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COMPREHENSIVE CASE STUDY

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WORK TASK $-$ CLIENT ACCEPTANCE DECISION

Group discussion $($up to $5$ students$)$ of the following questions and preparation of presentation slides for each question.

An auditor has to collect information for the client acceptance decision. Define at least five procedures that an auditor should perform to collect relevant information for his$/$her decision whether to accept $4-$Airlines as client or not.

To get a first impression about $4-$Airlines' financial situation and performance, use the financial information integrated in the case to calculate liquidity ratios $($i$.$e$.$ Accounts Receivable Turnover, Debt to Equity and Current Ratios$),$ profitability ratios $($i$.$e$.$ ROE, ROA, Profit Margin, Share of Fuel Cost in Total Cost, Share of Aircraft Leases in Total Cost$)$ and solvency ratios $($i$.$e$.$ Asset to Equity, Times Interest Earned$).$ Also, compare $4-$Airlines' ratios to the industry ratios provided in the case. Identify and discuss any major differences. Try to analyse which risks may result sheet and income statement with respect to key

Are there other financial matters that should be considered before accepting $4$Airlines as a client?

Beside financial matters, other aspects should be considered before accepting $4$Airlines as a client. What non$-$financial matters mentioned in this case study could be relevant for the client acceptance decision? How important are each of these nonfinancial matters?

$4-$Airlines expects that Europestars will help to optimise the new IT system. What are the pros and cons when an audit firm provides both auditing and IT consulting services? Discuss whether European regulation and the IFAC code of ethics will allow Europestars to help $4-$Airlines with their IT system and at the same time to carry out a statutory audit of the financial statements.

As indicated in the case, one of the partners in another firm of the 'Allstars' network has invested in a venture capital fund that owns shares of $4-$Airlines Equity. Does this fact violate the auditor's independence? Discuss why or why not, and consider the consequences.

Your team has to make a recommendation to the managing partner as to whether Europestars should accept the audit engagement of the $4-$Airlines Company. What would you recommend? Include consideration of reasons both for and against acceptance and use both financial and non$-$financial information to justify your recommendation.

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