Threats to independence
a) Rotation of audit partner
Athletics Gh. LTD has had the same audit partner for the last seven years. An audit partner’s independence might be impaired where that position is retained for more than seven years for a listed company. The reason for this is that the partner might become too close to the directors and staff in the firm and this may impair his judgement on the financial statements. However, Athletics Gh. is currently not listed so this requirement does not apply.
As Athletics Gh. is now being listed, Gidisu & Associates should rotate the audit partner this year to avoid any familiarity threat. However, given that Athletics Gh. was not a listed company up to this audit, this may imply that the partner could continue this year, but would be recommended to be rotated before the 2025 audit.

Preparation of financial statements
Apparently Gidisu & Associates have been preparing Athletic Gh.’s financial statements as well as carrying out the audit in previous years. While this may not have been an independence issue in the past, as a listed client the auditors may not provide certain other services to their audit clients (including accounts preparation). Preparing financial statements as well as auditing them would provide Gidisu & Associates with a self-review threat, that is they may not see any misstatements, or want to report misstatements in financial statements that they have previously prepared.
Gidisu & Associates shall therefore decline preparation of Athletics Gh.’ financial statements.

Attendance at social event
Attending the social event with respect to the new listing may be inappropriate as Gidisu & Associates may be seen as supporting Athletics Gh. in this venture. There is an advocacy threat to independence. Support for a client might imply that the audit firm is “too close” to that client and might therefore lose their independent view regarding the audit. There is also a familiarity threat. The IESBA Code of Ethics for Professional Accountants states that gifts or hospitality cannot be accepted unless the value is trivial or inconsequential. It is unlikely that the value of the dinner invitation is trivial.
Gidisu & Associates shall therefore politely decline the dinner invitation, clearly stating their reasons.

Unpaid taxation fee
The unpaid fee in respect of taxation services could be construed as a loan to the audit client. Audit firms shall not make loans to or receive loans from audit clients. An outstanding loan will create a self-interest threat to independence as closure of the loan might be seen as more important than providing an appropriate audit opinion.
It is generally expected that Gidisu & Associates will obtain payment of the outstanding fees before the audit report is issued. Gidisu & Associates need to discuss the situation with Athletics Gh. again, suggesting that a payment on account could be made to show that the whole fee will be paid. Alternatively, audit work on the 2024 financial statements can be delayed until the taxation fee is paid. An additional safeguard would be having an appropriate reviewer who did not take part in the audit engagement review the audit work.

Inheritance

Under IESBA’s Code of Ethics for Professional Accountants, audit team members may not hold direct financial interests in an audit client. A self-interest threat is created where the shareholder (the audit manager in this case) may be more interested in the value of the shares than providing a “correct” opinion on the financial statements.

The shares should be disposed of as soon as possible. However, given the inside knowledge of the listing, disposal now, or delaying disposal a few days to obtain a better price may be considered “insider dealing”. It may be better that the audit manager resigns from the audit immediately to limit any real or potential independence problems. Professional advice may be needed on when to sell the shares.

bi) Scope of ISQM 1
This International Standard on Quality Management (ISQM) deals with a firm’s responsibilities to design, implement and operate a system of quality management for audits or reviews of financial statements, or other assurance or related services engagements.
Engagement quality reviews form part of the firm’s system of quality management and:

