QUESTION TWO [20] Cables (Pty) Ltd was formed 15 years ago by its current managing director, Pete Jones. Cables (Pty) Ltd has 15 members (all of whom are individuals) and Pete is the majority shareholder. Cables (Pty) Ltd is a cable manufacturing business and has long term contracts with local government bodies and mines for supply of cables. The company also supplies Page 2 of 5 cables to large and small building contractors throughout South Africa. The company has a branch in each province of South Africa from where the manufactured cables are sold and distributed. The company's memorandum of incorporation requires that its annual financial statements should be audited. Three years ago John Greene was appointed as the company's external auditor by the company's members at an annual general meeting. Jake Jones, Pete's son, was appointed as Cables (Pty) Ltd.'s financial director on 31 May 2020. Jake acquired a BSc degree in South Africa, after he worked in a hotel in London for a couple of years. He is 27 years of age. He started working at Cables (Pty) Ltd on 01 May 2020. Jake and you have been friends since school, although he is a few years younger than you. The finalisation of the audit of Cables (Pty) Ltd for the year ended 30 June 21 3/5 delayed due to a difference of opinion between the auditor, John Greene, a sole proprietor, and Pete, regarding the accounting treatment of certain structured financing transactions that the company entered into during May 2019. On 31 January 2020 John Greene eventually issued an unqualified audit opinion on the financial statements of Cables (Pty) Ltd for the year ended 30 June 2019. You are aware of the fact that Cables (Pty) Ltd has changed auditors regularly over the period of its existence and that the reason for these changes has usually been differences of opinion between the auditors and management regarding compliance with accounting standards. You are a partner in a medium sized auditing firm with offices in all the large cities in South Africa. Jake approached you at the beginning of February 2020 and requested that you take over the statutory audit appointment of Cables (Pty) Ltd. During your conversation with Jake you learned the following: Each branch controls its own sales and debtors, while purchases and creditors are controlled by the head office. . Pete fully supports the change in auditor, while the other members of the company are not aware of the planned change in auditor. Required: 2.1. Explain, providing reasons, the issues which you as the new auditor should consider before your accept the appointment offered to you by Jake. (15) 2.2. Set out the procedures which you as the new auditor should follow to replace the existing auditor