water activities. The company is about three years old. As is the practice with entities having government interest, NWR wanted to change the company‟s auditors. It therefore, invited tenders for the audit assignment through a national newspaper. In order to score an advantage over other bidders, the firm of John Ibrahim and Co. (Chartered Accountants) decided to quote a seemingly unrealistic fee level in order to get the job. The Managing Director (MD) of the company did not see anything wrong with the low professional fee level since it will save costs for the company, especially that despite the clean audit report of the previous years, fraud and financial misdemeanour went undetected. The MD believed the annual statutory audit is just to “fulfil all righteousness”. John Ibrahim and Co. has been rated high since this firm
has as its client, another company in the same line of trade.

If the firm, John Ibrahim & Co., wins the bid to audit Nigeria Water Resources Limited (NWR):

a. Explain the ethical matters the firm should consider before client acceptance, at the point of engagement acceptance, and after accepting the appointment. (12 Marks)

b. Assess the remarks of the MD of NWR from the point of the expectation of the public as regards audit assignments. (8 Marks)

c. Explain the procedures the audit firm should undertake to avoid conflict of interests that could affect the judgment of the firm since John Ibrahim & Co. audits another client that is in direct competition with NWR. (6 Marks)

d. Explain the guidelines of the Institute’s Code with respect to advertisement by members. (4 Marks)

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  • 30 Marks

AA – Nov 2014 – L2 – Q1 – Risk Assessment and Internal Control

Analyze audit risks and ethical considerations for a new audit engagement with a telecommunication firm.

You are the Principal Partner in charge of a four-partner firm of Chartered Accountants. Your firm has been invited to tender for the audit of Poles Apart Limited for the year ended 31 December 2013.

Poles Apart Limited was established two years ago and provides mobile phone service for individuals and businesses. The system established by the company comprises:

  1. Small portable mobile phones, which allow subscribers to contact or be contacted by any other telephone.
  2. The mobile phones can be used within the range of a local relay station that receives and sends calls to the mobile phone.
  3. The local relay stations are linked to a central computer that connects the calls to other users, often through a computer telephone network.
  4. Currently, the local relay stations cover one large city with a population of about 1,000,000. In the next year, the system will expand to all cities in Nigeria with populations over 250,000. By 2017, it will cover all motorways and cities with populations over 100,000, which will involve substantial capital expenditure and require additional borrowings.
  5. The cost of the relay stations and central computer is capitalized and amortized over six years.
  6. The mobile phones are manufactured by other companies and sold through retailers. Poles Apart Limited pays ₦2,000 to the retailer for each phone sold, which is capitalized and amortized over four years.
  7. Subscribers are invoiced monthly with a fixed line rental and a variable call charge. Charges for calls from other operators are also calculated by the company’s main computer.
  8. All shares are owned by three wealthy individuals who serve as non-executive directors. They receive a fixed allowance and do not plan further investment in the company.
  9. Establishing the network of relay stations and subscribers will result in losses for at least three years, with current borrowings at about 20% of shareholders’ funds. It is expected that the company will be highly geared by 2016.
  10. As the company will not be immediately profitable, executive directors receive a basic salary and a bonus based on the number of subscribers.
  11. The owners plan to float the company on the local Stock Exchange in 2016. The flotation will involve issuing new shares to the public and the three non-executive directors selling some of their shares.
  12. Poles Apart Limited has several large competitors, each with comprehensive coverage of over 90% of the population.

Required:

a. Consider the risks associated with the audit of Poles Apart Limited. (12 Marks)

b. Describe the ethical matters you should consider in deciding whether your audit firm should accept the audit engagement. This should include considering whether your firm has the technical and logistical ability to carry out the audit. (12 Marks)

c. Advise on whether you should accept or decline the audit assignment, giving your principal reasons for coming to this decision. (6 Marks)

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  • 5 Marks

AA – Nov 2016 – L2 – Q2a – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

This question addresses the ethical issues auditors face when accepting clients and engagements, focusing on independence and professional conduct.

Audit practice around the world is generally a business, and its objective is to make profit. However, this does not mean that the practice should automatically accept every audit engagement that is offered to it to maximise profit. Circumstances may arise where it is appropriate to decline the offer of an audit engagement for either commercial or ethical reasons.

