Description

Write answers to each of the five (5) situations described below addressing the required criteria (i.e. 1 & 2) in each independent case. You may use a tabulated format if helpful having “Threats”, “Safeguards” and “Objective Assessment” as column headings.

Christopher Brown has been appointed as a junior auditor of Apex Chartered Accountants (ACA). One of his first tasks is to review the firm’s audit clients (all public interest entities) to ensure that independence requirements of APES 110 (Code of Ethics for Professional Accountants) are being met. His review has revealed the following: 

(a) Michelle, FCPA, is the engagement partner on the audit of Blue Steel Limited (BSL). Andrew Ferguson, FCPA, is not involved in the BSL audit but practices in the same office as Michelle. Andrew’s wife Susan recently obtained a minor ownership interest (around 4%) in BSL as a result of a merger. 

(b) Michael, FCPA is an engagement partner at ACA. ACA has recently been appointed the auditor of Awesome Ferries Limited (AFL). AFL has been providing ferry services in Perth for the past 15 years. Michael has received a request to participate in the current year’s audit engagement of AFL. Michael’s financially independent daughter, Serena has a shareholding in AFL.

(c) Johnny, FCPA, is the engagement partner on the audit of Yummy Food Services Limited (YFSL). Johnny’s sister Rebecca owns a large number of shares in a mutual fund investment company, XYZ, which in turn owns shares in YFSL. Rebecca’s investment in XYZ is material to both her and her partner Jack. Reading the investment company’s most recent financial report, Johnny is surprised to learn that the XYZ’s ownership in YFSL has increased dramatically. 

(d) ACA has recently been appointed the auditor of Delicious Foods Limited (DFL).The senior-in-charge, Andrew Reynolds, and an assistant observed the inventory stocktake. On completion of the inventory observation, Karla White, Delicious Foods’ accountant, informed Andrew that the shipping supervisor had a small gift for him and the assistant. Andrew asked Karla what the gift was for, and Karla responded that they had always given small gifts of food items to their previous auditors on completion of the inventory observation. Andrew estimates that the value of the food is less than $100.

(e) Grand Auto Limited (GAL) is an audit client of ACA. GAL has requested that ACA help in designing as well as implementing a new IT system for GAL, arranging interviews for GAL’s hiring of new personnel, and providing advice on structuring GAL’s corporate finance transactions.