Case Study You are a recendly appainted audit partner in a large indepe im af accauntants You are delighted that yau are naw a partner and cant wai ta sig off yaur first set af accounta Your fim recenty won an audit tender for a meclium-sized family owned company, A Ltd, and the firm's managing partner has allocated the client to you. The managirig partner is reasonably clos ta the family which cnens A Lid and you believe that this is atleast part of the reasa hhy the compary decided o appaint your firm. Asis narmal you ga through all th firm's new client procedures which include writin to the previous auditors and also obtaining sets of statutory accounts for the previous 3 years. When you receve the writen reply from the previous aucitors, you note that they have nat hinto report other than any matters addressed in their audit report. This seems strange, so you quickly review th company's set af financial statements for the previous year and note that the company's audi: report was qua ified on the basis of non-compliance with an accounting standard. The audit report highlights that the company awns a property and advises that the directors, on 1stgrunt, decided not to have an FRS 16 Valuation performed. The audit opinion adds that the auditor is una ble to quantfy the impact of this non-oomplianoe with FRS 16. You wish that you had access to the working papers of the predecessor auditars but the relevant audit regulationi was nat appicable at this e You are considerinthe impact af this issue when Mr X, the Managrg Partner, comes inta your affice. He provides you with briefing ani A Ltd and ther asks yau whether you have any queries. You inform Mr X what you have found. MrX replies "I do nat see any probles itli doesn eliev that it is worth paying far this intarrration then wha are we1a tell them atherwise: it is a family business after all. If we have to, we can adop the same approach as the prewous aucitors and qua lify the audi report on the same grounca That is when you inform him that you have coubts as to whether the audit qualfi cation issued was appropriate in the circumstances. The previous aucitors issued an 'except for-disagreement with accounting treatment -due to non complianc with an Modo-manage your online data. Learn More> accounting standard and you believe that a "limitation of scope opinion may have been more appropriate You are not su re but you surmise that this may be because of the requirerment that if a dient places a liritation of scope an the wark of the auditors which will require the auditor to issue a disclaimer of opinion, in advance of the auditors accepting that appainitment, then unless the restriction is renoved, the aditar should not continue in office for that particular client. Mr X replies that you should go ahead and reassess the positiai once the audit fiedwark has been caipleted by your tram. However, he adtis: Beri rrind that although the Managing Director (MD), s an aquaintance it has taken me a rnurnber of years ta get hirn ta use our fi as aditars - I do not want to do anything that would upset him unnecessarily and jeopardize our business relatiiship Yau are n reviewing the audit files af A Ltd far the year in qurstian. The carrpany has a turnover of around $18 millon and is showing a profit ofs29uo,0OD for the year after taking acount af the propased audit adjutnrnts. However, you notice that the directars have once again refused ta obtain a FRS 16 valuatian and therefore no gain or loss on revaluation is reflected in the accounts. You realise that the lack of an FRS 16 valuatian will mean that yau will have ta qualify your first ait apinia. Whilst this ooncerns you what really worries you is the type of qualification that will be required ie. a linitatio of scap the extent af tis lirnitatian leatds yu ta issue adislamer af opinion, then your firm would not be able to act for this client going forward unless the dient changes its stance an abining FRS 16 valuations. Mr X will be furiaus if yau adopt this approach. KEY QUESTIONS 1. Discuss the ethical issues in the case study for you personally and for the audit firn; 2. What furdarental ethical principles far accountants are rnost applicable arnd is there an apparent confict between them; and 3. Based an the infonation available, is there scope far an imaginative solutian. Total 20 Marks Modo -manage your online data. Learn More