Required:
a. Discuss the ethical issues to be considered by an independent auditor in the following matters:
i. Client Acceptance
ii. Engagement Acceptance
(5 Marks)

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  • 10 Marks

AA – Nov 2023 – L2 – Q2b – Professional and Ethical Considerations, Audit and Assurance Risk Environment

This question discusses five key factors to consider before accepting an audit engagement.

Afrak and Associates is an Audit Firm that has been providing audit and assurance services for over 20 years. The firm has recently received a request from a new client, XYZ Ltd., to provide audit services. The audit engagement will cover the financial statements for the year ended December 31, 2022.

Required:
Explain FIVE (5) factors Afrak and Associates must consider prior to accepting the audit engagement, paying attention to, risk areas that may give rise to liability, including fraud, error, and non-compliance.
(10 marks)

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  • 5 Marks

AA – Mar 2023 – L2 – Q2a – Professional and Ethical Considerations

Identify factors to consider before accepting a client for an audit engagement.

M&G Chartered Accountants has been presented with two potential clients. They have written to the firm to appoint them as their external auditors.

Required:
State FIVE (5) factors you will take into consideration before making this client acceptance decision.

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  • 10 Marks

AA – Aug 2022 – L2 – Q2c – Professional and Ethical Considerations

Explains factors to consider before accepting a new audit client and preconditions for agreeing to an audit engagement.

There are factors to consider and procedures to follow before accepting a new client, a new engagement for an existing client, or agreeing to the terms of any new engagement. It could be an audit, a non-audit engagement, or an assurance engagement. Acceptance decisions are critical since new clients and/or engagements can impair the objectivity or expose the firm to an audit risk, both of which must be carefully considered.

Required:
i) Explain TWO (2) factors a professional accountant in public practice should consider before accepting a new audit client.
(5 marks)

ii) Explain TWO (2) preconditions that should exist when agreeing to the Terms of Audit Engagement.
(5 marks)

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  • 10 Marks

AAA – Nov 2020 – L3 – Q5b – The Audit Approach

Identify and comment on the implications of findings related to quality control policies and procedures during an audit engagement.

You are a Partner in Green & Co., a firm of Chartered Accountants, with specific responsibility for the quality of audits. Green & Co. was appointed auditor of Cleanup Co, a provider of waste management services, in July 2019. You have just visited the audit team at the head office of Cleanup Co. The audit team comprises an audit manager, an audit senior, and two audit trainees.

During your visit, a review of the audit working papers revealed the following:

i) On the audit planning checklist, the audit senior has crossed through the analytical procedures section and written ‘not applicable – new client’. The audit planning checklist has not been signed off as having been reviewed.

ii) The audit manager last visited Cleanup Co.’s office when the final audit commenced two weeks ago on 1 August. The audit senior has since completed the audit of tangible non-current assets (including property and service equipment) which amount to GH¢ 600,000 as at 30 June 2019 (2018 – GH¢ 600,000). The audit manager spends most of his time working from Green & Co’s office and is currently allocated to three other assignments as well as Cleanup Co.’s audit.

iii) At 30 June 2019, trade receivables amounted to GH¢ 2.1 million (2018 – GH¢ 900,000). One of the trainees has just finished sending out requests for direct confirmation of customers’ balances as at the end of the reporting period.

iv) The other trainee has been assigned the audit of the consumable supplies, which includes inventory amounting to GH¢ 88,000 (2018 – GH¢ 53,000). The trainee has carried out tests of controls over the perpetual inventory records and confirmed the ‘roll-back’ of a sample of current quantities to book quantities as at the year end.

v) The audit manager has noted the following matter for your attention. The financial statements as at 30 June 2018 disclosed, as unquantifiable, a contingent liability for pending litigation. However, the audit manager has seen a letter confirming that the matter was settled out of court for GH¢ 450,000 on 14 September 2018. The auditor’s report on the financial statements for the year ended 30 June 2018 was unmodified and signed on 19 September 2018. The audit manager believes that management of Cleanup Co. is not aware of the error and has not brought it to their attention.

