Case Study 2

In 2019, the Indigo Paints Company appointed Star Auditing Company to undertake the statutory audit of the financial statements of the company. While planning for a change, the Indigo Paint Company contacted many auditing firms and finally selected the Star Auditing Company. A reason that the Chief Financial Officer (CFO) gave for selecting Star Auditing Company was the previous contract which the company had with them. Earlier, Star Auditing Company was involved in developing an online financial system for Indigo Paint Company, which is currently being used in the company. Star Auditing Company was also involved in providing training programs to the companys accounting staff on various aspects of quality assurance, accounting and auditing services. Star Auditing Company considered Indigo Paint Company as one of their top clients, as the revenue from providing services to the Indigo Paint Company is currently over 20% of the total revenue of Star Auditing Company. It was informally discussed that the contract with the Indigo Paint Company will be terminated if Star Auditing fails to provide an unqualified audit report on the financial statements.

The CEO of Indigo Paint Company knows the management of Star Auditing Company. Mathews, the elder son of CEO is currently doing his training in Star Auditing Company. He has completed his CIA (Chartered Internal Auditors) course. The CEO wants him to join Star Auditing as Mathews is specialized in the auditing and assurance services. As the company is undergoing tremendous pressure from the shareholders, the CEO believed that the contract

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with Star Auditing Company management will help them to project a better revenue for the company. During 2015, when the Indigo raised funds through public issue, Star Auditing Company bought 15% of their shares, which currently is trading at a market price of OMR32.5. The share price is expected to grow, if the company reports a growth in their profitability indicators.

Based on the above case, answer the following; (Maximum word count for Case Study is 400 Words)

(5+3+2 = 10 Marks)

1. Identify and explain the various threats which may affect the independence of Star

Auditing Company in auditing Indigo Paint Company.

2. Do you think the various threats faced by the auditors are in the acceptable level? If

you are an employee in Star Auditing Company, how do you evaluate the risks

involved?

3. What do you suggest? Should Star Auditing Company accept the offer for auditing

Indigo Paint Company? Briefly explain the reason for your decision.