- 15 Marks
Question
Alhaji Abubakar Yusuf is the managing director of Nasara Tech Limited, a private company. Nasara Tech is currently audited by Mike and Co. Alhaji Abubakar has informed you that the directors of Nasara Tech wish to appoint your firm, Adewuyi Adeyemi and Co., as auditors in place of Mike and Co., but they consider that Mike and Co. will not be willing to resign.
Required:
a. Assuming that Mike and Co. are not willing to resign, set out the statutory and other procedures which will have to be followed by Nasara Tech Limited, your firm, and which may be adopted by Mike and Co. in connection with this proposed appointment. You should assume that Adewuyi Adeyemi and Co. have adequate resources to take on the audit of Nasara Tech Limited and that there are no issues surrounding independence or client integrity. (6 Marks)
b. Assuming that Mike and Co. are willing to resign part way through their term of office, set out the procedures to be followed by Mike and Co. and Nasara Tech Limited in order to effect the resignations. (4 Marks)
Your office has recently taken on a new trainee, John. You have been asked to explain to John what information is recorded in the audit process and where.
c. Set out a brief explanation for John. (5 Marks)
Answer
a. Statutory and Other Procedures if Mike and Co. Do Not Resign:
- Notice of Proposal: Nasara Tech Limited should formally notify its shareholders of the proposal to replace the auditors, specifying the reasons for the replacement.
- Special Resolution: A special resolution must be passed by Nasara Tech’s shareholders to remove Mike and Co. as auditors.
- Written Representations: Mike and Co. must be given the opportunity to make written representations to Nasara Tech Limited regarding their replacement, which will be circulated to shareholders.
- Notification to Regulatory Bodies: Nasara Tech should notify the regulatory authority (e.g., Corporate Affairs Commission) once the new auditors are appointed.
- Documentation and Transition: Adewuyi Adeyemi and Co. should ensure that all previous audit documents and client records are transitioned from Mike and Co.
b. Procedures if Mike and Co. Are Willing to Resign:
- Formal Resignation: Mike and Co. should submit a formal letter of resignation to Nasara Tech’s board, including a statement of circumstances.
- Notice to Shareholders: Nasara Tech Limited must inform shareholders about the resignation and provide reasons.
- Filing with Regulatory Body: Both Nasara Tech and Mike and Co. should file the resignation documents and all necessary notifications with the regulatory authorities.
- Appointment of New Auditors: Once resignation procedures are completed, Adewuyi Adeyemi and Co. may be officially appointed.
c. Explanation of Audit Documentation for John:
- Client Information: Audit documentation includes all client-specific information collected during the audit, such as contracts, financial statements, and regulatory filings.
- Working Papers: These record the auditor’s procedures, evidence obtained, and conclusions. They include audit programs, test results, and analysis of financial data.
- Permanent File: Contains documents of ongoing relevance, like company bylaws, articles of incorporation, and fixed asset schedules.
- Current File: Holds details related to the specific year under audit, such as trial balances, adjustment entries, and correspondence
- Series: MAY 2018
- Uploader: Kwame Aikins