Required:
Identify and comment on the implications of these findings for Green & Co’s quality control policies and procedures. (10 marks)

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  • 10 Marks

AAA – May 2016 – L3 – Q2a – Practice management | Professional responsibility and liability

Advise on the matters to consider in relation to accepting a new audit client according to ISQC 1.

Papa Nii and Papa Nana who just qualified as Professional Accountants have decided to enter into professional practice under a firm name Nana Nii & Associates. These two have been trainee accountants of an Audit and Assurance firm for three years before qualifying.

For their first engagement, the CEO of Mberdane Ltd. has nominated Nana Nii & Associates for appointment as auditors of his company though Mberdane Ltd was a former client of their former firm, Papa Nii and Papa Nana were never on the engagement team of Mberdane Ltd. As beginners, Papa Nii and Papa Nana have intended to follow best practices as required by ISQC 1 “Quality control for firms that perform audits and reviews of financial statements, and other assurance related services”. However, they are not clear on the matters that they have to consider in their acceptance decision according to the standard. They have approached you, a senior partner of their former firm, for advice.

Required:
Advise Papa Nii and Papa Nana on the matters that they may have to consider in relation to the acceptance decision on their nomination. (10 marks)

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  • 20 Marks

AAA – Aug 2022 – L3 – Q1 – Professional responsibility and liability | Practice management

Discuss the audit expectation gap, recommend ways to close it, and evaluate client acceptance decisions for a new audit client.

The potential liability of auditors has become an important topic in recent years, due to the growing complexity of the audit business environment and an increase in legal actions against auditors. One argument put forward to explain the high number of legal actions against auditors is the “expectation gap”.

i) Explain the Audit Expectation Gap and the elements in the Gap.
(4 marks)

ii) Recommend TWO (2) ways of closing the audit expectation gap.
(2 marks)

b) International Standards on Auditing (ISA) defines professional scepticism as an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatements due to error or fraud and a critical assessment of audit evidence. It explicitly requires auditors to plan and perform an audit with professional scepticism recognising that circumstances may exist that may cause financial statements to be misstated.

Required:

Recommend FOUR (4) approaches or ways that the professional practice firms and auditors could adopt to create the awareness of the importance of professional scepticism and its application.
(4 marks)

c) Opelee Partners, a firm of Chartered Accountants is considering the acceptance of a new client, The Monkoo Group Plc (The Group).

The Group is a listed company, and it has a total of 14 subsidiaries, 10 of which are foreign subsidiaries. The Group is a food processing company and each of its foreign subsidiaries provides a particular ingredient used in the Group’s main processing plant, which is based in Ghana. The subsidiaries produce raw ingredients including corn, wheat, vegetables, and nuts.

If Opelee Partners decides to accept the appointment, it will perform the audit of the Group’s consolidated financial statements, and that of the financial statements of some of the individual subsidiaries. The Group audit committee has suggested that, in order to keep the audit fee as low as possible, Opelee Partners could audit the companies based in Ghana but the foreign subsidiaries would be audited by local firms. These foreign subsidiaries contribute 60% to the Group’s total assets.

As the Managing Partner of Opelee Partners, you have also obtained the following information from an internet search regarding the Group:

  • Local protestors: One subsidiary, Konti Plc, has been accused of environmental damage, due to its operations impacting on the rainforest and causing harm to wildlife. There have been some protests by concerned citizens in the country where Konti Plc is located. Digital recordings of these protests have spread world-wide on social media.
  • Expansion of operations: The Group has recently expanded its operations in a certain country by acquiring a large area of land on which to grow wheat. To receive government approval for the acquisition, a significant ‘incentive payment’ was made to a government minister. This has been reported widely in the media.

Required:

Evaluate the matters Opelee Partners should consider before accepting the audit of The Group under the following areas:

i) The audit firm’s capabilities
(4 marks)

ii) Ethical issues
(4 marks)

iii) Client integrity
(2 marks)

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  • 10 Marks

AAA – March 2023 – L3 – Q1b – Professional responsibility and liability, The audit approach

Discuss the ethical issues and other matters to consider before accepting Kita Ltd as a client.

