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Denbat Inc. is a public company that manufactures and sells sports bats and racquets. As a manufacturing company, labour is a significant payroll expense for
Denbat Inc. is a public company that manufactures and sells sports bats and racquets. As a manufacturing company, labour is a significant payroll expense for the company. Denbat has approached a new auditor, HK CPAs, to serve as auditor because the previous auditor did not have proper staffing to complete the audit. Jo, an audit junior at HK, has been asked to assess whether or not the HK staff members would be able to work on the engagement. Below are HK staff members: Name of audit staff Position at audit firm Details Max Partner Max and Denbats CEO, Clint, personally sponsor the local under-18s summer tennis tournament. Max and Clint became friends when they both worked at Denbat. Their spouses are both on the committee at the local hockey club. Max left his role as finance director at Denbat two years ago. Shona Partner Invests in HKs optional pension policy (a collective investment portfolio that holds a portion of stock in Denbat). April Senior manager Bought 20 cricket bats on credit from Denbat on behalf of the local cricket club. Erik Manager His nephew works on Denbats baseball bat production line. Finished a secondment to Denbat 18 months ago. He worked in Denbats internal audit department on a review of the inventory system controls. Chanda Audit senior Has just returned to work at HK last month after a secondment to Denbat for six months. The secondment involved assisting in the acquisition and implementation of the new sales system. Gerry Audit senior Married to Denbats payroll assistant who performs tasks related to calculation of payroll expenses. Jo Audit junior Plays at the hockey club that Max and Clints spouses help run. Audit and Assurance Unit 1 Practice Problems 5 / 8 Name of audit staff Position at audit firm Details Sam Audit junior Owns 100 $1 shares in Denbat, inherited from his grandfathers estate. Won the singles title at the under-18s tennis tournament sponsored by Max and Clint four years ago. Libby Audit junior Won the doubles title at the under-18s tennis tournament sponsored by Max and Clint four years ago. Buys all of her racquets from Denbat. Starred in Denbats advertising campaign for the DB9 tennis racquet when she was 16. Tilly Audit junior Father is finance director of Denbats parent company, Super Sports Corp., which is listed on the New York Stock Exchange in the United States. Required: a) Identify any threats to independence in fact or appearance for each staff member. b) Identify any safeguards that can be put in place to mitigate the threat(s) identified for each staff member. c) Conclude whether the member of staff should be included in the Denbat audit team
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