You are a recently appointed audit partner in KAP Chandra,, Iman,, and Rekan,, a large local independent firm of accountants (tthe firm)).. You are delighted that you are now a partner and cannot wait to sign off your first set of accounts.. Your firm recently won an audit tender for a medium - sized family owned company,, PT Mega Persada (tthe client)),, owned by Chairul Tedja,, which is known as a success entrepreneur.. The firm s managing partner has a llocated the client to you..

The managing partner is reasonably close to the family which owns PT Mega Persada and you believe that this is at least part of the reason why PT Mega Persada decided to appoint your firm.. As is normal,, you go through all the f irm s new client procedures which include writing to the previous auditors and also obtaining sets of statutory accounts for the previous 3 years..

When you receive the written reply from the previous auditors,, you note that they have nothing to report ot her than any matters addressed in their audit report.. This seems strange,, so you quickly review the client s set of financial statements for the previous year and note that the client s audit report was qualified on the basis of non - compliance with an a ccounting standard.. The audit report highlights that the client owns a property and advises that the directors decided not to have a valuation of assets based on PSAK 16.. You wish that you had success to the working of papers of the predecessor auditors bu t the client seemed unhappy and refuse this request..

You are considering the impact of this issue when Rey Iman,, the Managing Partner,, comes into your office.. He provides you with an oral briefing on PT Mega Persada and then asks you whether you have any queries.. You inform Rey Iman what y ou have found.. Rey Iman replies : I don t see any problems,, if the client does not believe that it is worth paying for this information then who are we to tell them otherwise : it as a family business after all.. If w e have to,, we can adopt the same approach as the previous auditors and qualify the audit report on the same grounds..

That is when you inform him that you have doubts as to whether the audit qualification issued was appropriate in the circumstances . The previous auditors issued an except for disagreement with accounting treatment due to non - compliance with an accounting standard and you believe that a limitation of scope opinion may have been more appropriate.. You are not sure but yo u presume that this might be because of the requirement that if a cl ient places a limitation of sco pe on the work of the auditors which will require the auditor to issue a disclaimer of opinion,, in advance of the auditors accepting the appointmen t,, then unless the restriction is removed,, the auditor should not continue in office for that particular client..

Rey Iman replies that you should go ahead and reassess the position once the audit fieldwork has been completed by your team.. However,, he adds : Bear in mind that it has taken me a number of years to get Chairul Tedja to use our firm as auditors I do not want to do anything that would upset him unnecessarily and jeopardize our business relationship..

You are now reviewing the audit files of PT Mega Persada for the year in question.. The client has a revenue of around Rp20 billion and is showing a profit of Rp2 billion for the year after taking account of the proposed audit adjustments . However,, you notice that the directors have once again ref used to obtain a valuation based on PSAK 16 and therefore no gain or loss on revaluation is reflected in the accounts.. You realize that the lack of a PSAK 16 valuation will mean that you will have to qu alify your first audit opinion..

This is concerns you,, what really worries you is the type of qualification that will be required i..ee.. a limitation of scope.. If the extent of this limitation leads you to issue a disclaimer of opinion,, then your firm would not be able to act f or this client going forward unless the client changes its stance on obtaining PSAK 16 valuations.. The firm s managing director,, Rey Iman will be furious if you adopt this approach..

Instruction::

1.. What do you do now ? Critically discuss the case using the framework to resolve the ethical dilemmas !