- 10 Marks
AAA – Mar 2024 – L3 – Q1a – Rules of professional conduct, Professional responsibility and liability, The audit approach
Evaluation of ethical threats impacting audit independence and advice on mitigating actions.
Question
You are an audit manager of Afari & Partners and have been assigned to the audit of Jericho Plant Company Ltd (Jericho Plant), which has been an audit client for 6 years and specialises in manufacturing fertilizers in Ghana.
The company was introduced to the firm by Mr. Lartey 6 years ago when he was a Commissioner at the Ghana Revenue Authority (GRA). Mr. Lartey is not a member of the Institute of Chartered Accountants, Ghana. However, since his retirement from GRA, last year, he joined the firm as a tax partner to provide tax consultancy services. He has good relations with the client as his daughter is married to the son of the CEO for Jericho Plant.
Mr. Andani, who has been the audit engagement partner for Jericho Plant for the past 6 years, has recently been rotated off the audit engagement. The current audit partner, Mr. Nti, has suggested that in order to maintain a close relationship with Jericho Plant, Mr. Lartey should undertake the role of an engagement quality reviewer this year. In addition, Jericho Plant has requested that Mr. Andani assist them by attending their audit committee meetings, as a non-executive director has recently left the company.
Jericho Plant has also asked Mr. Lartey and the other partners at Afari & Partners to help them in recruiting a new non-executive director.
Fees paid by Jericho Plant form 35% of the firm’s total fee income (both audit and non-audit fees) and the partners have anticipated that the fees for this year would be greater than last year. Since joining as a tax partner, Mr. Lartey has been aggressive in generating revenue for the tax department and does not keep records of his work. He argues that the most important issue is for the firm to generate revenue, which he does. Some of the clients have complained about the cash collected by Mr. Lartey as part of his consultancy services.
The audit manager for Jericho Plant last year has just announced that he is leaving Afari & Partners to join Jericho Plant as the financial controller.
Required:
Using the information above
i) Evaluate FOUR (4) ethical threats which may affect the independence of Afari & Partners. (6 marks)
ii) For each threat, advise on how it might be mitigated to an acceptable level. (4 marks)
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