UESTION Sue, Liean and Ray have been good friends since their college years. The
ID: 2328451 • Letter: U
Question
UESTION Sue, Liean and Ray have been good friends since their college years. They were partners in a public accounting firm, Sue, Liean & Co (SLC) since 2005. Hakim Enterprise Sdn Bhd (HESB) is one of SLC's clients. SLC has been HESB's external auditors for the past three years. Recently, HESB is facing difficulties in collecting overdue debts from their customers. As a result, SLC's last year audit fees have been outstanding for the last 6 months. HESB has given an intention to continue appointing SLC as the external auditor for the current year audit. Ray is the senior in charge of the audit of the financial statements of Aidil Maju Berhad (AMB) for the year ending 31 December 2013. AMB's CEO, Mr. Ikhwan, has just sent Sue an email to advise Sue that Ray has been shortlisted for the position of Finance Director. Sue were not previously aware that Ray had applied for the position. In addition, Sue was also being informed by one of the managers who reviewed AMB's audit that Ray and his family has been given a free world tour trip by Mr. Ikhwan. Kerry Enterprise Sdn Bhd (KESB) an audit client, is threatening to sue SLC In respect of audit fees charged for the year ended 31 December 2012. KESB is alleging that SLC billed the full rate on air fares for audit staff even after obtaining substantial discounts for the fares. Required: Identify and discuss the ethical and other profossional issues relating to the above mentioned matter. Total 20 Marks)
Explanation / Answer
1 : The First Issue is relating to Auditors Independence when there is significant Audit fees pending for previous assignment either Auditors should arrange for Payment of previous assignment or make it clear to the Client that audit firm is prohibited from issuing audit report when there is an outstaning fees from previous year
2: In Case of Shortlisting of Ray as the Finance Director the Ethical and Professional issues are that both Ray and Ikhwan has acted against the principle of intigrity. Ray has not informed SLC about his application in AMB this is against the professional integrity where he was also acting as a in charge of audit. Remedies for the same is Ray should be removed as a partner of SLC and his previous audit assignemnt also needs to be thoroughly verified to check that the audit is performed in accordance with the audit principles.
3 If the allegation of the KESB is correct then SLC has acted against the principle of Integrity by charging excessive fees then what is warranted. This will have a legal dispute betweeen KSEB and SLC for safeguarding his image SLC should immediately issue the credit note.
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