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DEPARTMENT OF ACCOUNTING, FINANCE & ECONOMICS 3102AFE Auditing Due Date: Weighting: Total Marks: Word limit: Submission: Audit Assignment 1 - Client Acceptance (Individual) 10am on 19 August 2020 25% 25 1000 - 1500 Submit (in MS Word) through the 'Audit Assignment 1 Submission' link in the Assessment folder. General Instructions to answer the assignment You must answer the question in the context of the case and not provide a general discussion. Marking the assignment will consider grammar, sentence construction and logical flow of arguments. References are NOT required. Maximum word limit is 1500 words. Use 12-point font in either Times New Roman or Arial font. Approximate word limits have been provided per question as a rough guide, however the word limit for the overall assignment must not exceed 1500 words. Assignments that exceed this limit by more than 10% will be penalized. Include a title page that includes assignment heading, course name (3102AFE), your name, student number and total number of words. An indication of the marks to be allocated per question is provided on the assignment rubric. Please ensure that you also complete the electronic assignment cover sheet before submitting your assignment. ___________________________________________________________________________ Required: Refer to the Bundy Service Station Ltd case on the next page and answer the questions that follow. 1 CASE STUDY: BUNDY SERVICE STATION LTD Bundy Service Station Ltd ('Bundy') was founded in 2002 and operates a successful fuel service station, motor repair workshop and second-hand car dealership from premises off the Bruce Highway route on the outskirts of Bundaberg. Mr Mac Brody, Mr Ben Pham and Mr Adam Hooper are the three founding shareholders of Bundy. Mac is a Chartered Accountant, while Ben trained as a motor mechanic. Adam, who is an accomplished drummer, started studying an Engineering degree, but never completed it as he spent a few years travelling and performing with his band, Spastix. The directors of Bundy comprise Adam (Chief Executive Officer), Ben (Chief Operations Officer) and Mac (Chief Financial Officer). The financial year of Bundy ends on 31 December each year. Financial department and external auditors Adam's wife, Mrs Holly Hooper CA, is the financial manager of the company, and is assisted by a bookkeeper, Mr Richard Sharp. Bundy is a successful business and has been a client of Bean & Associates, a firm providing audit, advisory and taxation services, since Bundy's incorporation. Mr Doug Bean, the senior partner of Bean & Associates, has always been involved with Bundy, first as the partner responsible for the audit and later as business and tax advisor. Mr Josh Bean, Doug's son, has been the partner responsible for the audit since 2014. The engagement team that is currently commencing the 2019 Bundy audit, consists of four members, namely three trainee accountants - Mr Kevin Johns, Ms Belinda Strong and Mr David Gordon - and an audit manager, Mr Selby Cameron. Background and understanding of the entity Two months ago, Mac married Jenna, who recently qualified as a professional Chartered Accountant (CA) after completing the required work experience at Bean & Associates in September 2019, with Doug Bean as her recognised mentor. They met when Jenna did some control testing at the second-hand car dealership. Jenna, who now owns her own consulting practice, regularly questions the technical IFRS skills of Holly and her team and she has in fact made accusations of financial mismanagement. Although not proven, the accusations placed pressure on the relationship between the three directors and caused them to lose focus on the running of their departments. 2 Jenna has also highlighted some internal control deficiencies, non-compliance with health and safety regulations and corporate governance issues that she identified during the audit she performed in 2018. In her opinion Josh had not properly responded to these at the time. She also feels that some of the tax planning opportunities proposed by Doug, which the company has implemented, are too risky. She proposed that the company appoint her as a consultant to address these issues and also to compile the company's 2019 annual financial statements in terms of IFRSs. Cougar Services Bundy has been in discussions with Cougar Services ('Cougar'), a Brisbane-based Limousine service company to enter a joint venture with them to expand the limousine service to the Bundaberg region. Bundy recently held a cocktail evening to promote their business, to which it invited Cougar representatives as well as the Bean & Associates audit team. Kevin, the trainee accountant from Bean & Associates, realised that he had studied with Ms June Clarkson, a representative of Cougar, and the two of them started chatting about the potential agreement between Bundy and Cougar. Kevin asked June a couple of questions regarding the impact of the potential arrangement with Bundy, including how the price of limousine hire would be determined, and what she thinks the potential profit impact on Bundy would be. Kevin was excited about the potential agreement, and shared his knowledge based on his work on the audit team. He hoped that it would help Bundy to secure the agreement. REQUIRED: 1. Discuss the threats to Bean & Associates' independence and identify appropriate actions Bean & Associates should consider to mitigate the threats, to ensure its partners and staff comply with the APES 110 Code of Ethics for Professional Accountants. Present your answer in tabular format. (Approximately 500 -800 words) 2. Discuss the professional conduct of Jenna in terms of the APES 110 Code of Ethics for Professional Accountants. (Approximately 400 to 600 words) 3. Discuss, with reference to APES 110 Code of Ethics for Professional Accountants, any concerns you may have in relation to the audit team's attendance and conduct at the cocktail evening held by Bundy. (Approximately 300 words) 3 Please use the latest version of the Code of Ethics, which can be found in the course site, or at this link: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=2ahUKEwiiPDe_tblAhXJbSsKHRaPBMoQFjAAegQIAhAC&url=https%3A%2F%2Fwww.apesb.org.au%2Fuploads%2F home%2F02112018000152_APES_110_Restructured_Code_Nov_2018.pdf&usg=AOvVaw2xNBYgvGwnuJZ Cepe2WZ9b SUGGESTED FORMAT FOR ANSWERS: You are not required to provide an introduction, nor a conclusion. Please do not define audit concepts, such as threats or safeguards. Instead, ensure that you apply the concepts to the case information, and refrain from simply providing generic statements. Answer each question separately. Where appropriate, you should make use of headings and sub-headings to structure your answers. You may use dot points, however, you should still use full sentences within these points. 4