Question
You are a partner in a three-partner firm of accountants. The firm generates fees of approximately 1.4 million per annum. Within your portfolio of clients
You are a partner in a three-partner firm of accountants. The firm generates fees of approximately 1.4 million per annum. Within your portfolio of clients is Company A, which has been very successful since it first came to your firm five years ago.
Company A generates annually recurring fees for the practice of approximately 50,000, of which approximately 35,000 is in respect of audit work and 15,000 relates to routine tax calculations and preparation of the corporation tax return. Your firm has a separate tax department, which performs the tax compliance work in respect of Company A.
In September a significant customer of Company A went into receivership (a receivership is a court-appointed tool that can assist creditors to recover funds in default and can help troubled companies to avoid bankruptcy), and Company A suffered a large bad debt. The directors approached you immediately, and were very open about the company's short-term cash flow problem. It is now early March, and the bank has requested audited financial statements by the end of the month. The audit is well underway, and you have promised the directors of Company A that the bank will have the audited accounts on time.
The planning of the audit was performed by the audit senior and reviewed by the audit manager for the assignment (in whom you have a great deal of confidence). Due to pressure of work, you did not review the audit plan in detail before the audit team commenced the year end audit work, and so you decide to review and sign off that section of the audit file now.
You note that the audit manager has correctly identified going concern as the area of the audit attracting greatest risk. However, at the time of planning the audit, the manager was unaware of the credit agreement reached with regard to the payment of last year's fees. You check your firm's records, and determine that Company A still owes the firm 25,000.
Identify key fundamental principles affected and what is your possible course of action?
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