Auditing Case
Audit case
You are the engagement partner in a firm of chartered accountant and are reviewing the audit fire of a client ABC ltd. the audit manager has recommended that the audit option is qualified because he is in dispute with the directors of ABC ltd. The audit manager wishes the directors to create a large doubtful debts provision against a major debtor that is over six months old. The directors do not witch to alarm the public about the current liquidity problems of their major costumer because they are sure that as soon as their costumer has completed the development on their latest product, which is due to finish very soon, the costumer will settle their debt. The audit manager says that the client has contacted another for a second option; you have a number of concerns:
a) You have known the financial director of ABC ltd for twenty years and are sure you can trust her judgment as to the ability of their costumer to settle their debt. Nevertheless, your professional guidelines would indicate that as this major costumer is currently facing liquidity problems, a provision for doubtful debts should be pursued. You know you will have to quality your option if they refuse to comply.
b) You know that the client will probably appoint an alternative auditor at the end of the year if you pursue the matter
c) Your firm provides multiple services to this client which counts for their times the audit fee and the auditors that replace you would probably pick these fees up too.
Required:
a) Describe actions the auditors could take when being threatened with removal
b) Examine how an audit committee could help to resolve this situation
c) What are the professional rules regarding the provision of multiple services and how these rules may be applies in this case?
Best Answer
a) Describe actions the auditors could take when being threatened with removal
The engagement partner could discuss this with another partner to confirm that he 's on the right track.
You are the engagement partner in a firm of chartered accountant and are reviewing the audit fire of a client ABC ltd. the audit manager has recommended that the audit option is qualified because he is in dispute with the directors of ABC ltd. The audit manager wishes the directors to create a large doubtful debts provision against a major debtor that is over six months old. The directors do not witch to alarm the public about the current liquidity problems of their major costumer because they are sure that as soon as their costumer has completed the development on their latest product, which is due to finish very soon, the costumer will settle their debt. The audit manager says that the client has contacted another for a second option; you have a number of concerns:
a) You have known the financial director of ABC ltd for twenty years and are sure you can trust her judgment as to the ability of their costumer to settle their debt. Nevertheless, your professional guidelines would indicate that as this major costumer is currently facing liquidity problems, a provision for doubtful debts should be pursued. You know you will have to quality your option if they refuse to comply.
b) You know that the client will probably appoint an alternative auditor at the end of the year if you pursue the matter
c) Your firm provides multiple services to this client which counts for their times the audit fee and the auditors that replace you would probably pick these fees up too.
Required:
a) Describe actions the auditors could take when being threatened with removal
b) Examine how an audit committee could help to resolve this situation
c) What are the professional rules regarding the provision of multiple services and how these rules may be applies in this case?
Best Answer
a) Describe actions the auditors could take when being threatened with removal
The engagement partner could discuss this with another partner to confirm that he 's on the right track.