You are a Senior manager in Bintu & Associates, a firm of Chartered Accountants which offers a range of assurance services. You are responsible for the audit of Mmatan Ltd, a company which provides approximately 10% of your firm’s practice income each year. The Finance Director of Mmatan Ltd has recently contacted you to provide information about another company, Kita Ltd, which is looking to appoint a provider of assurance services.

An extract from an email received from the Finance Director of Mmatan Ltd to you is stated below:

“One of my friends, Mr. Preprah, is the Managing Director of Kita Ltd, a small company which is seeking to expand in the next few years. I know that Mr. Preprah has approached the company’s bankers for GH¢6 million to finance the expansion. To support this loan application, Mr. Preprah will need to present its audited Financial Statements, hence the need for an Auditor immediately. Mr. Preprah is also in need of a firm to provide tax planning advice and also to prepare both the company’s and his personal tax computations for submission to the tax authorities. In this regard, I have asked Mr. Preprah to contact you, and I hope that Bintu & Associates will be able to provide these services to Kita Ltd for a low fee. If the fee you suggest is too high, and unacceptable to Mr. Preprah, then I will recommend that Mr. Preprah approaches Kwateng & Associates instead. Should the arrangement with Kita Ltd not go through, then Mmatan Ltd would also advise itself.”

Kwateng & Associates is a firm of Chartered Accountants which has an office in the same town as Bintu & Associates. The company is owner-managed, with Mr. Preprah’s family owning 90% of the share capital. Mr. Preprah is a director and majority shareholder of three other companies. An article in a newspaper from several years ago about Mr. Preprah indicated that one of his companies was once fined for a breach of employment law and that he had used money from one of the company’s pension funds to set up a business abroad, appointing his son as the Managing Director of that business.

Required:
Discuss the ethical issues and other matters which should be considered in relation to Bintu & Associates’s potential acceptance of Kita Ltd as its client. (10 marks)

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  • 30 Marks

AA – Nov 2023 – L2 – Q1 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Analyze ethical considerations for an auditor accepting a client, including MD's remarks on audit expectations and conflict-of-interest procedures.

Nigeria Water Resources Limited (NWR) is a limited liability company floated by the
Federal Government to control water related activities and resources. Its operations
cover surface and under water activities. The company is about three years old. As is the practice with entities having government interest, NWR wanted to change the company‟s auditors. It therefore, invited tenders for the audit assignment through a national newspaper. In order to score an advantage over other bidders, the firm of John Ibrahim and Co. (Chartered Accountants) decided to quote a seemingly unrealistic fee level in order to get the job. The Managing Director (MD) of the company did not see anything wrong with the low professional fee level since it will save costs for the company, especially that despite the clean audit report of the previous years, fraud and financial misdemeanour went undetected. The MD believed the annual statutory audit is just to “fulfil all righteousness”. John Ibrahim and Co. has been rated high since this firm
has as its client, another company in the same line of trade.

If the firm, John Ibrahim & Co., wins the bid to audit Nigeria Water Resources Limited (NWR):

a. Explain the ethical matters the firm should consider before client acceptance, at the point of engagement acceptance, and after accepting the appointment. (12 Marks)

b. Assess the remarks of the MD of NWR from the point of the expectation of the public as regards audit assignments. (8 Marks)

c. Explain the procedures the audit firm should undertake to avoid conflict of interests that could affect the judgment of the firm since John Ibrahim & Co. audits another client that is in direct competition with NWR. (6 Marks)

d. Explain the guidelines of the Institute’s Code with respect to advertisement by members. (4 Marks)

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  • 30 Marks

AA – Nov 2014 – L2 – Q1 – Risk Assessment and Internal Control

Analyze audit risks and ethical considerations for a new audit engagement with a telecommunication firm.

You are the Principal Partner in charge of a four-partner firm of Chartered Accountants. Your firm has been invited to tender for the audit of Poles Apart Limited for the year ended 31 December 2013.

