• 6 Marks

AAA – Nov 2023 – L3 – Q1a – Rules of Professional Conduct, Professional Responsibility and Liability

Discuss three ethical issues in a scenario involving a managing partner, quality control partner, and an audit trainee, and recommend safeguards.

You are the Audit Senior at Fameye and Associates, which has been auditing Adepa Ltd for the past 3 years. The Managing Partner, Mr. Fanfu, was a school mate of the Board Chairman of Adepa Ltd. The Board Chairman owns 80% of the shares in the company. Adepa Ltd is into cassava cultivation and starch manufacturing.

Mr. Agyei is the Partner in charge of quality control of Fameye and Associates. Last year, his wife was contracted to supply cassava to Adepa Ltd. Mr. Agyei’s wife, who is an out-grower farmer, was also given a loan just as any other out-grower, to improve her farm. The amount is payable this year.

You have been scheduled to audit the Financial Statements of Adepa Ltd. The daughter of the Board Chairman is an audit trainee on your audit team. The Chief executive of Adepa Ltd, Mr. Brown, has indicated that last year’s audit delayed and he would not tolerate any delays in this year’s audit.

Required: Discuss THREE (3) ethical issues worth considering in the above scenario and for each, recommend possible safeguards.

 

  • Relationship with Board Chairman
    • Ethical Issue: The relationship of Mr. Fanfu and the Board Chair of Adepa Ltd poses a threat to the audit as they are too familiar.
    • Safeguard: Mr. Fanfu should not have anything to do with the audit work, including supervising or reviewing, as his independence would be compromised. Other partners should take charge of the audit.
  • Wife of the Quality Control Partner
    • Ethical Issue: The wife of Mr. Agyei, the quality control partner, has an existing contractual relationship with Adepa Ltd. This imposes a self-interest threat and may affect the independence of his review.
    • Safeguard: Mr. Agyei should be replaced as the quality control reviewer. An external quality control reviewer can be employed.
  • Daughter of the Board Chairman
    • Ethical Issue: With the daughter of the Board Chairman being an audit trainee, there may be a perception of lack of independence. Outsiders might view her presence as a conflict of interest.
    • Safeguard: She should be removed from the audit team to avoid any perception of bias or conflict of interest.
  • Threat of the CEO
    • Ethical Issue: The CEO’s threat of not tolerating delays in the audit could lead to intimidation and compromised audit quality.
    • Safeguard: The audit managers should have a discussion with the CEO to explain the importance of not rushing the audit and ensuring the team has all the necessary information and cooperation for a thorough audit.
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