PLD Associates Company, a large quoted company, was founded and controlled by Mr$.$ J$.$ Scott.

The principal business of the company was to develop derelict land in the city centres into office

accommodation. In $2023,$ the taxation authorities became suspicious of the nature of the operations

being carried out by the company and an investigation into its affairs commenced.

The resultant report stated that the organization$$s internal controls had deficiencies and were nonexistent in many cases. The investigators found payments to unknown persons and fictitious

consultancy firms. In addition, J Scott had maintained a secret expense account that was used to

disburse funds to himself. The board of directors of PDL Associates Company did not know of the

existence of this account. The expense account was maintained by the partner of the firm of

accountants responsible for the audit of the company. The auditors were heavily criticized in the

report of the investigators.

The firm of auditors, Allcost & Co$,$ had an aggressive marketing strategy and had increased its

audit fees by $100\%$ in two years. The audit firm had accepted the appointment in $2021$ after the

previous auditors had been dismissed. The audit report for the year $2020$ had been heavily qualified

by the previous auditors on the grounds of poor internal control and lack of audit evidence. J Scott

had approached several firms of auditors in order to ascertain whether they would express a

modified auditor$$s opinion give the present systems of control in PDL Associates Co$.$

Allcost & Co had stated that it was unlikely that they would modify their opinion. They realized

that J Scott was $$opinion shopping$$ but were prepared to give an opinion in order to attract the

client to their firm.

PDL Associates Company subsequently filed for insolvency and Allcost & Co were sued for

negligence by the largest loan creditor, its bankers.

Required:

$($a$)$ Describe the procedures which an audit firm should carry out before accepting a client with

potentially high audit risk as PDL Associates Company.

$($b$)$ Discuss the ethical problems raised by the maintenance of the secret expense account for

Mr$.$ J Scott by the audit partner.

$($c$)$ Suggest measures that audit firms might introduce to try and minimize the practice of

$$opinion shopping$$ by prospective audit clients.

$($d$)$ Explain the various ways audit firms can reduce the risk of litigation and its effect on the

audit practice.

$($e$)$ Distinguish between $$modified opinion$$ and $$qualified opinion$.$

$($f$)$ Describe the term $$quoted company$$ as used in the case