You are a qualified accountant in practice, and you lead a team providing management consultancy services. In recent years your practice has undertaken several assignments on manufacturing efficiency improvements for a medium-sized, quoted group of companies. It operates through a number of divisions, but line responsibility appears complicated, and so significant control rests with four semi-autonomous regional directors. The authority of these directors is enhanced by their seats on the groups main board. You have cultivated a good working relationship with the regional director with whom you are in contact most frequently.

Three weeks ago that regional director asked you to investigate, as a matter of urgency, a particular project, Project A. He had been irritated to be told, informally, of the likely deferral of the agreed delivery date for the components on this sophisticated design-and-build contract. Project A comes within the regional directors responsibility primarily because of the location of the factory that makes the key components. Once on site, your team had discovered a range of difficulties with the project, starting with fundamental design faults and extending deep into the manufacturing processes. It is clear that various contracts will be breached, and litigation is likely to follow. Your team has produced a prioritized list of actions and begun working to establish a revised schedule to take the project to completion.

At a recent meeting, you gave the regional director and the factory manager your estimate that the delay to Project A will be a minimum of three months. You indicated that extra direct costs are likely to be K84 million to K120 million. This is before any potential claims for compensation. On the instructions of the regional director, your team has been working on a formal report specifying detailed recommendations. While still incomplete, the report appears certain to support your previous estimates. You are aware, from the financial press, that the group is rumored to have difficulties with its bankers. You assume that the situation with Project A is likely to be seriously detrimental to the groups financial position.

One week before the final version of the report is due, you receive a surprise telephone call from the groups finance director. He explains that he is about to enter a main board meeting, but needs to know a date for delivery of the report on Project A. Late the previous evening, the regional director had informed the finance director that your firm had been asked to provide the report. He says: I appreciate that you have only just started, so there are no reliable estimates yet. But the regional director mentioned that Project A could incur around K48 million to K60 million in extra costs, with income delayed by perhaps six to eight weeks. The regional director has sent his apologies to the board meeting, as he has to attend a family funeral. He adds: Hopefully, the regional director is being cautious, but if something does turn out to be as wrong with Project A as those numbers suggest, the extra costs and deferred income have serious implications for the groups cash flow. The full board will need to start planning 13 remedial action now. When will your report be ready?

Required:

1. Discuss any threats to compliance with the international code of ethics for Professional accountants facing you in this case study (10 marks)
2. Discuss your professional responsibility in respect of each of the threats and the safe guards against each (10 marks)
3. What would be your response to the question asked by the groups finance director as to when the report will be ready? (10 marks)