Question

You are a senior manager in Yiblam & Associates, a firm of Chartered Certified
Accountants offering audit and assurance services mainly to large, privately owned
companies. The firm has suffered from increased competition, due to two new firms of
accountants setting up in the same town. Several audit clients have moved to the new firms,
leading to loss of revenue, and an over staffed audit department. Dzang Mufty, one of the
partners of Yiblam & Associates, has asked you to consider how the firm could react to this
situation. Several possibilities have been raised for your consideration:
a. Ezzy Co, a manufacturer of electronic equipment, is one of Yiblam & Associate's
audit clients. You are aware that the company has recently designed a new product,
which market research indicates is likely to be very successful. The development of
the product has been a huge drain on cash resources. The managing director of Ezzy
Co has written to the audit engagement partner to see if Yiblam & Associates would
be interested in making an investment in the new product. It has been suggested that
Yiblam & Associates could provide finance for the completion of the development
and the marketing of the product. The finance would be in the form of convertible
debentures. Alternatively, a joint venture company in which control is shared
between Ezzy Co and Yiblam & Associates could be established to manufacture,
market and distribute the new product.
b. Yiblam & Associates is considering expanding the provision of non-audit services.
Ingrid Sharapova, a senior manager in Yiblam & Associates, has suggested that the
firm could offer a recruitment advisory service to clients, specialising in the
recruitment of finance professionals. Yiblam & Associates would charge a fee for
this service based on the salary of the employee recruited. Ingrid Sharapova worked
as a recruitment consultant for a year before deciding to train as an accountant.
c. Several audit clients are experiencing staff shortages, and it has been suggested that
temporary staff assignments could be offered. It is envisaged that a number of audit
managers or seniors could be seconded to clients for periods not exceeding six
months, after which time they would return to Yiblam & Associates.
Required:
Identify and explain the ethical and practice management implications in respect of:
i. A business arrangement with Ezzy Co
ii. A recruitment service offered to clients
iii. Temporary staff assignments

Answer 1

1. A business arrangement of Yiblam & Associates with Ezzy co. is the differentiated business proposal by Ezzy co. as Yiblam Associate is a chartered certified accounting company so it there is no match between Ezzy as a manufacturer of electronic equipment. here there is no match between the two company's projections. Now if the owner of Yiblam Accosicate separately wants to invest in Ezzy then it might be ethically correct but as an account audit company being higher by other manufacturing company it might be a threat to another competitor of Ezzy co. so ethically and the skill orientation basis it is practice management ethics this collaboration is not a correct one.

2. considering expanding the provision company with the service of non-audit services can be an option for the company to sustain in the market with high competition as suggested by Ingrid Sharapova. Due to high competition, there is a bunch of employees is a shortage of work so to engage them in this crisis period without removing them from the job by employing them in recruitment advisory service to clients so the charges for this services will be based on the salary of the employee recruited. So in this way, the company can explore a new branch of their company which is ethically correct and it will provide employees more confidence in this job to handle a new dimension of their capabilities.

3. So some of the similar companies are facing the audit professional shortage so instead of making their employee sitting ideally it is better to engage them in other auditing companies. From practice point of view this sounds very comfortable but ethically it is not correct as the employee will be back to the Yiblam Associate that means the business secrets of the competitor may be publicized so here in this condition the temporary staff assignment may not be ethically correct from the prctice point of view.