• This ISQM deals with the firm’s responsibility to establish policies or procedures addressing engagements that are required to be subject to engagement quality reviews.
• ISQM 2 deals with the appointment and eligibility of the engagement quality reviewer, and the performance and documentation of the engagement quality review.
  Other pronouncements of the International Auditing and Assurance Standards Board (IAASB):
  (a) Are premised on the basis that the firm is subject to the ISQMs or to national requirements that are at least as demanding; and
  (b) Include requirements for engagement partners and other engagement team members regarding quality management at the engagement level. For example, ISA 220 (Revised) deals with the specific responsibilities of the auditor regarding quality management at the engagement level for an audit of financial statements and the related responsibilities of the engagement partner.
  This ISQM applies to all firms performing audits or reviews of financial statements, or other assurance or related services engagements (i.e., if the firm performs any of these engagements, this ISQM applies and the system of quality management that is established in accordance with the requirements of this ISQM enables the consistent performance by the firm of all such engagements)
  For Bintu and Associates, adopting ISQM 1 can address the quality control issues identified by the QAM of ICAG and ensure that the firm adheres to best practices in auditing. Ensuring compliance with ISQM 1 (International Standard on Quality Management 1) is essential for the following reasons:
• Maintaining High Audit Quality: ISQM 1 provides a framework for audit firms to develop a quality management system that ensures consistent delivery of high-quality audits. This helps maintain the credibility and reliability of the audit process. By adhering to ISQM 1, firms can identify and address quality risks proactively, leading to improved audit outcomes and reduced errors.
• Meeting Regulatory and Professional Standards: ISQM 1 ensures that audit firms comply with international auditing standards and regulatory requirements. This is crucial for maintaining the firm’s reputation and avoiding penalties or sanctions. Compliance with ISQM 1 reinforces the firm’s commitment to professional integrity and ethical behaviour, which are fundamental to the audit profession.
• Enhancing Firm Reputation and Client Confidence: A robust quality management system, as mandated by ISQM 1, enhances clients’ trust in the firm’s ability to provide reliable and objective audit services. High-quality audits contribute to the firm’s positive reputation, attracting new clients and retaining existing ones.
• Risk Management: ISQM 1 requires firms to establish processes for identifying, assessing, and managing quality risks. This proactive approach helps in mitigating risks that could compromise audit quality.
• Continuous Improvement: ISQM 1 promotes continuous monitoring and evaluation of the firm’s quality management system, leading to ongoing improvements in audit practices. The standard encourages firms to adapt their quality management processes in response to changes in the regulatory environment, client needs, and industry practices.
• Professional Development and Competence: ISQM 1 emphasises the importance of ongoing professional development for audit staff. This ensures auditors possess the necessary skills and knowledge to perform high-quality audits. The standard helps firms maintain and enhance the competence and capabilities of their audit teams, which is critical for delivering high-quality services.

ii) Requirements of ISQM 1 about Bintu & Associates’ Risk Assessment Process.
An audit firm shall design and implement a risk assessment process to establish quality objectives, identify and assess quality risks and design and implement responses to address the quality risks.
The firm shall establish the quality objectives specified by this ISQM and any additional quality objectives considered necessary by the firm to achieve the objectives of the system of quality management.
The firm shall identify and assess quality risks to provide a basis for the design and implementation of responses. In doing so, the firm shall:

• Obtain an understanding of the conditions, events, circumstances, actions or inactions that may adversely affect the achievement of the quality objectives, including:
  (i) With respect to the nature and circumstances of the firm, those relating to:
  ✓ The complexity and operating characteristics of the firm;
  ✓ The strategic and operational decisions and actions, business processes and business model of the firm;
  ✓ The characteristics and management style of leadership;
  ✓ The resources of the firm, including the resources provided by service providers;
  ✓ Law, regulation, professional standards and the environment in which the firm operates; and
  ✓ In the case of a firm that belongs to a network, the nature and extent of the network requirements and network services, if any.
  (ii) With respect to the nature and circumstances of the engagements performed by the firm, those relating to:
  ✓ The types of engagements performed by the firm and the reports to be issued; and
  ✓ The types of entities for which such engagements are undertaken.
• Take into account how, and the degree to which, the conditions, events, circumstances, actions or inactions may adversely affect the achievement of the quality objectives.
  The firm shall design and implement responses to address the quality risks in a manner that is based on, and responsive to, the reasons for the assessments given to the quality risks. The firm’s responses shall also include the responses specified in paragraph 34. (Ref: Para. A49-A51)
  The firm shall establish policies or procedures that are designed to identify information that indicates additional quality objectives, or additional or modified quality risks or responses, are needed due to changes in the nature and circumstances of the firm or its engagements. If such information is identified, the firm shall consider the information and when appropriate:
  ✓ (Establish additional quality objectives or modify additional quality objectives already established by the firm;
  ✓ Identify and assess additional quality risks, modify the quality risks or reassess the quality risks; or
  ✓ Design and implement additional responses, or modify the responses.

iii) TWO changes required at Bintu & Associates to ensure compliance with ISQM 1

• Regularly training and continuous professional development.
• Recruitment of audit staff with the necessary competencies, especially staff who are members of ICAG.
• Review the audit report from QAM and design strategies to prevent future non-compliance.
  (Any 2 relevant points for 2 marks)