Background Information:
You are an audit senior with the firm Marshall Hobbes Partners. The firm has been approached by the directors of Gray’s Beans Pty Ltd to conduct an audit of the financial statements for the year ended 30 June 20X2 and provide a report. Grays’s is Australian based wholesaler of coffee beans, which was set up by cousins Emma and James three years ago. Both Emma and James are directors and each own 50% of the shares in the company. On researching the company, you find plenty of positive reviews for Gray’s coffee beans and several local news articles from the opening of the business. You also find a news piece from five years ago, featuring James discussing cryptocurrency as the “future of all business dealings” and encouraging others to “buy up big” like he has. In your initial meeting, Emma mentions that they left their previous auditors due to differences in opinion about accounting policies and treatments of various transactions but provides you their contact details to get in touch. She also mentions that she heard about the great work the firm does through her brother-in-law, Matt, who is one of the audit partners at Marshall Hobbes. When you ask Matt about their relationship, he says they aren’t close, but he will still remove himself from any potential involvement with the audit should the firm accept the client. Matt is generally considered to be the “go-to” person for clients in wholesale businesses, as no one else in the firm has experience in this area. The finance manager of Gray’s is Lauren Jensen. James assures you that Lauren is very competent in her position, stating that “she does everything – accounts payable, receivable, payments, bank recs, reporting, you name it!”. James says they have offered to employ an assistant for her to take on some of the leg work, but that Lauren has maintained that is easier for her to just do it herself. Required: Provide a report to the audit partner explaining your recommendation as to whether your firm should accept Gray’s Beans Pty Ltd as a client.
As part of your recommendation, you should include the following:
1. The type and level of assurance engagement that has been requested by Gray’s and what this requires the auditor to provide;
2. The factors from the background information that you have considered in your recommendation;
3. Explanation of the impact of the ethical framework on your recommendation. You should refer to the fundamental principles and specific threats;
4. Explanation of the impact of relevant standards and regulations on your recommendation. You should refer to specific legislation and audit standards;
5. Consideration of your potential legal liability as an auditor;
Dear [Audit Partner’s Name],
I am writing to provide my recommendation regarding whether Marshall Hobbes Partners should accept Gray’s Beans Pty Ltd as a client for conducting an audit of their financial statements for the year ended 30 June 20X2. In order to make an informed decision, I have carefully assessed the engagement request, considered various factors from the background information provided, evaluated the ethical framework implications, analyzed relevant standards and regulations, and contemplated potential legal liabilities associated with this engagement.
Gray’s Beans Pty Ltd has requested a financial statement audit, which is a form of reasonable assurance engagement. This requires the auditor to provide an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. The auditor is required to plan and perform the audit to obtain sufficient appropriate audit evidence, assess risks, and express an opinion on the financial statements’ reliability.
Several factors from the background information have been taken into account:
Positive reviews and local news articles indicate a favorable reputation and public perception of Gray’s coffee beans.
The previous auditors were dismissed due to disagreements over accounting policies and treatments, raising concerns about potential management bias or aggressive financial reporting.
Emma’s connection to the audit partner, Matt, may create a perceived or actual threat to independence.
James’s endorsement of cryptocurrency raises questions about the company’s risk appetite and management’s financial decision-making.
The fundamental principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behavior guide auditors’ conduct. The specific threat of familiarity arises due to Matt’s relationship with Emma. To mitigate this threat, Matt has agreed to remove himself from any involvement in the audit. However, the self-review threat exists due to his specialization in wholesale businesses, as Gray’s operates in this sector. To address this, careful review and oversight by other experienced auditors is essential.
The International Standards on Auditing (ISAs) provide the foundation for audit engagements. ISAs emphasize independence, professional skepticism, risk assessment, and the necessity of obtaining sufficient appropriate audit evidence. The Australian Corporations Act 2001 and Australian Auditing Standards further shape the audit process and reporting. The disagreement over accounting policies with previous auditors raises concerns about potential management pressure and aggressive reporting. Clear communication and alignment on policies will be crucial.
Accepting the Gray’s Beans engagement involves a potential legal liability for the audit firm. If the audit is not conducted with due care and adherence to audit standards, stakeholders might suffer financial losses and initiate legal action against the firm and its auditors. Adequate planning, risk assessment, evidence gathering, and reporting in accordance with relevant standards can mitigate this risk.
Considering the aforementioned factors, I recommend that Marshall Hobbes Partners accept the engagement with Gray’s Beans Pty Ltd, subject to the following conditions:
Matt will have no involvement in the audit engagement.
An experienced engagement partner will be appointed to ensure independence and oversee the audit.
Clear communication will be established with management regarding accounting policies and treatments, ensuring their consistency with relevant standards.
Regular consultation among the audit team and adherence to ISAs, Australian Auditing Standards, and legal requirements will be maintained to mitigate potential legal liabilities.
By adhering to ethical principles, relevant standards, and thorough planning, we can provide the necessary assurance to Gray’s Beans Pty Ltd’s stakeholders while effectively managing potential risks associated with this engagement.
Sincerely,
[Your Name] Audit Senior Marshall Hobbes Partners
As a renowned provider of the best writing services, we have selected unique features which we offer to our customers as their guarantees that will make your user experience stress-free.
Unlike other companies, our money-back guarantee ensures the safety of our customers' money. For whatever reason, the customer may request a refund; our support team assesses the ground on which the refund is requested and processes it instantly. However, our customers are lucky as they have the least chances to experience this as we are always prepared to serve you with the best.
Plagiarism is the worst academic offense that is highly punishable by all educational institutions. It's for this reason that Peachy Tutors does not condone any plagiarism. We use advanced plagiarism detection software that ensures there are no chances of similarity on your papers.
Sometimes your professor may be a little bit stubborn and needs some changes made on your paper, or you might need some customization done. All at your service, we will work on your revision till you are satisfied with the quality of work. All for Free!
We take our client's confidentiality as our highest priority; thus, we never share our client's information with third parties. Our company uses the standard encryption technology to store data and only uses trusted payment gateways.
Anytime you order your paper with us, be assured of the paper quality. Our tutors are highly skilled in researching and writing quality content that is relevant to the paper instructions and presented professionally. This makes us the best in the industry as our tutors can handle any type of paper despite its complexity.
Recent Comments