a.
Concept Introduction:
Decision Making−It is the process of making a choice by identifying the decision, collecting relevant information and choosing possible alternatives.
The auditors were to be held responsible for fraud and gross negligence, though not for negligence.
To discuss:If owning stock in client’s firm is inappropriate.
b.
Concept Introduction:
Decision Making−It is the process of making choice by identifying the decision, collecting relevant information and choosing possible alternatives.
The auditors were to be held responsible for fraud and gross negligence, though not for negligence.
To comment: About the auditors being independent.
c.
Concept Introduction:
Decision Making−It is the process of making choice by identifying the decision, collecting relevant information and choosing possible alternatives.
The auditors were to be held responsible for fraud and gross negligence, though not for negligence.
To comment: About the action taken by the company on auditor.
d.
Concept Introduction:
Decision Making−It is the process of making choice by identifying the decision, collecting relevant information and choosing possible alternatives.
The auditors were to be held responsible for fraud and gross negligence, though not for negligence.
To comment: About the unprofessional decision made by the auditor.
e.
Concept Introduction:
Decision Making−It is the process of making choice by identifying the decision, collecting relevant information and choosing possible alternatives.
The auditors were to be held responsible for fraud and gross negligence, though not for negligence.
To State: The services procedures for protecting the career of the tipster.
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Chapter 4 Solutions
ACP AUDITING - RISK BASED APPROACH
- The Directors of Aspen PLC have recently appointed your audit firm to act as their external auditor. Aspen PLC is a FTSE-250 fast growth company specialising in cloud computing solutions. As part of the audit services, you have been requested by the Directors of Aspen PLC to undertake the following services:▪ the external audit of the company’s annual financial statement▪ taxation services; and ▪ consultancy services relating to the trialling and implementation of a new, stateof-the-art information technology systemYour audit firm has not worked for Aspen PLC before but does act as auditor for its biggest rival, another FTSE-250 company Priory Mason PLC. Required: (a) Identify and explain the professional and ethical issues that your firm should consider with regards to the services requested by Aspen PLC, stated above. What safeguards should be implemented to address these issues? (b) Critically discuss the five key principles of ethics. (c) An auditor must never disclose a…arrow_forward21. Imagine you are an audit manager for KPAG and partners – an audit firm based in Muscat. You have just been asked by one of your existing clients, SOHAR corporation, for help in compliance with corporate governance guidelines because they are about to obtain a stock exchange listing. They have sent you the following information. At present Mr. Omar al Balushi is both Chairman and CEO (Chief Executive Officer) of SOHAR corporation. You are required to identify from the following, whether it is a corporate governance weakness or strength and choose the correct recommendations. a. Yes, it is a weakness and chairman and CEO should not be Mr. Omar al Balushi b. Yes, it is a weakness, however if external auditors agree Mr. Omar al Balushi can continue c. None of the options d. No, it is not a weakness so no recommendation requiredarrow_forwardYou have recently been appointed as auditor to Johnson Plc; a company whose shares are traded on the Stock Exchange. The Directors of Johnson Plc have recommended that you perform the following services . (i) The statutory audit of the annual financial statements. (ii) Taxation services, and (iii) Consistency services in respect of the implementation of a new information technology system Your firm has not acted for Johnson Plc before but does act as auditor for one of the major competitors. Required. (a) Identify and explain the professional and ethical issues that should have been identified by your firm in relation to the provision of the services outlined above, and describe the safeguards that should be in place in order to address these issues. (Include citations to support work). (b) What are the fundamental principles of ethics? Briefly explain their meaning (Include citations to support work). (c) A client’s affairs should not be disclosed to third parties. However where a…arrow_forward
- Directions: Read the case below and answer the questions that follow.Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2016. Henderson Energy is regulated by the state utility commission, and because it is a publicly traded company the audited financial statements must be filed with the Securities and Exchange Commission (SEC).Henderson Energy is considerably more profitable than many of its competitors, largely due to its extensive investment in information technologies used in its energy distribution and other key business processes. Recent growth into rural markets, however, has placed some strain on 2016 operations. Additionally, Henderson Energy expanded its investments into speculative markets and is also making greater use of derivative and hedging transactions to mitigate some of its investment risks. Because of the complexities of the underlying accounting associated with these activities, Henderson…arrow_forwardYou are an audit supervisor assigned to a new client which is listed on a Stock Exchange. You visited the corporate headquarters to become acquainted with key personnel and to conduct a preliminary review of the company’s accounting policies, controls, and systems. During this visit, (d) You noted that all management authority seems to reside with three brothers, who serve as chief executive officer, president, and financial vice president. Identify the problems and explain them in relation to the internal environment.arrow_forwardCase study The audit of Megatron plc is under consideration by the executive directors. The group has been audited by one of the international audit firms, Tickitt & Run, for the last fourteen years. Tickitt & Run also carry out certain internal audit functions, have advised Megatron on several major acquisitions and also provide computer consultancy services and finance consultancy. The senior partner of Tickitt & Run is a regular guest at several Megatron corporate events and Tickitt & Run were joint sponsors with Megatron of a tennis tournament in Antigua where they entertained the board of Megatron at an end of tournament party, at which several major tennis stars were present. After the corruption scandal that caused the downfall of previous CEO Sir ‘Billy’ Bustler and Chairman Lord Footler, the new CEO, a Scottish chartered accountant called McTavish, is reviewing all professional relationships with a view to enhancing the corporate governance in the group. He is…arrow_forward
