Healthy Foods (HF) is a large private company in the retail business. It operates through 25 franchisees

across Canada. One of the requirements stipulated in the franchise agreement is that each franchisee

purchase all ingredients through HF. While HF is considering hiring an internal auditor, management could

not justify the cost at this time.

You are a senior auditor who works for the audit firm Johnson and Tang (JT) LLP. JT is also the external

auditor of HF. HF has asked your firm to provide some internal audit services in lieu of the concerns

regarding costs mentioned above to hire an internal auditor.

You have been approached by the audit partner of your firm and been asked to address the following

questions below.

Required

1.

Can your audit firm accept the audit engagement of HF? Explain your rationale. (3 marks)

2.

Explain two types of other engagement reports that you can recommend to HF to address the

concerns raised by management in regards to the franchisee and the work that would be

performed by the internal auditor. Your explanation should include the type of report,

procedures performed, level of assurance and the auditors responsibilities for each repor