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  • 20 Marks

AAA – Nov 2020 – L3 – Q6 – Ethical Issues in Auditing

Preparation of briefing notes on audit tendering, ICAN requirements for advertising, fees, and assessment of client suitability.

Nash Investigations Limited specializes in conducting investigations for corporate clients. It employs ex-police officers, security consultants, IT, and fraud specialists. Nash Investigations recently dropped its firm of auditors and has approached your firm to participate in a tender process for selecting the new auditor. You are a manager in the audit firm and will be working with a senior auditor on this assignment. The senior auditor has never been involved in a tender process or appointment of a new auditor. You have been provided with the following information:

  1. Nash Investigations is a major service provider to your firm, particularly in the provision of IT and fraud consultancy.
  2. Nash Investigations has acrimoniously dropped their previous auditors and is withholding fees, pending the resolution of a number of issues, particularly accusations concerning the auditors’ competence.
  3. Nash Investigations is currently facing a hostile takeover bid from Technical Investigations Group, a company also audited by your firm.
  4. Media reports of a fraud allegation have been leveled against one of the directors of Nash Investigations.
  5. One of the partners in the audit firm is also a director of Nash Investigations.

Required:

Prepare briefing notes to explain the following matters to the audit senior:

a. The audit tendering process in terms of the stages that the audit firm will go through should it decide to participate in the tender.
(5 Marks)

b. The requirements of the ICAN Code of Conduct on advertising and publicity.
(5 Marks)

c. The requirements of the ICAN Code of Conduct on fees.
(5 Marks)

d. The impact of each additional piece of information provided above and how this information would influence your decision to participate in the audit tender for Nash Investigations.
(5 Marks)

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  • 20 Marks

AA – May 2021 – L2 – Q6 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Explanation of auditor independence threats, including fees, financial interest, contingent fees, and personal relationships.

Wakaso Nigeria Limited has experienced serious labour turnover which has affected the business of the company in the last twelve months. The most frustrating issue was the resignation of a well-tested Financial Controller of the company close to year-end. Wakaso management is noted for timely financial reporting and rendering of tax returns due to the efficiency and effectiveness of the Financial Controller who was also involved in the preparation of tax computations. The company has been finding it difficult to quickly recruit a new Financial Controller that will match the technical ability of the former accountant. The Managing Director of the company has invited the company’s external auditors to a meeting, intimating them of the plan to employ their services to complete the write-up of the books of accounts and management account pending when they employ a good chartered accountant to handle the financial operations of the company.

The company’s management, in order to ensure timely reporting, has also informed the auditors that to save time and meet cost of operations, the firm’s staff will be accommodated in a five-star hotel with a mouth-watering offer of payment in lieu of feeding as recommended by the audit partner. In addition, the previous year’s audit fee will be doubled and an additional twenty percent payment made if the management accounts and audit work could be completed within three weeks.

The partner of the firm has rejected the offers on the grounds of possible threat to independence. The Managing Director complained to you, as his brother, lamenting that accountants are not good businessmen and uncooperative.

Required:

Discuss the following:

a. Meaning of threats to independence (2 Marks)
b. In relation to independence of auditors:
i. Fees and pricing (4 Marks)
ii. Financial interest (4 Marks)
iii. Contingent fees (2 Marks)
iv. Family and personal relationship (4 Marks)
c. The reasons why the preparation of accounting records and management accounts constitutes a threat to the independence of the auditors. (4 Marks)

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  • 20 Marks

AAA – Nov 2020 – L3 – Q6 – Ethical Issues in Auditing

Preparation of briefing notes on audit tendering, ICAN requirements for advertising, fees, and assessment of client suitability.

Nash Investigations Limited specializes in conducting investigations for corporate clients. It employs ex-police officers, security consultants, IT, and fraud specialists. Nash Investigations recently dropped its firm of auditors and has approached your firm to participate in a tender process for selecting the new auditor. You are a manager in the audit firm and will be working with a senior auditor on this assignment. The senior auditor has never been involved in a tender process or appointment of a new auditor. You have been provided with the following information:

  1. Nash Investigations is a major service provider to your firm, particularly in the provision of IT and fraud consultancy.
  2. Nash Investigations has acrimoniously dropped their previous auditors and is withholding fees, pending the resolution of a number of issues, particularly accusations concerning the auditors’ competence.
  3. Nash Investigations is currently facing a hostile takeover bid from Technical Investigations Group, a company also audited by your firm.
  4. Media reports of a fraud allegation have been leveled against one of the directors of Nash Investigations.
  5. One of the partners in the audit firm is also a director of Nash Investigations.

Required:

Prepare briefing notes to explain the following matters to the audit senior:

a. The audit tendering process in terms of the stages that the audit firm will go through should it decide to participate in the tender.
(5 Marks)

b. The requirements of the ICAN Code of Conduct on advertising and publicity.
(5 Marks)

c. The requirements of the ICAN Code of Conduct on fees.
(5 Marks)

d. The impact of each additional piece of information provided above and how this information would influence your decision to participate in the audit tender for Nash Investigations.
(5 Marks)

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  • 20 Marks

AA – May 2021 – L2 – Q6 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Explanation of auditor independence threats, including fees, financial interest, contingent fees, and personal relationships.

Wakaso Nigeria Limited has experienced serious labour turnover which has affected the business of the company in the last twelve months. The most frustrating issue was the resignation of a well-tested Financial Controller of the company close to year-end. Wakaso management is noted for timely financial reporting and rendering of tax returns due to the efficiency and effectiveness of the Financial Controller who was also involved in the preparation of tax computations. The company has been finding it difficult to quickly recruit a new Financial Controller that will match the technical ability of the former accountant. The Managing Director of the company has invited the company’s external auditors to a meeting, intimating them of the plan to employ their services to complete the write-up of the books of accounts and management account pending when they employ a good chartered accountant to handle the financial operations of the company.

The company’s management, in order to ensure timely reporting, has also informed the auditors that to save time and meet cost of operations, the firm’s staff will be accommodated in a five-star hotel with a mouth-watering offer of payment in lieu of feeding as recommended by the audit partner. In addition, the previous year’s audit fee will be doubled and an additional twenty percent payment made if the management accounts and audit work could be completed within three weeks.

The partner of the firm has rejected the offers on the grounds of possible threat to independence. The Managing Director complained to you, as his brother, lamenting that accountants are not good businessmen and uncooperative.

Required:

Discuss the following:

a. Meaning of threats to independence (2 Marks)
b. In relation to independence of auditors:
i. Fees and pricing (4 Marks)
ii. Financial interest (4 Marks)
iii. Contingent fees (2 Marks)
iv. Family and personal relationship (4 Marks)
c. The reasons why the preparation of accounting records and management accounts constitutes a threat to the independence of the auditors. (4 Marks)

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