Poles Apart Limited was established two years ago and provides mobile phone service for individuals and businesses. The system established by the company comprises:

  1. Small portable mobile phones, which allow subscribers to contact or be contacted by any other telephone.
  2. The mobile phones can be used within the range of a local relay station that receives and sends calls to the mobile phone.
  3. The local relay stations are linked to a central computer that connects the calls to other users, often through a computer telephone network.
  4. Currently, the local relay stations cover one large city with a population of about 1,000,000. In the next year, the system will expand to all cities in Nigeria with populations over 250,000. By 2017, it will cover all motorways and cities with populations over 100,000, which will involve substantial capital expenditure and require additional borrowings.
  5. The cost of the relay stations and central computer is capitalized and amortized over six years.
  6. The mobile phones are manufactured by other companies and sold through retailers. Poles Apart Limited pays ₦2,000 to the retailer for each phone sold, which is capitalized and amortized over four years.
  7. Subscribers are invoiced monthly with a fixed line rental and a variable call charge. Charges for calls from other operators are also calculated by the company’s main computer.
  8. All shares are owned by three wealthy individuals who serve as non-executive directors. They receive a fixed allowance and do not plan further investment in the company.
  9. Establishing the network of relay stations and subscribers will result in losses for at least three years, with current borrowings at about 20% of shareholders’ funds. It is expected that the company will be highly geared by 2016.
  10. As the company will not be immediately profitable, executive directors receive a basic salary and a bonus based on the number of subscribers.
  11. The owners plan to float the company on the local Stock Exchange in 2016. The flotation will involve issuing new shares to the public and the three non-executive directors selling some of their shares.
  12. Poles Apart Limited has several large competitors, each with comprehensive coverage of over 90% of the population.

Required:

a. Consider the risks associated with the audit of Poles Apart Limited. (12 Marks)

b. Describe the ethical matters you should consider in deciding whether your audit firm should accept the audit engagement. This should include considering whether your firm has the technical and logistical ability to carry out the audit. (12 Marks)

c. Advise on whether you should accept or decline the audit assignment, giving your principal reasons for coming to this decision. (6 Marks)

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  • 5 Marks

AA – Nov 2016 – L2 – Q2a – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

This question addresses the ethical issues auditors face when accepting clients and engagements, focusing on independence and professional conduct.

Audit practice around the world is generally a business, and its objective is to make profit. However, this does not mean that the practice should automatically accept every audit engagement that is offered to it to maximise profit. Circumstances may arise where it is appropriate to decline the offer of an audit engagement for either commercial or ethical reasons.

Required:
a. Discuss the ethical issues to be considered by an independent auditor in the following matters:
i. Client Acceptance
ii. Engagement Acceptance
(5 Marks)

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  • 10 Marks

AA – Nov 2023 – L2 – Q2b – Professional and Ethical Considerations, Audit and Assurance Risk Environment

This question discusses five key factors to consider before accepting an audit engagement.

Afrak and Associates is an Audit Firm that has been providing audit and assurance services for over 20 years. The firm has recently received a request from a new client, XYZ Ltd., to provide audit services. The audit engagement will cover the financial statements for the year ended December 31, 2022.

Required:
Explain FIVE (5) factors Afrak and Associates must consider prior to accepting the audit engagement, paying attention to, risk areas that may give rise to liability, including fraud, error, and non-compliance.
(10 marks)

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  • 5 Marks

AA – Mar 2023 – L2 – Q2a – Professional and Ethical Considerations

Identify factors to consider before accepting a client for an audit engagement.

M&G Chartered Accountants has been presented with two potential clients. They have written to the firm to appoint them as their external auditors.

Required:
State FIVE (5) factors you will take into consideration before making this client acceptance decision.

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  • 10 Marks

AA – Aug 2022 – L2 – Q2c – Professional and Ethical Considerations

Explains factors to consider before accepting a new audit client and preconditions for agreeing to an audit engagement.

There are factors to consider and procedures to follow before accepting a new client, a new engagement for an existing client, or agreeing to the terms of any new engagement. It could be an audit, a non-audit engagement, or an assurance engagement. Acceptance decisions are critical since new clients and/or engagements can impair the objectivity or expose the firm to an audit risk, both of which must be carefully considered.

