Your firm has recently completed the audit of Jenson plc, and after extensive discussions with the directors of the company, the audit opinion has been qualified in respect of the auditors’ inability to agree with the directors on the appropriateness of a provision against obsolete inventories. The directors have informed you that they intend to dismiss your firm as auditors, and replace you with a small local firm of accountants. The directors have informed you verbally that the reason for your dismissal is the disagreement over the provision for inventory obsolescence, and, further, they intend to appoint the new auditors because they are more likely to accept the accounting policies of the directors. You have recently received a letter from the nominee auditors who ask if there are any professional reasons why they should not accept appointment as auditors of Jenson plc.
Required:
(a) Describe the rights which local legislation is likely to give to the auditor when the company proposes to dismiss him and has dismissed him.
(b) Draft a suitable letter in reply to the request from the nominee firm of audit asking if there are any professional reasons why they should not accept appointment as auditors.
(Marks will be given for the style and content of the letter.)
(c) In view of the attitude of the directors towards the present auditors, discuss factors which the nominee auditors need to consider before accepting appointment.
(d) Describe the ethical implications for the nominee auditor, if he decides to accept the appointment as auditor.
