1. Case study Green Taxis Ltd You are an audit senior in Falmer LLP and one of the audit partners, Samantha Dawson, has recently been invited to tender for a new engagement, Green Taxis Ltd, for the year ended 31 December 2021. Green Taxis Ltds previous auditor did not seek reappointment having completed the previous years audit. Samantha heard about the opportunity to pitch for the client from her cousin who is the current finance director of Green Taxis Ltd. Samanthas cousin has successfully helped manage several fast growing businesses preparing them for sale, though one was forced into liquidation as a result of a VAT investigation by HMRC. According

to Samanthas cousin, this was due to an unfortunate misunderstanding and the heavy handedness of HMRC. Samantha has provided you with the following information and would like you to review it. Green Taxis Ltd runs a substantial fleet of electric taxis and has a small number of vehicles converted to run on recycled cooking oil. Green Taxis Ltd has created a significant presence on social media and is seen as an industry leader in its adoption of sustainable business practices. It has been trading successfully for several years with a strong local profile but trading suffered during the COVID 19 lockdowns. You have found it difficult in the past to book a Green Taxi since they are often fully booked. Your perception is that Green Taxis Ltd has a prominent local profile, but anecdotally you do not know many people who use them. The financial controller recently left Green Taxis Ltd. This means that Falmer LLP are likely to be involved in some accounts preparation work since the remaining finance team will not have time to prepare full draft financial statements before the audit is due to start. The finance director has mentioned that HMRC investigated the payroll department of Green Taxis Ltd just over a year ago. Green Taxis Ltd were fined for making cash payments to staff without deducting relevant income tax payments. However the finance director has explained how difficult it is to find staff that are willing to provide all the necessary information required for the correct tax calculations and is therefore happy for the drivers to take responsibility for their own tax calculations. HMRC also raised concerns about the failure of Green Taxis Ltd to pay the appropriate fuel duty on the recycled cooking oil and the investigation is ongoing. In addition to the cash payments made to some drivers, a significant proportion of the fares are paid to Green Taxis Ltd in cash. Due to the close relationship between Samantha Dawson and the finance director, Green Taxis Ltd has offered free taxi travel for every member of the audit team for the duration of the audit. Green Taxis Ltd would like to publicise this on social media to promote their support for local businesses like Falmer LLP. In addition to this information provided by Samantha Dawson, you have recently been on study leave with a friend who works for the previous auditor and they let slip that Green Taxis Ltd had refused to pay a significant amount of their fee invoices. Samantha Dawson would very much like to accept Green Taxis as a client, but would like to ensure that the appropriate steps are taken beforehand.

Case requirements Prepare a report addressing the following:

i. Evaluate the need for a conceptual framework for a professional code of ethics and critically discuss the fundamental principles using examples. (25 marks)

ii. Analyse three threats in the case of Green Taxis Ltd and conclude on whether they can be mitigated. (25 marks)

iii. Identify the steps that should be taken before taking any audit engagement and assess three areas of concern in the case of Green Taxis Ltd and how this may affect the audit work undertaken . (25 marks)

iv. Make a recommendation to the audit partner as to whether the client should be accepted. Assuming the partner wishes to accept the client, draft an engagement letter for Falmer LLP with respect to Green Taxis Ltd. (25 marks)