- 20 Marks
AA – L2 – Q15 – Professional Ethics and Code of Conduct for Auditors
Identify threats to auditor independence from non-audit services and board appointment at HealthTrend Co, and suggest resolutions. Describe matters and procedures to consider before accepting appointment as statutory auditor of HealthTrend Co.
Question
You work for a firm of accountants and auditors which has eight partners. The audit firm has been invited by the Managing Director (MD) and majority shareholder of HealthTrend Co, to accept appointment as statutory auditor of the company, replacing the current firm of auditors who will not be re-appointed.
The principal activity of HealthTrend Co is the manufacture and distribution of healthcare products. Your firm has several companies operating in the healthcare sector in its client portfolio.
The MD of HealthTrend has requested that your firm assists with the preparation of the company’s tax computation, and provides consultancy services on an ongoing basis in connection with his plans to grow the business.
The MD has also suggested that a partner in your firm joins the board of HealthTrend Co as a non-executive director.
Required:
(a) Identify and explain the threats to independence and objectivity which may arise from the provision of the services requested by the HealthTrend MD, and state how these threats should be resolved.
(b) Describe the matters, other than independence and objectivity, to be considered and the procedures to be performed in order to determine whether it is appropriate for your firm to accept appointment as statutory auditor of HealthTrend Co.
(c) Set out the benefits to audit firms and their clients of having audit and non-audit services provided by the same firm of accountants.
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