ACC305: Bolts Ltd (Bolts), - Accounting Assignment

Internal Code: MAS231

Accounting Assignment:

Part 1: You have been asked by your audit client, Bolts Ltd (Bolts), to prepare a report that analyses the potential acquisition of Steel Pty Ltd (Steel). Prior to conducting your analysis, you decide to verify the accuracy and completeness of the cash flow statement provided by Steel for the year ended 30 June 2012. After reviewing a draft of your analysis, the chief financial officer (CFO) of Bolts has asked you to focus your attention on the sales and profitability of Steel and to avoid the distraction of cash flow reporting. He suggests that the acquisition will provide substantial future financial benefits to Bolts and that confusing the board with cash flow issues would not be helpful to the acquisition or to the likelihood of your being asked to undertake similar engagements in the future. Question: List two threats to compliance with the fundamental principles that may exist resulting from your discussion with the CFO, and identify the fundamental principles at risk of being breached. Part 2: Luke and Zane are two audit seniors working for the same Big Four accounting firm. Both started employment with the firm around the same time. They have mutual respect for each other; however, they have been highly competitive since they commenced work together. Luke has recently married and he and his wife are paying off their mortgage. Zane is single with a reputation in the firm for playing hard but working hard too. They have both been seniors for almost 18 months and are looking for promotion to audit supervisor. They are both aware that there is only one supervisor position available. Luke recently replaced Zane on a particular job, and the reason given to both Luke and Zane was that another assignment had arisen with a long-time client of Zane. Once Luke had replaced Zane on that particular job, he realised that the client had called the audit manager to say that they were not impressed with Zane, as he had missed a number of issues within the audit and was arriving at work late. The audit manager had not discussed these comments with either Luke or Zane. After going through the work that Zane had completed, Luke realised that Zane had performed an excellent job, identifying a number of issues that he thought he might possibly have missed. Furthermore, Luke suspects that Zane and the client had a personality conflict, and that the client has misled the audit manager. Question: 1) Work through this scenario using the American Accounting Association decisionmaking model, and decide what action Luke should take. 2) Would your decision be any different if you used the Mary Guy decision-making model?