Case study ( BA313 Auditing and assurance)

You have just been appointed as a junior Audit Partner in Gripe Partners, an audit firm.Gripe Partners is in reality a sole practitioner, Mr Gripe, who has been auditing businesses in your suburb for 20 years. He is considered by locals to be a very nice man with a strong reputation for honesty.In late April, the firm is approached by Mr Boondoggle, the Chairman of the Board of Giant Corp Ltd (GC) a small manufacturing business, to conduct the audit of GC. Mr Boondoggle explains that the previous auditor had died, and they are looking for a replacement auditor. Mr Gripe asks you to undertake the preliminary review.

As part of your review of GC you undertake enquiries of businessmen in the neighbourhood. There is nothing directly adverse known about GC, and Mr Boondoggle is considered to be a very astute businessman. However, one person whom you know who worked with Mr Boondoggle previously, had a short private conversation with you. From this conversation it becomes clear than Mr Boondoggle micromanages, is very driven, and will not accept suggestions counter to his views. In fact, there was a feeling within the Accounting Department of GC that the accounts had to satisfy Mr Boondoggle regardless of the true situation.On behalf of Mr Gripe, you approach Mr Boondoggle to obtain a letter of authority to the previous auditor to discuss the audit history with you. Mr Boondoggle explains that he used James Quick Auditors. You note that James Quick Auditors was a sole proprietor, and on his death his estate destroyed all confidential documents. On being told this, Mr Gripe says "We can do a much better job than him, I will accept the audit!"

Required:

Should Gripe Partners have accepted GC as a client? If not, why not? if so, why so? In your answer cover the ethical obligations and how these may have been compromised.

You begin preliminary planning and as part of that planning you obtain some initial analytical review data which is set out below:

GCIndustry Average

Current Ratio21.5

Quick Ratio1.51

Gross Margin Ratio60%45%

Inventory Turnover per annum 8 4

Debt to Equity2:13:1

Interest as a % of Debt 3.5%7%