9.2.2 AUDITING 2: ASSIGNMENT 2 [100] QUESTION ONE [32] You are a member of the Quality control Committee of a large audit firm, XYZ & Co Part of the committee's responsibility is to determine whether prospective clients are acceptable and whether existing clients should be retained. Being a large practice numerous potential clients are brought to the committee for consideration and the following list includes a number of recent cases where the audit appointment is available: 1. Bob Ltd, a company which hires out mercenaries to foreign governments involved in conflict and anyone else who is interested. The company is not listed on any stock exchange, 2. Joe Ltd, a listed company (with a substantial audit fee), whose chairman is an outspoken critic of the King 3 Report on Corporate Governance. His stance is that business is tough and that all the transparency, disclosure and fairness simply weakens the company as it gives competitors insights they shouldn't have and that business is not supposed to be fair! 3. Smokeit (Pty) Ltd, a company which manufactures cigarettes 4. Downs Ltd, a public company which owes its current auditors R800 000 in audit fees. The company's audit committee claims that the current auditors have overcharged 5. Cheeky Ltd, a company which has on two previous occasions sued its auditors and on both occasions the auditors (different firms) have admitted negligence and settled out of court. 6. Decor (Ply) Ltd, an interior decorating business which is owned by the wife of XYZ's partner in charge of the Taxation department. The company's public interest score requires that the company be externally audited. 7. Worldwide Ltd, a well-known international corporation with operations world wide and its head office in Johannesburg. Required: 1.1. Discuss what an auditing firm sets out to achieve by implementing policies and procedures relating to the acceptance of new clients as required by ISQC 1. (10) 1.2. Outline how information about a prospective client can be obtained. (7) 1.3. Comment on matters to which your committee should give consideration in deciding on whether to accept the above audit appointments. (15)