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Described below are situations which have arisen in four unrelated external audit clients of your firm Sparkle LLP (Sparkle). Sapphire plc (Sapphire) Sapphire is a
Described below are situations which have arisen in four unrelated external audit clients of your firm Sparkle LLP (Sparkle). Sapphire plc (Sapphire) Sapphire is a listed company. They appointed a new Finance Director on 5 May 20X2 as the previous Finance Director left the company to join a competitor is February 20X2. Jewel's year end is 31 May 20X2. In light of this new appointment the directors of Sapphire have requested that the prior year engagement partner, Mohammad Asif, continues as key audit partner for the current year's audit to safeguard audit quality. Mohammad has been the key audit partner for the previous seven years. Topaz Ltd (Topaz) The financial controller at Topaz has been on long-term sick leave and the finance director has asked Sparkle for help with finalising the accounting information in preparation for the year-end audit. Topaz has a wide range of assets, and he has requested that a member of staff at Sparkle be seconded to Topaz to help with calculating the deprecation charge for these assets. Ultralite Ltd (Ultralite) Ultralite has been a client of Sparkle for a number of years, however, their audit fee from the previous year is still to be paid. The full fee is outstanding. Ultralite have been experiencing some cashflow problems following difficult trading conditions and their directors are unable to confirm that they will be able to pay the fee before this year's audit report is issued. Viridine Plc (Viridine) Viridine has recently decided to outsource its internal audit function and has requested that Sparkle accepts the engagement for an annual fee of 550,000. The directors believe that Sparkle will be able to provide a cost-effective service due to its cumulative knowledge of Viridine's business gained through its provision of the external audit. In addition to the audit of their financial statements (annual fee of 600,000) Sparkle also provide Viridine with IT services costing 2.4 million per year. Sparkle's total annual fee income, excluding the proposed internal audit services for Viridine, is 20 million. Required: a) For each of the situations outlined above, explain the threats to the objectivity and independence of the external auditors and list the safeguards available to mitigate these threats. The marks will be allocated as follows: Sapphire (5 marks) . . Topaz (5 marks) Ultralite (3 marks) Viridine (7 marks)
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