Question Tag: Discuss ethical and professional issues related to tax consultancy services

Your firm, Osei and Associates, has been appointed as the auditors of Dadeka Limited for the first time to perform the audit of the company for the year ended 31 December 2015. The company is in the agro-processing industry, and it sells most of its products to overseas customers. The following are two issues:

i) Tax consultancy services:

The directors appointed a tax consultant to perform certain corporate taxation services for the tax year ended 31 December 2014. On the start of the audit of the financial statements for the year ended 31 December 2015, and a review of the Income tax paid, your firm discovered that the Company did not take advantage of the special tax rate of 8% available for companies in the “export of Non-Traditional goods” in section 1.2(1) of the then Internal Revenue Act 2000 (Act 592). On discussion of this with management of the company, your firm accepted an engagement to act on behalf of the company to negotiate with Ghana Revenue Authority (GRA) and re-open the tax assessment for 2014 and submit a new Tax Assessment. One of the provisions in the engagement letter was that your firm would be paid a fee of 20% of any tax savings the company enjoys as a result of the engagement.

ii) Suspected Illegal Act:

During the observation of the inventory count at the company’s warehouse on 31 December 2015, the representative of your firm discovered that certain items on the premises were sealed and had inscriptions “Do not tamper with seal,” and these were not counted as part of the company’s inventory. On enquiry, the staff member was advised to ‘pretend she has not seen that’. It is suspected that the items contain either illegal drugs or ammunitions. This cannot be confirmed.

Required:

Identify and discuss the ethical and other professional issues raised by items (i) and (ii) above, and recommend what action, if any, your firm should take.