ACCT3000 AUDITING_Case Study (Part 1) _Trimester 2A, 2024
Write answers to each of the five (5) situations described below addressing the required criteria (i.e. 1 & 2) in each independent case. You may use a tabulated format if helpful having “Threats”, “Safeguards” and “Objective Assessment” as column headings.
Eric Baldwin has been appointed as a junior auditor of McKinsey & White Accounting Limited (MWAL). One of his first tasks is to review the firm’s audit clients to ensure that independence requirements of APES 110 (Code of Ethics for Professional Accountants) are being met. His review has revealed the following:
(a) MWAL has recently been approached by DHP Limited (DHP) to conduct its audit. Joe Black CA is one of the audit partners at MWAL. Joe’s wife Caitlin Stanley recently received a significant financial interest in DHP by way of an inheritance from her grandfather. Joe will not be involved in the DHP audit.
(b) MWAL has also been recently approached by Ozone Limited (Ozone) to conduct its audit. The accountant at Ozone, Alex Wilson, is the daughter of Stephanie Wilson, who is an audit partner at MWAL. Stephanie will not be involved with the Ozone audit.
(c) MWAL has been performing the audit of Raging Bull Limited (RBL) for five years. For each of the past two years MWAL’s total fees from RBL has represented 25% of all its fees. MWAL hasn’t received any payment from RBL for last year’s audit and is about to commence the current year’s audit for RBL. Directors of RBL have promised to pay MWAL 50% of last year’saudit fees prior to the issuance of their current year’saudit report and explain that RBL has had a bad financial year. MWAL is reluctant to push the matter further in fear of losing such a significant client.
(d) Walter White CPAisa partner in MWALand has been recently assigned as the engagement partner on the audit of Green Grocers Limited (GGL). Arnold House CA is another partner in BBAL who works in the same office as Walter. Arnold is not working on the GGL audit. Arnold’s wife, Liv Morgan, is planning on purchasing significant sharesin GGL.
(e) Anita Reddy CA is an assurance manager with MWAL, and it has just been decided to allocate her to the audit of Super Tech Limited (STL). Her husband JeffReddy has recently received some inheritance from his grandfather with which he previously planned to buy a large parcel of shares in STL. Anita has recently informed Eric that she has been able to finally convince Jeff to only buy a small parcel of shares in STL.
Required:
For each of the independent situations above, and using the conceptual framework in APES 110 (Code of Ethics for Professional Accountants), answer the following questions:
1. Identify potential threat(s) to independence & recommend safeguards (if any) to reduce the independence threat(s) identified. (10 marks)
2. Provide an objective assessment of whether audit independence can be achieved (10 marks)
(Total 20 Marks)