Question

Question 2 - Week 3 Liona is the managing partner of Ross and Associates, a small audit firm. Liona's role includes managing the business affairs of the firm, and she is very worried about the amount of fees outstanding from audit clients. Broomers Pty Ltd, one of the client of Ross and Associates, has not paid its audit fees for two years despite numerous discussions between Liona, their audit partner Ball, and the management of Broomers Pty Ltd. Broomers Pty Ltd's management has promised the fees would have been paid before the audit report for this year has been published, Liona rang Ball this morning to ensure that the audit report was not issued because Broomers Pty Ltd had paid only 10 per cent of the outstanding account. She discovers that Ball is about to sign the audit report. 4 Required: (a) Explain the ethical problem in this case. Why is it a problem? . (150 – 200 words) (b) What can be done about it? (50 – 100 words). Can you please provide reference also

Answer 1

From the above data

If fees are outstanding the auditor could be perceived to have a conflict of interest because the auditor is more likely to be paid if the client survives and is happy with the auditor. In these cases, the auditor could be perceived as being more interested in the clients survival than an accurate audit report.

The auditor should take steps to have the fees paid before the next audit or remove itself from the audit.

ICAO Council Interpretations to Rules 204.1 to 204.6 Independence in Assurance and Specified Auditing Procedures Engagements, it states that a self-interest threat may be created if fees due from an Assurance Client remain unpaid for a long time, especially if a significant part is not paid before the issue of the assurance report for the following year. Generally the payment of such fees should be required before the report is issued. The following safeguards may be applicable:

Discussing the level of outstanding fees with the audit committee or others charged with governance.

Involving an additional professional accountant who did not take part in the Assurance Engagement to provide advice or review the work performed.

The Firm should also consider whether the overdue fees might be regarded as being equivalent to a loan to the Client and whether, because of the significance of the overdue fees, it is appropriate for the Firm to be re-appointed.

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