- 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.
Question
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)
Find Related Questions by Tags, levels, etc.
- Tags: Auditor Independence, Ethics, Family Relationships, Fees, Financial Interest
- Level: Level 2
- Topic: Professional Ethics and Code of Conduct for Auditors
- Series: MAY 2021