ACC303 Auditing and Assurance Services Tutorial

Q11.

Sally Wong is a newly hire audit associate for Chan & Co. Sally graduated recently from one of the local Universities in Malaysia after obtaining an accounting degree. To begin her career in accounting, she has chosen auditing as she believes it will provide her with plenty of exposure.

On 1 September 2021 she reported to work. As the companys common procedure, she must meet up with the Audit partner Mr. Peter Chan for a short briefing which may take between 30 to 45 minutes. Sally was very eager to meet Peter. Peter is the founder of Chan & Co and he is quite an elderly person of the age of 70. Peter started the conversation with the sharing of his ideal audit practice in the company. According to Peter, auditing is no different from any kind of the services render to the customers. He told Sally that whatever she learned in the University may not be applicable to the day-to-day operation of auditing of the firm. We are providing a service to meet the statutory requirements of our customers and most of them are small and medium size companies. Our primary objective is to help them to discharge their statutory obligations and we have to go all out in pleasing them otherwise we may have a collection problem later on. Since all of our clients are not publicly listed and we shall not take it too seriously and too harsh on our customers. We have been servicing most of our clients for more than 20 years and we know everything of them. So do not spend too much of time in one audit client and we have to be efficient with our work. Most of our clients are trustworthy and we shall not question them too much and this may not jeopardize our relationship with them. At the end of the day, auditing is just a service where we can earn our professional fees. The audit clients are our dearest customers and we shall not upset them.

During the conversation with Sally, Peter found out that Sally is a ballroom dancer and she is attending her lessons in a nearby club in town where there are a lot of wealthy businessmen. Right away Peter has an idea of offering her an additional pay of RM500 per month and what she needs to do is to solicit and promote the services of Chan & Co to the club members. Peter is well known for the practice of low-balling and he is willing to take up additional clients with lower fees because he believes that once the variable costs are covered anything extra will help to reduce the fixed cost. Very often he will instruct the audit staff to do cold calling to the companies in the town. Peter does not believe in stringent and detailed checking of transactions and normally audit procedures are kept to the minimum. Peter further argued that as the audit clients are mainly small and medium size enterprises in Malaysia and therefore there should not be audit risk and the quality of auditing is simply judged by how well they managed to service their clients. To keep operating cost low, Peter hires the minimum manpower and many staff are unable to live up with the workload and hence staff turnover rate is high. Peter is not very selective in recruiting their auditing staff and he often recruit fresh accounting graduates with low academic performance because they are willing to accept a pay which is below the market rate. Peter hardly updates his knowledge on the latest development in accounting and auditing but he could still convince the clients so far on the superficial level based on his long practice over the last 40 years.

1. Comment on Peters view of auditing services in Chan & Co. Discuss the possible implications to the audit quality based of the information outline in the above case and provide the possible ways to improve the audit practices of the firm.

(15 marks)

ii. Comment on the appropriateness marketing strategy of Chan & Co of soliciting customers from the club, cold calling as well as the practice of lowballing.

(5 marks)