Question

You are an audit manager of Pink Partners & Co (Pink) and are planning the audit of Golden Finance Co (Golden), a banking institution which provides a range of financial services including loans. Your firm has audited Golden for four years and the company’s year-end is 30 September 2015.

At the end of August, Golden’s financial controller left and the new replacement is not due to start until approximately two months after the year-end. The finance director, who is the sisterin-law of the audit engagement partner, has asked if a member of the audit team can be seconded to Golden for three months to act as the temporary financial controller.

You are aware that a number of the audit team members currently bank with Golden and two team members have significant loans owing to the company.

Pink’s taxation department also provides services to Golden. They have been approached by Golden to represent them in negotiations to resolve some outstanding issues with the taxation authorities, for which the fees quoted, are substantial.

The finance director has informed the audit engagement partner that when the audit is complete, she would like the whole team to attend an evening watching the national football team play a match followed by a luxury meal. \

Required:

Using the information above:

(i) Identify and explain FIVE ethical threats which may affect the independence of Pink Partners & Co’s audit of Golden Finance Co; and

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

Answer 1

Disqualifications effect the independence of auditor:-

1. Finance Director is sister-in-law of member of a audit engagement team.(relative to independent auditor)

2.Finance director of Golden Finance Co asked any member of audit team to be as a temperory financial controller.( as a employee of the company)

3.Two members in audit enggagement team are owing to the Golden Finance co.

4.Pink taxation department provided restricted sevices u/s 144 of companies act 2013.

5.providing undue advatages to audit team(luxury meal,watching national football match) after completion of audit.   

Means to reduce threats to an acceptable level:-

1.A member of audit engagement team whose relative is a director or key managerial person cannot be appointed as a audior of the company

2.Any member in audit enggagement team should not be appointed as part time or full time employee(finance controller) of company in which audit team is engaged.

3.Audit engagement team should not have any bussiness relationship(owing to Golden Finance Co.) at the time of appointment and during the audit.

4.Audit engagement team should not provided restricted services specified in sec144 of companies act 2013 to comapany in which they are appointed.

5.Audit team should not accept undue advantages offering by the company in which they are appointed.