- Case study The audit of Megatron plc is under consideration by the executive directors. The group has been audited by one of the international audit firms, Tickitt & Run, for the last fourteen years. Tickitt & Run also carry out certain internal audit functions, have advised Megatron on several major acquisitions and also provide computer consultancy services and finance consultancy. The senior partner of Tickitt & Run is a regular guest at several Megatron corporate events and Tickitt & Run were joint sponsors with Megatron of a tennis tournament in Antigua where they entertained the board of Megatron at an end of tournament party, at which several major tennis stars were present. After the corruption scandal that caused the downfall of previous CEO Sir ‘Billy’ Bustler and Chairman Lord Footler, the new CEO, a Scottish chartered accountant called McTavish, is reviewing all professional relationships with a view to enhancing the corporate governance in the group. He is…arrow_forwardYou are an audit manager in Gogoe & Co, an audit firm which operates as part of an international network of firms. This morning you received a note from a partner regarding a potential new audit client: I have been approached by the audit committee of the Frimps Group, which operates in the mobile telecommunications sector. Our firm has been invited to tender for the audit of the individual and group financial statements for the year ending 31 March 2018, and I would like your help in preparing the tender document. This would be a major new client for our firm’s telecoms audit department. The Frimps Group comprises a parent company and six subsidiaries, one of which is located overseas. The audit committee is looking for a cost effective audit, and hopes that the strength of the Frimps Group’s governance and internal control mean that the audit can be conducted quickly, with a proposed deadline of 31 May 2018. The Plant Group has expanded rapidly in the last few years and…arrow_forwardCase study The audit of Megatron plc is under consideration by the executive directors. The group has been audited by one of the international audit firms, Tickitt & Run, for the last fourteen years. Tickitt & Run also carry out certain internal audit functions, have advised Megatron on several major acquisitions and also provide computer consultancy services and finance consultancy. The senior partner of Tickitt & Run is a regular guest at several Megatron corporate events and Tickitt & Run were joint sponsors with Megatron of a tennis tournament in Antigua where they entertained the board of Megatron at an end of tournament party, at which several major tennis stars were present. After the corruption scandal that caused the downfall of previous CEO Sir ‘Billy’ Bustler and Chairman Lord Footler, the new CEO, a Scottish chartered accountant called McTavish, is reviewing all professional relationships with a view to enhancing the corporate governance in the…arrow_forward
- Case study The audit of Megatron plc is under consideration by the executive directors. The group has been audited by one of the international audit firms, Tickitt & Run, for the last fourteen years. Tickitt & Run also carry out certain internal audit functions, have advised Megatron on several major acquisitions and also provide computer consultancy services and finance consultancy. The senior partner of Tickitt & Run is a regular guest at several Megatron corporate events and Tickitt & Run were joint sponsors with Megatron of a tennis tournament in Antigua where they entertained the board of Megatron at an end of tournament party, at which several major tennis stars were present. After the corruption scandal that caused the downfall of previous CEO Sir ‘Billy’ Bustler and Chairman Lord Footler, the new CEO, a Scottish chartered accountant called McTavish, is reviewing all professional relationships with a view to enhancing the corporate governance in the group. He is…arrow_forwardYou are a CPA and you are the CFO (Chief Financial Officer) of USB Computer Technologies Inc., a company that specializes in customized business software. You have been requested by the board of directors of the company to attend its meeting. During the meeting, one of the directors asked you, "Why audits of our company performed by different auditors (internal, external, government). Before you could answer question, another direfctor mentioned "it would be more cost-efficient if our internal auditors will performed all the audits. " Requirements. Write down your reply to each question of the members of the board of directors. In relation to your answer in number 1, identify the issues that must be explained to the Board.arrow_forwardPhillip Dale is a recent employee of RMGT Audit Firm. A new client Juicy Juice Limited has approached RMGT for the audit of its annual reports and Phillip was asked to start the preparation of the audit plan. Phillip knows only too well the importance of audit planning. It involves many considerations that help to develop more efficient engagements and provides auditors with important risk management techniques. Juicy Juice Limited operates in many overseas countries. The company employs over 2000 employees and is known for providing many great benefits for its employees. One of Juicy Juice’s biggest assets is its inventory as the company offers a large variety of products throughout the many overseas countries in which it operates. The company also regularly purchase shareholdings in other companies. The previous auditors of Juicy Juice have stated that the previous year’s audit had revealed extensive material misstatements. Questions A. Discuss FOUR (4) of the…arrow_forward
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