Nangula & Partners, an audit firm, was appointed the new auditors of Solar (Pty) Ltd on 01 March 2019. One of the audit managers, Marinda van der Merwe of Nangula & Partners referred this work to the audit firm by reference of the relationship that she has to the Managing partner of Solar (Pty) Ltd as her father. Solar (Pty) Ltd (Solar) is a large manufacturing company listed on the Namibian Stock Exchange that manufactures solar geysers and solar panels for industrial and residential use. Solar has a large manufacturing plant in Okahandja with showrooms throughout the country. Distribution of goods takes place from Okahandja and its various depots in Windhoek, Walvis Bay and Ondangwa. Solar imports its raw materials from China and has recently also started to export its goods to northern Africa and the SADC region.

Due to the current economic conditions, there has been a significant increase in the demand of solar geyser especially among businesses. This has led to the company generating large volumes of sales over the past 12 to 16 months. Solar has been known in the industry to be disagreeing with the auditors when it comes to misstatements found on the financial statements and the correcting thereof. Furthermore, the CFO has had a reputation for being intimidating to the auditors by being aggressive and evasive in answering audit queries. Nangula & Partners is a small audit firm of which their clientele is mainly small privately owned companies, for this reason the partner in charge of the audit was planning to use Marinda as the audit manager of the audit as she is the only senior manager in the audit firm.

You are required to:

a) Discuss the factors that Nangula & Partners had to consider before accepting the appointment as external auditors to Solar (Pty) Ltd. (15) (Include in your answer types of threats identified and safeguards needed to reduce the risk)

b) Identify the risks of material misstatement from the above scenario. (10