Non-Audit Services

AAA – L3 – Q68 – Non-audit Services

Discuss how non-audit services by audit firms may compromise audit integrity and its impact on management, considering client size and listed status.

Question

The current practice of many audit firms offering substantial non-audit services to their audit clients compromises the integrity of the auditing profession and is not in the interests of management.

Required

Discuss the above, indicating whether factors such as client size and listed status would make any difference to your opinion.

Answer

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Tags: Audit Independence, Client Relationships, Corporate Governance, Non-Audit Services, Professional Ethics
Level: Level 3

Topic: Current Issues

AAA – L3 – Q49 – Audit-related services

Explain key characteristics of review, agreed-upon procedures, and compilation engagements.

Question

Explain the key characteristics of the following engagements:

A review engagement
Agreed-upon procedures
A compilation engagement

Answer

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Tags: Agreed-upon procedures, Assurance services, Compilation engagement, Non-Audit Services, Review engagement
Level: Level 3

Topic: Audit-Related Services

AAA – L3 – Q14 – Rules of Professional Conduct

Identify and evaluate threats to the Code of Ethics for accountants in BKG Financial Ltd case.

Question

Dabidaba & Co., an audit and assurance firm, has been engaged as auditors for the BKG Financial Ltd, a public limited liability company for some time now. BKG Financial has sixty branches throughout the country and branches in Benin, Mali, and Senegal. The Bank is one of the banks in the country which can boast of large landed properties. Dabidaba & Co. receives about 20% of its income from this particular client. Before last year’s audit, the bank engaged the audit firm to value its land and buildings in all its branches and headquarters. This work was executed by the audit firm and a report has been issued to management. The report has been incorporated in this year’s financial statements to be audited soon. Dabidaba & Co. sees BKG Financial Ltd. as a very important client whose works are always executed with dispatch.

Required:
(i) Identify and evaluate the significance of any threats to the Code of Ethics for Professional Accountants raised in the case. (ii) Recommend safeguards to eliminate the threats (mentioned in (i) above) or reduce them to an acceptable level, if these are possible.

Answer

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Tags: Auditor Independence, Ethics, Non-Audit Services, Professional conduct
Level: Level 3

Topic: Rules of Professional Conduct

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.

Answer

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Tags: Auditor Independence, Board Appointment, Consultancy Services, Ethical Threats, IESBA Code, Non-Audit Services, Tax Services
Level: Level 2

Topic: Audit-Related Services

AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors

Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

Question

(a) You are a manager in the audit firm of XYZ & Co; and this is your first time you have worked on one of the firm’s established clients, Vark Co. The main activity of Vark Co is providing investment advice to individuals regarding saving for retirement, purchase of shares and securities and investing in tax efficient savings schemes. Vark is regulated by the relevant financial services authority.
You have been asked to start the audit planning for Vark Co, by Mr. Lee, a partner in XYZ & Co. Mr. Lee has been the engagement partner for Vark Co, for the past nine years and so has excellent knowledge of the client. Mr. Lee informs you that Mr. Tan, the audit senior, received investment advice from Vark Co during the year and intends to do the same next year.
In an initial meeting with the finance director of Vark Co, you learnt that the audit team will not be entertained on Vark Co’s yacht this year as this could appear to be an attempt to influence the opinion of the audit. Instead, he has arranged a balloon flight costing less than one-tenth of the expenses of using the yacht and hopes this will be acceptable. The director also states that the fee for taxation services this year should be based on a percentage of tax saved and trust that your firm will accept a fixed fee for representing Vark Co in court in a dispute regarding the amount of sales tax payable to the taxation authorities. Sales tax payable is material to the current year financial statements.
Required:
(i) Explain the ethical threats which may affect the auditor of Vark Co.
(ii) For each ethical threat, discuss how the effect of the threat can be mitigated.

(b) Discuss the benefits of Vark Co establishing an internal audit function.

Answer

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Tags: Auditor Independence, Benefits, Contingent Fees Internal Audit, Corporate Governance, Ethical Threats, Financial Services Regulation, IESBA Code, Non-Audit Services, Safeguards
Level: Level 2

Topic: Internal Audits

AA – L2 – Q11 – Professional Ethics and Code of Conduct for Auditors

Explain why auditor independence is essential and discuss advantages/disadvantages of auditors providing consulting services.

