1) Client operates in financial service industry, which is a relatively specialised area.
This affects auditor’s competence and due care.
2) Provision of non-audit services, i.e. business development advice,create
self-interest threat from additional fee income, and potential self-review threat.
3) This appears to be a high risk audit, auditor should consider:
- Financial service industry is by nature high risk, high reliance on audit report,
and higher risk on money laundering.
- Change auditor due to accounting disagreement, cast doubt on management integrity.
- Poor internal control system, CR is high.
- Investigation from regulator on non-compliance, cast doubt on management integrity
and the company’s going concern status.
4) Auditor should also consider whether the fee for the audit outweighs the risk involved
Actions:
1) Conduct customer due diligence.
2) Communicate with previous auditor on accounting issues.
3) Review status on non-compliance investigation, e.g. contact financial services
authority for more information.
4) Auditor should assess whether the audit risk can be reduced to an acceptable level,for
example, by using an experienced audit team and a substantive audit approach.
2. Audit or assurance engagement
1) Recognition that engagement evaluation is part of a quality control framework
2) Competence – our firm should be competent but deadline is a problem
The bank manager has suggested that the loan could be made available within the next two
months, meaning that the audit or limited assurance review on the financial statements
needs to be carried out as soon as possible.
Our firm may not have enough staff available at short notice to perform the
work required.
3) More resources and staffs will be needed for an audit rather than limited
assurance review
4) Self-review threat due to providing payroll service
Huntsman & Co should consider whether the payroll figure is material to the financial
statements, and whether safeguards can be used to reduce any
ethical threats to an acceptable level such as through the use of separate teams
to provide the audit or limited assurance review and the
payroll services and by having an independent second partner to review the work performed.
5) Assessing management responsibility
Providing the payroll service could also be seen as acting on behalf of management,
further impairing the objectivity of the audit or
limited assurance review provided on the financial statements.
6) Advocacy/management involvement if attend meeting with bank
7) Conflict of interest as act for Redback Sports Co
Our firm audits Redback Sports Co, which could be a competitor of Emu Gyms Co
despite their difference in size.
8) Safeguards/actions re potential conflict of interest
Huntsman & Co should disclose to both Emu Gyms Co and Redback Sports Co that the firm acts
for both companies and obtain consent from both companies.
The firm should also use separate teams to carry out work
for the two companies and establish appropriate review procedures by
an independent member of the firm