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Write answers to each of the five ( 5 ) situations described below addressing the required criteria ( i . e . 1 & 2
Write answers to each of the five situations described below addressing the required criteria
ie & in each independent case. You may use a tabulated format if helpful having
ThreatsSafeguards and Objective Assessment as column headings.
Walter White CPA has been appointed as a junior auditor of Giovanni & Creed Accounting
Solutions GCAS One of his first tasks is to review the firms audit clients to ensure that
independence requirements of APES Code of Ethics for Professional Accountants are
being met. His review has revealed the following:
a Awesome Holidays Limited AHL has been a major client of GCAS since the past four
years. AHL contributes around per cent of the audit fee revenue and per cent of
the nonaudit fee revenue of GCAS. AHL has not paid any of its fees for the past two
years, citing cash flow problems. The partners at GCAS are reluctant to put any pressure
on AHL for outstanding fees, as AHL is a highprofile client that they wish to retain.
b Marine Limited Marine is a large marine engineering business that repairs fishing
trawlers. GCAS is the auditor of Marine. GCASs IT consulting division has undertaken
several inventory management system implementation projects and is actively looking
for opportunities to perform more of this type of work. As a result, GCASs IT
consulting division is planning to submit a proposal to implement an inventory
management system at Marine.
c GCAS is considering taking on Megha Fashion Limited MFL as a new audit client.
MFL is a large manufacturer of womens clothing. Pheobe Stallone CPA, one of the
partners in GCAS, has a substantial investment in MFL Phoebe informed Walter that
prior to GCASs bidding on the engagement she will place her MFL shares in a blind
trust, where she would not know what action the trust will take regarding any shares or
other investments. Phoebe says if GCAS wins the engagement, then this action of hers
will allow GCAS to undertake the MFL audit without any independence issues.
d Bradley Cooper, an audit senior with GCAS is very excited to be a part of the audit
team of Big Metals Limited BML Bradley feels that he will be an asset to the audit
team, as his sister Sheryl Cooper is BMLs financial controller who is responsible for
the preparation of BMLs financial reports.
e GCAS is considering taking on Diamond Limited as new audit client. Robert Stanley
CPA, an audit partner at GCAS has informed Walter that his wife has a significant
investment in Diamond Limited. Robert says this should not be an issue as he will make
sure he is not involved in Diamond Limiteds audit. Craig Stanley CPA, another partner
at GCAS who works in the same office as Robert is being considered to lead the
Diamond Limited audit if GCAS issuccessful in obtaining Diamond Limited as its audit
client.
Required:
For each of the independent situations above, and using the conceptual framework in APES
Code of Ethics for Professional Accountants answer the following questions:
Identify potential threats to independence & recommend safeguards if any to
reduce the independence threats identified. marks
Provide an objective assessment of whether audit independence can be achieved.
marks
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