Question

Question No 1: (3+2+2+3=10 Marks)
Assume that you are a newly appointed partner in your audit firm. Your first assignment was to
handle the audit of your firm’s newest client, Marhoon Ltd. Marhoon Ltd. is a trading business that
offers goods in a physical store and an on-line shop. The business has a young, modern vibe to it that
it was a hit among young adults and teenagers. It is very important to have good relationship with
this client since this will open-up many good business opportunities for your audit firm. You have
already met Mr. Mohammed, Marhoon Ltd’s managing director. He is a fine, nice man and have
good reputation in the community, even though he is still relatively young to be a successful
businessman. You believed that your firm is lucky to have him as a client as you don’t see any
problem being their company’s auditor. As you are nearly finishing review of your team’s report you
noticed an alarming observation made by the senior auditor. There was a large amount of taxes not
paid that accumulated in the past 3 years. At that point you knew that the previous auditor did not
mention anything about this in their past audit report. You are now concerned whether the company
had never tried to resolve this issue with the tax authorities and if this problem comes out, the
reputation of your client will greatly suffer.
Required: Explain your answer to the following questions:
1. Which fundamental ethical principles in ISA 200 will be affected in this scenario? You can
explain more than one ethical principle, if applicable.
2. Given the additional business you hope may be generated from your relationship with this
client, is there additional pressure on you to please the client?
3. If the tax authorities discovered this issue later, would this impact on your firm’s
reputation?
4. What could be the possible course of action?
300 words required

Answer 1