Question

Independence

The responsibilities of external auditors are not always well understood. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities.

Required

(a) Explain why it is essential for external auditors to be independent of their clients.

(b) Explain the advantages and disadvantages of external auditors providing consulting services to their audit clients.

Answer

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Tags: Auditor Independence, Ethical Threats, IESBA Code, Non-Audit Services, Professional Ethics
Level: Level 2

Topic: Professional Ethics and Code of Conduct for Auditors (IESBA Code)

AA – L2 – Q9 – Regulatory Framework for Auditing

Discuss current audit regulations and reasons for criticism regarding standards, fraud, non-audit services, and auditor tenure. Discuss reasons for criticism of current audit regulations on standards, fraud, non-audit services, and tenure.

Question

The auditing profession has been criticised recently for its role in monitoring potential corporate failure. Radical reforms have been called for in the way the audit is regulated. For example, there has been a call for a change of legislation in the following ways:

Auditing standards: Auditing standards should be set and enforced independently from the accounting profession.
Fraud: Auditing firms should have a duty to detect and report fraud.
Non-audit services: Non-audit services supplied to an audit client should be stopped.
The duration of the appointment of auditors: The appointment of auditors should be for a maximum period of seven years.

Required:
(a) Describe the current regulatory and professional requirements relating to each of the headings listed above.
(b) Discuss the reasons why you feel the audit profession has been criticised over the current regulations in the above areas.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Auditing Standards, Auditor Tenure, Fraud Detection, IESBA Code, Non-Audit Services, Professional Ethics, Regulatory Reform
Level: Level 2

Topic: Professional Ethics and Code of Conduct for Auditors (IESBA Code)

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AAA – L3 – Q68 – Non-audit Services

Discuss how non-audit services by audit firms may compromise audit integrity and its impact on management, considering client size and listed status.

AAA – L3 – Q49 – Audit-related services

Explain key characteristics of review, agreed-upon procedures, and compilation engagements.

AAA – L3 – Q14 – Rules of Professional Conduct

Identify and evaluate threats to the Code of Ethics for accountants in BKG Financial Ltd case.

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.

AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors

Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

AA – L2 – Q11 – Professional Ethics and Code of Conduct for Auditors

Explain why auditor independence is essential and discuss advantages/disadvantages of auditors providing consulting services.

AA – L2 – Q9 – Regulatory Framework for Auditing

Discuss current audit regulations and reasons for criticism regarding standards, fraud, non-audit services, and auditor tenure. Discuss reasons for criticism of current audit regulations on standards, fraud, non-audit services, and tenure.

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AAA – L3 – Q68 – Non-audit Services

Discuss how non-audit services by audit firms may compromise audit integrity and its impact on management, considering client size and listed status.

You're reporting an error for "AAA – L3 – Q68 – Non-audit Services"

AAA – L3 – Q49 – Audit-related services

Explain key characteristics of review, agreed-upon procedures, and compilation engagements.

You're reporting an error for "AAA – L3 – Q49 – Audit-related services"

AAA – L3 – Q14 – Rules of Professional Conduct

Identify and evaluate threats to the Code of Ethics for accountants in BKG Financial Ltd case.

You're reporting an error for "AAA – L3 – Q14 – Rules of Professional Conduct"

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.

You're reporting an error for "AA – L2 – Q15 – Professional Ethics and Code of Conduct for Auditors"

AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors

Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

You're reporting an error for "AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors"

AA – L2 – Q11 – Professional Ethics and Code of Conduct for Auditors

Explain why auditor independence is essential and discuss advantages/disadvantages of auditors providing consulting services.

You're reporting an error for "AA – L2 – Q11 – Professional Ethics and Code of Conduct for Auditors"

AA – L2 – Q9 – Regulatory Framework for Auditing

Discuss current audit regulations and reasons for criticism regarding standards, fraud, non-audit services, and auditor tenure. Discuss reasons for criticism of current audit regulations on standards, fraud, non-audit services, and tenure.

You're reporting an error for "AA – L2 – Q9 – Regulatory Framework for Auditing"

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