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- 10 Marks
Question
a)
Nii Adjei & Associates is a firm of Chartered Accountants that provides various services (including Audit, Assurance, Tax, and Advisory services) to clients undertaking various services. Nii Adjei & Associates has offices in Accra, Tema, Koforidua, and Kumasi.
Owusu Mensah was the quality control partner of Nii Adjei & Associates. Owusu Mensah had started the implementation of an ethical compliance system for the assurance staff when he was involved in an accident on the Tema motorway on his way home and died. The said system required that staff should confirm in writing their compliance with the code of ethics of The Institute of Chartered Accountants (Ghana). Arrangement to get a replacement for Owusu Mensah had not been completed.
Osei Acquah was the engagement partner in charge of C. Kokuvi Ltd. (a major client that Nii Adjei & Associates provides audit service, preparation of tax computations, and other advisory services). Osei Acquah had an attack on his brain which resulted in a stroke. This forced Nii Adjei & Associates to engage Thomas Essien as the new engagement partner to take charge of the audit of C. Kokuvi Ltd. C. Kokuvi Ltd is not prepared to increase the audit fees from that of the previous year despite the fact that additional work has to be performed as a result of the introduction of a new computer system.
In addition, the starting date of the audit has been delayed as a result of problems with the new system.
Required:
Discuss any quality control issues identified in the above scenarios and recommend the action which should be taken by Nii Adjei and Associates. (10 marks)
Answer
Quality Control Issues
- Firm Culture
- The International Standard on Quality Control (ISQC 1) requires that firms implement policies such that the internal culture of the firm emphasizes the importance of quality control. It is the leaders of the firm who are responsible for creating and maintaining this culture through actions and messages. The personnel responsible for establishing and maintaining the firm’s system of quality control must understand ISQC 1.
- The partner responsible for quality control died and has not been replaced. While this may not have a direct impact on the audit of C. Kokuvi Ltd., the fact that there is no one responsible for quality control in the firm increases the risk that quality control deficiencies will go undetected.
- The firm is under pressure to complete the audit and provide other services for the same fee as last year despite the fact that additional work will be required. There is a risk that quality will suffer as audit work will not be carried out as thoroughly as it should be in order to complete the work within budget. This problem is exacerbated by the potential lack of proper quality control review due to the death of the quality control partner.
- Action: The quality control partner should be replaced as soon as possible. The budget for the audit of C. Kokuvi should be monitored carefully. The audit should be conducted properly and in accordance with ISAs. Any cost overruns should be discussed with the client and additional fees negotiated if necessary.
(4 marks)
- Ethical Requirements
- A firm should have procedures in place to ensure that staff is aware of ethical requirements and comply with these. In this case, the implementation of the system has not been completed. While members of staff who are members of a professional body should be aware of their responsibilities, they may not have all the relevant information to avoid an inadvertent breach of the regulations, for example, details of all companies who are clients of the firm.
- Action: The implementation of the system started by the previous ethics partner should be completed.
(3 marks)
- Monitoring
- The fact that the audit partner (Thomas Essien) is new, and the previous partner is no longer with the firm increases the risk regarding audit monitoring. As the current audit partner is new, he will not have an extensive knowledge of the audit client initially. The tight deadline for the audit accentuates this problem.
- Action: To decrease this risk, the audit partner must gain an understanding of the business in accordance with ISAs. If possible, it may be appropriate to retain the audit manager and audit senior from the previous year to aid continuity. Nii Adjei & Associates may also consider a second partner review to ensure that quality control standards have been maintained.
(3 marks)
- Tags: Audit Firm Management, Audit risks, Ethical Compliance, Quality control
- Level: Level 3
- Topic: Practice management, The audit approach
- Series: NOV 2016
- Uploader: Joseph