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22730 Spring 2017 - Module 1 Part A Presentation Question 1 Scenario 1: Anthony is the eldest son of Greg, the CEO of Papa's Italian Limited (PIL) (a...
22730 Spring 2017 - Module 1 Part A Presentation Question 1 Scenario 1: Anthony is the eldest son of Greg, the CEO of Papa's Italian Limited (PIL) (a chain franchise of Italian restaurants operating throughout Sydney), which is one of your firm's major audit clients. Anthony has recently started a graduate audit role with your firm and has been assigned to the audit of PIL. Anthony's work will comprise testing the internal controls within the cash payments system. Scenario 2: Mrs Cruise is the audit partner representing ATS Partners, an audit firm based in Melbourne. As part of carrying out consulting services, several of Mrs Cruise's staff recently completed a review and maintenance of the internal controls at Expo Pty Ltd, a large proprietary company which is also an audit client. The work was charged at 130% of the usual consulting fees to make up for the lower audit fees brought about by a competitive tender. The audit staff implemented changes in the company's internal control procedures and ran a full day training session for the accounting staff. As the audit staff have already performed significant work on Expo's internal controls, the audit manager has decided that no further testing is required of those controls. Required: (a) For each of the above scenarios list and explain any breaches of professional standards and/or regulatory requirements (if any). (b) For each scenario, discuss possible safeguards and/or alternative courses of action the auditor or firm should have taken in order to properly discharge their professional responsibilities. Presentation Question 2 Scenario 1: Claire Underwood has been the engagement partner on the Duke Limited audit for a number of years. Some time ago, Duke's long-standing company secretary retired and Duke took six months to find a replacement. At Duke's request, Claire performed company secretarial duties for this period of time. Scenario 2: As part of HTA's financing arrangements with its bank, Fastmoney Ltd, it has a loan covenant that stipulates that the quick asset ratio cannot be less than 1 or Fastmoney Ltd has the right to withdraw all funding. The board has advised you that HTA's quick asset ratio is currently at 0.9 due to industrial action holding up the sale of goods imported from Europe. The board has asked you to ignore this temporary breach of the loan covenant, explaining that HTA is a stable and financially sound company, and that the ratio will return to a level above 1 on resolution of the industrial dispute. The board has indicated that unnecessarily disclosing this within the audit report would force it to reconsider its plans to use your audit firm for other engagements. Required: (a) For each of the above scenarios list any breaches of professional standards and/or regulatory requirements (if any). (b) For each scenario, discuss possible safeguards and/or alternative courses of action the auditor or firm should have taken in order to properly discharge their professional responsibilities. Presentation Question 3 Scenario: Lee & Associates are auditors of Royale Furniture Pty Limited, a large furniture wholesaler currently experiencing financial difficulties. Royale Furniture is a significant client of Lee & Associates and has not paid their audit fee for the past three years. The audit partner recently threatened to resign from the audit if the outstanding fees were not paid. To prevent this occurring, Royale Furniture offered to supply Lee & Associates with new office furniture. The partner accepted this offer in full consideration of the outstanding fees, even though the furniture was only worth 50% of the balance. As a thankyou present, Royale Furniture gave the partner a 25% shareholding in an unrelated listed company. At present these shares are worth $1,000. Lee & Associates do not act as auditors of this company. Required: (a) For this scenario, list any breaches of professional standards and/or regulatory requirements (if any). (b) Discuss possible safeguards and/or alternative courses of action the auditor or firm should have taken in order to properly discharge their professional responsibilities.