Required:
i) Explain TWO (2) factors a professional accountant in public practice should consider before accepting a new audit client.
(5 marks)

ii) Explain TWO (2) preconditions that should exist when agreeing to the Terms of Audit Engagement.
(5 marks)

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  • 10 Marks

AAA – Nov 2020 – L3 – Q5b – The Audit Approach

Identify and comment on the implications of findings related to quality control policies and procedures during an audit engagement.

You are a Partner in Green & Co., a firm of Chartered Accountants, with specific responsibility for the quality of audits. Green & Co. was appointed auditor of Cleanup Co, a provider of waste management services, in July 2019. You have just visited the audit team at the head office of Cleanup Co. The audit team comprises an audit manager, an audit senior, and two audit trainees.

During your visit, a review of the audit working papers revealed the following:

i) On the audit planning checklist, the audit senior has crossed through the analytical procedures section and written ‘not applicable – new client’. The audit planning checklist has not been signed off as having been reviewed.

ii) The audit manager last visited Cleanup Co.’s office when the final audit commenced two weeks ago on 1 August. The audit senior has since completed the audit of tangible non-current assets (including property and service equipment) which amount to GH¢ 600,000 as at 30 June 2019 (2018 – GH¢ 600,000). The audit manager spends most of his time working from Green & Co’s office and is currently allocated to three other assignments as well as Cleanup Co.’s audit.

iii) At 30 June 2019, trade receivables amounted to GH¢ 2.1 million (2018 – GH¢ 900,000). One of the trainees has just finished sending out requests for direct confirmation of customers’ balances as at the end of the reporting period.

iv) The other trainee has been assigned the audit of the consumable supplies, which includes inventory amounting to GH¢ 88,000 (2018 – GH¢ 53,000). The trainee has carried out tests of controls over the perpetual inventory records and confirmed the ‘roll-back’ of a sample of current quantities to book quantities as at the year end.

v) The audit manager has noted the following matter for your attention. The financial statements as at 30 June 2018 disclosed, as unquantifiable, a contingent liability for pending litigation. However, the audit manager has seen a letter confirming that the matter was settled out of court for GH¢ 450,000 on 14 September 2018. The auditor’s report on the financial statements for the year ended 30 June 2018 was unmodified and signed on 19 September 2018. The audit manager believes that management of Cleanup Co. is not aware of the error and has not brought it to their attention.

Required:
Identify and comment on the implications of these findings for Green & Co’s quality control policies and procedures. (10 marks)

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  • 10 Marks

AAA – May 2016 – L3 – Q2a – Practice management | Professional responsibility and liability

Advise on the matters to consider in relation to accepting a new audit client according to ISQC 1.

Papa Nii and Papa Nana who just qualified as Professional Accountants have decided to enter into professional practice under a firm name Nana Nii & Associates. These two have been trainee accountants of an Audit and Assurance firm for three years before qualifying.

For their first engagement, the CEO of Mberdane Ltd. has nominated Nana Nii & Associates for appointment as auditors of his company though Mberdane Ltd was a former client of their former firm, Papa Nii and Papa Nana were never on the engagement team of Mberdane Ltd. As beginners, Papa Nii and Papa Nana have intended to follow best practices as required by ISQC 1 “Quality control for firms that perform audits and reviews of financial statements, and other assurance related services”. However, they are not clear on the matters that they have to consider in their acceptance decision according to the standard. They have approached you, a senior partner of their former firm, for advice.

Required:
Advise Papa Nii and Papa Nana on the matters that they may have to consider in relation to the acceptance decision on their nomination. (10 marks)

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  • 20 Marks

AAA – Aug 2022 – L3 – Q1 – Professional responsibility and liability | Practice management

Discuss the audit expectation gap, recommend ways to close it, and evaluate client acceptance decisions for a new audit client.

The potential liability of auditors has become an important topic in recent years, due to the growing complexity of the audit business environment and an increase in legal actions against auditors. One argument put forward to explain the high number of legal actions against auditors is the “expectation gap”.

i) Explain the Audit Expectation Gap and the elements in the Gap.
(4 marks)

ii) Recommend TWO (2) ways of closing the audit expectation gap.
(2 marks)

b) International Standards on Auditing (ISA) defines professional scepticism as an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatements due to error or fraud and a critical assessment of audit evidence. It explicitly requires auditors to plan and perform an audit with professional scepticism recognising that circumstances may exist that may cause financial statements to be misstated.

