Pinkman White & Partners (PWP) is a medium-sized audit firm providing audit, advisory and taxation services to an array of clients, many of whom are in the resources and energy sector. Walt Pinkman and Jesse White are the founding partners, and twelve other partners have been admitted to the entity since its inception in 2008. This year, the partners celebrated the opening of the third office in Cairns. They now have offices in Brisbane, Cairns and Mermaid Beach which support their growing clientele across the tourism hotspots of Queensland.

PWP has developed a strong reputation in the business community for conducting quality audits, and in the audit community for producing highly skilled audit staff with a strong professional acumen. The partners have strategically prioritised audit quality as the cornerstone to the success of the firm. They lead from the front by ensuring that they treat staff with courtesy and respect, setting targets that facilitate timely completion and are responsive to both client and staff requests. From this they have succeeded in developing a culture that upholds professional ethics, values and attitudes. The partners believe that this approach encourages staff to consult with each other and the more experienced personnel when faced with challenges, enhancing accountability and professional judgement. This approach has paid off with PWP becoming a desirable firm for new interns.

When asked what set PWP apart, in a recent interview for the CAANZ magazine Acuity, Walt answered I think we seem to have struck a good balance between teamwork and the pursuit of excellence, you know? The partners have set high expectations for staff to keep improving their audit practice and skills. For instance, aside from regular formal inhouse training, staff are eager to participate in other events that are focused on developing particular areas of expertise. Just last month several of our staff, together with the partners attended a satellite event hosted by Griffith University, in which the IFRS Foundation held their inaugural IFRS Sustainability Symposium that focused on sustainability disclosures. This is a very topical area in the resources sector, right? It was a fantastic event and credit to Griffith for doing an outstanding job as hosts! They have a cinema on campus, so we all watched the presentations in the cinema - complete with popcorn and drinks! There was a great mix of professional accountants from several audit firms as well as academics and it was really beneficial to be able to network and share ideas. After the presentations, we had a few sessions to discuss the implications and future directions around sustainability 3 disclosures in the Australian context. It was a very inclusive atmosphere, and it was good to hear even some of the trainees sharing their thoughts. They bring a different perspective, you know? Maybe they dont have the wisdom of professional experience yet, but they bring valuable insights to the table. So yeah, thats a good example of how we integrate our strong ethos of excellence and teamwork. And you know, from that we have reviewed our business strategy, and been able to incorporate some of the learnings from that event, and specifically what was discussed afterwards into our plans for the next three years. We have some exciting stuff that we will be launching over the next year that will strategically enhance our resource sector specialisation, and also cater for some new services that we will be launching. And everyone is excited about this, especially those who attended the symposium because it also shows that they all have a voice and that they are heard. And thats important these days, I think.

The client: Schrader Limited Schrader Pty Ltd (Schrader) is an Australian base and precious metals producer that has four operating assets and a highly prospective exploration portfolio across Queensland with headquarters in Brisbane. The founding directors of Schrader are Steve Schrader (CEO), Hank Gomez, and Tim Roberts (CFO), each holding a one third ownership in the private company. The financial year of Schrader ends on 31 July each year

The directors have prepared detailed growth strategies to include acquiring a fourth operating asset and have set a goal to list the company by the middle of 2024. As a private company, Schraders annual financial statements have not been audited before. However, in view of their need for capital financing to fund their expansion projects, they now require audited financial statements and have resolved to be audited from FY2023 onwards. Hence, they have approached Pinkman White & Partners (PWP) to be appointed as the companys external auditors.

PWP have accepted the engagement and have pencilled in Peter Pott as the audit manager, Skylar Whyte as the audit senior and assigned two trainee accountants as the engagement team for the 2023 financial report audit. Jesse White is to act as Engagement Partner as he has the most experience auditing private companies.

Peter Pott at the Gala Evening In his off time, Peter Pott really enjoys painting, and he has aspirations of going professional one day. He has a great appreciation for art in general, and as a self-taught artist 4 would love to attend the prestigious, Sydney-based, Gus Fring Art Academy for some formal training in different mediums and painting styles. He decided to keep his options open and have something solid to fall back on if he is unable to meet his art aspirations. Therefore, he completed his accounting traineeship at Ernst & Young and joined PWP in July 2022. Schrader invited Walt & Jesse to attend a gala evening to launch the new Gus Fring Academy in Brisbane. The evening has been widely publicised and is expected to showcase a new Gus Fring exhibition and a performance by the upcoming rock band Skinny Pete and the Badgers. Walt and Jesse decided that it was not appropriate for them to attend. Instead, they suggested that Peter (given his art ambitions) and another staff member, Andrea, who was not on the engagement team go in their place. The gala evening did not disappoint, and during the evening Andrea and Peter were introduced to Steve Schrader and several other Schrader staff. Peter gushed about how much he was loving the evening and told Steve about his painting hobby and his dream of studying one day at the Academy. Andrea let slip that Peter would be the audit manager on the upcoming Schrader audit. Later in the evening before leaving, Steve motioned to Peter, and putting his arm around his shoulders leant in and whispered, Come and chat to me after the audit who knows, if things go well maybe I could sponsor you to attend one of the courses at the Brisbane Academy. But probably best you dont mention that to anyone. The next day, Peter was still undecided as to whether to mention this offer to the Partners or not

Question

1. Evaluate, with reference to ASQM 1, the extent to which the partners at PWP demonstrate commitment to audit quality. You are to limit your discussion to the facts of the case and the relevant sections of ASQM 1 that relate to Governance and Leadership. Ensure that you cite evidence from the case AND references from ASQM 1 to support your evaluation. (Approximately 300 - 400 words)

2. Analyse whether it is appropriate for Peter Pott to remain on the audit team for the Schrader engagement (i) having attended the Gala Evening; and (ii) assuming he decides to accept the sponsorship to the Art Academy. You should structure your answer as follows:

a. Code of Ethics requirements: Explain, with reference to s420 and s340 of APES 110 Code of Ethics for Professional Accountants what the relevant rules and regulations stipulate regarding the acceptance of gifts and hospitality. (Approximately 500-600 words)

b. Application: Apply the rules outline in part (a) above separately to each of issues (i) and (ii) above, indicating whether you believe that they represent inducements or not, identifying any specific threats to independence and objectivity that these offers of gifts and hospitality could give rise to, and suggesting appropriate safeguards to reduce threats to acceptable levels. (Approximately 400-450 words)

c. Conclusion provide a concise conclusion/recommendation as to whether Peter can remain on the engagement team given his attendance at the Gala event and assuming he intends to accept the Academy sponsorship. (Approximately 50 words)