Chartered Accountants in New Zealand - Weli Co - Auditing Assignment Help

Assignment Task :

You are an audit manager of XYZ & Co., a firm of Chartered Accountants in New Zealand. Following two scenarios are given with respect to two audit clients. 

Scenario 01 - Weli Co. 

Your firm has been approached by Weli Co. to provide the annual audit. Your audit firm already provides the audit service to a few competitors of Weli Co., so having much experience in the field. 

The financial year will end on 31 March 2019, and this will be the first year that an audit is required, as previously the company was exempt from audit due to its small size. The potentialaudit engagement partner, Wickram, recently attended a meeting with Mary Carl, managing director of Weli Co. regarding the audit appointment. In this meeting, Mary Carl made the following comments: 

‘Weli Co.is a small, owner-managed business. I run the company, along with my sister, Rita, and we employ a partly-qualified accountant to do the bookkeeping and prepare the annual accounts. The accountant prepares management accounts at the end of every quarter, but Rita and I rarely do more than quickly review the sales figures. 

We understand that due to the company’s size, we now need to have the accounts to be audited. It would make sense if your firm could prepare the accounts and do the audit at the same time. 

We don’t want a cash flow statement prepared, as it is not required for tax purposes, and would not be used by us. Next year we are planning to acquire another company, one of our competitors, which I believe is an existing audit client of your firm. For this reason, we require that your audit procedures do not include reading the minutes of board meetings, as we have been discussing some confidential matters regarding this potential acquisition. We also willing to consult you for our tax management services in the future and the fee for taxation services should be based on a percentage of tax saved”. 

Required; 

(i) With reference to international code of ethics for assurance practitioners (PES 1),  discuss five ethical principles that will be potentially breached, if XYZ & Co,  accepted the audit of Weli Co. 

(ii) Discuss possible safeguard/s for each of the identified ethical principles in above (i)  

Scenario 02- ABC Co. 

You have been allocated to the audit of ABC Co., a listed company which has been an audit client for five years and specializes in manufacturing electric equipment. 

Max was the audit engagement partner for ABC and as he had completed seven years as the audit engagement partner, he has recently been rotated off the audit engagement. The current audit partner, Harin has suggested that in order to maintain a close relationship with ABC, Max should undertake the role of independent review partner this year. In addition, ABC has requested that Max to assist them by attending their audit committee meetings, as a non-executive director who has recently left the company. ABC has also asked Harin and the other partners at XYZ & Co to help them in recruiting a new non-executive director. The current year’s audit fee has not yet been confirmed, but along with taxation and other possible non-audit fees the total income from ABC this year could be greater than 16% of total fee income of the firm. Further, ABC asked Harin to consult the developments in their internal controls related to financial reporting. 

Required; 

(i) As per PES 1, identify FIVE ethical threats which may affect the independence of XYZ ‘s audit of ABC Co. 

(ii) For each threat explain how it might be reduced to an acceptable level 

Scenario 03- Allion Ltd 

Allion Ltd is a public limited liability company that has grown rapidly over the past few years, and is now one of your firm's most important clients. 

The client has been satisfied with the services provided, although the taxation fee for the last year still remains unpaid. Audit personnel available for this year's audit are most of the staff from last year, including Gema, an audit partner and Jane, an audit senior.  Gema has been the audit partner since Allion became an audit client. You are aware that Malina Gema, the daughter of Gema, has recently been appointed as the financial director of Allion Ltd. 

To celebrate her new appointment, Malina has suggested taking all of the audit staff out to an expensive restaurant prior to the start of the audit work for this year. 

Required; 

(i) With reference to international code of ethics for assurance practitioners (PES 1),  identify four threats to independence arising in carrying out your audit of Allion Ltd.   

(ii) Suggest possible way of mitigating each of the threats you identify in above (i)  

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