Required:

Recommend FOUR (4) approaches or ways that the professional practice firms and auditors could adopt to create the awareness of the importance of professional scepticism and its application.
(4 marks)

c) Opelee Partners, a firm of Chartered Accountants is considering the acceptance of a new client, The Monkoo Group Plc (The Group).

The Group is a listed company, and it has a total of 14 subsidiaries, 10 of which are foreign subsidiaries. The Group is a food processing company and each of its foreign subsidiaries provides a particular ingredient used in the Group’s main processing plant, which is based in Ghana. The subsidiaries produce raw ingredients including corn, wheat, vegetables, and nuts.

If Opelee Partners decides to accept the appointment, it will perform the audit of the Group’s consolidated financial statements, and that of the financial statements of some of the individual subsidiaries. The Group audit committee has suggested that, in order to keep the audit fee as low as possible, Opelee Partners could audit the companies based in Ghana but the foreign subsidiaries would be audited by local firms. These foreign subsidiaries contribute 60% to the Group’s total assets.

As the Managing Partner of Opelee Partners, you have also obtained the following information from an internet search regarding the Group:

  • Local protestors: One subsidiary, Konti Plc, has been accused of environmental damage, due to its operations impacting on the rainforest and causing harm to wildlife. There have been some protests by concerned citizens in the country where Konti Plc is located. Digital recordings of these protests have spread world-wide on social media.
  • Expansion of operations: The Group has recently expanded its operations in a certain country by acquiring a large area of land on which to grow wheat. To receive government approval for the acquisition, a significant ‘incentive payment’ was made to a government minister. This has been reported widely in the media.

Required:

Evaluate the matters Opelee Partners should consider before accepting the audit of The Group under the following areas:

i) The audit firm’s capabilities
(4 marks)

ii) Ethical issues
(4 marks)

iii) Client integrity
(2 marks)

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  • 10 Marks

AAA – March 2023 – L3 – Q1b – Professional responsibility and liability, The audit approach

Discuss the ethical issues and other matters to consider before accepting Kita Ltd as a client.

You are a Senior manager in Bintu & Associates, a firm of Chartered Accountants which offers a range of assurance services. You are responsible for the audit of Mmatan Ltd, a company which provides approximately 10% of your firm’s practice income each year. The Finance Director of Mmatan Ltd has recently contacted you to provide information about another company, Kita Ltd, which is looking to appoint a provider of assurance services.

An extract from an email received from the Finance Director of Mmatan Ltd to you is stated below:

“One of my friends, Mr. Preprah, is the Managing Director of Kita Ltd, a small company which is seeking to expand in the next few years. I know that Mr. Preprah has approached the company’s bankers for GH¢6 million to finance the expansion. To support this loan application, Mr. Preprah will need to present its audited Financial Statements, hence the need for an Auditor immediately. Mr. Preprah is also in need of a firm to provide tax planning advice and also to prepare both the company’s and his personal tax computations for submission to the tax authorities. In this regard, I have asked Mr. Preprah to contact you, and I hope that Bintu & Associates will be able to provide these services to Kita Ltd for a low fee. If the fee you suggest is too high, and unacceptable to Mr. Preprah, then I will recommend that Mr. Preprah approaches Kwateng & Associates instead. Should the arrangement with Kita Ltd not go through, then Mmatan Ltd would also advise itself.”

Kwateng & Associates is a firm of Chartered Accountants which has an office in the same town as Bintu & Associates. The company is owner-managed, with Mr. Preprah’s family owning 90% of the share capital. Mr. Preprah is a director and majority shareholder of three other companies. An article in a newspaper from several years ago about Mr. Preprah indicated that one of his companies was once fined for a breach of employment law and that he had used money from one of the company’s pension funds to set up a business abroad, appointing his son as the Managing Director of that business.

Required:
Discuss the ethical issues and other matters which should be considered in relation to Bintu & Associates’s potential acceptance of Kita Ltd as its client. (10 marks)

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