- 10 Marks
Question
Your firm has been approached to tender for an audit assignment by STK Ghana Ltd. The company is a multinational with its headquarters in Europe. STK Ghana Ltd is a manufacturing company that has operated in Ghana since 2010 and has made steady profits over the years. However, over the past few years, the company’s profits have been dwindling, and the group director in charge of Anglophone West Africa subsidiaries has charged the company to reduce its costs.
In a meeting with the country manager, you ascertained the following information:
- Several creditors are pursuing the company for payment of their outstanding debt, including the previous auditor who is being owed for the past three years of audit work. The company has negotiated a payment plan for all its creditors.
- Staff wages have been frozen, staff morale is very low, and several have left.
- The company’s liquidity challenges commenced when the license of Glow Savings and Loans was revoked as part of the banking sector crisis with STK Ghana Ltd funds exceeding GH¢1 million locked up in short and long-term investments.
In the Terms of Reference (TOR) for the audit engagement, you are required to provide timelines for the overall audit and a financial proposal that is competitive. Upon receiving the TOR, a debate ensued among the partners on the relevance of submitting a proposal in response to the TOR.
Required:
Discuss FIVE (5) factors to be considered prior to developing a proposal for submission. (10 marks)
Answer
Tendering should commence only when a firm has been approached by a prospective client. The firm should not submit a proposal unless it can give satisfactory answers to the following questions:
- Expertise to Undertake the Engagement: The firm needs to assess whether its current manpower has the adequate expertise to undertake the audit of a manufacturing multinational like STK Ghana Ltd. The firm must understand both local and European legal and regulatory frameworks that the company operates under.
- Staff Availability: The firm must consider whether it has enough manpower to undertake the audit within the required timelines, considering STK Ghana Ltd’s size as a multinational corporation.
- Ethical Issues: Ethical considerations are critical. The firm must evaluate potential conflicts of interest, integrity issues, and independence, particularly since the group director is focused on cost reduction, which might impair the firm’s independence and objectivity.
- Liquidity Challenges: The firm should assess the seriousness of the company’s liquidity issues, the likelihood of getting paid for the audit services, and the risk of joining the list of unpaid creditors.
- Audit Risks: The firm must evaluate the audit risks involved, including the possibility of the company’s going concern and the risk of the auditor expressing an inappropriate audit opinion if the financial statements are materially misstated.
Additional considerations might include geographical coverage, the appropriateness of the proposed audit fee, and the possibility of communicating with the incumbent auditor to understand the situation better.
- Tags: Audit Proposal, Audit risks, Ethical Issues, Liquidity Challenges, Multinational Audit
- Level: Level 3
- Topic: Audit-related services, Planning, The audit approach
- Series: JULY 2023
- Uploader: Kwame Aikins