You are an audit supervisor of Samyantwi & Associate and you are planning the audit of Franko Company, a listed company, for the year ending 31st March 2017. The company manufactures computer components and forecast profit before tax is GHS33.6m and total assets are GHS79.3m.

Franko Company distributes its products through wholesalers as well as via its own website. The website was upgraded during the year at a cost of GHS1.1m. Additionally, the company entered into a transaction in February to purchase a new warehouse which will cost GHS3.2m. Franko Companys legal advisers are working to ensure that the legal process will be completed by the year end. The company issued GHS5m of irredeemable preference shares to finance the warehouse purchase.

The company has launched several new products this year and all but one of these new launches have been successful. Feedback on product Luge, launched four months ago, has been mixed, and the company has just received notice from one of their customers, Adanko Company, of intended legal action. They are alleging the product sold to them was faulty, resulting in a significant loss of information and an ongoing detrimental impact on profits. As a precaution, sales of the Luge product have been halted and a product recall has been initiated for any Luge products sold in the last four months.

The finance director is keen to announce the companys financial results to the stock market earlier than the previous year and in order to facilitate this, he has asked if the audit could be completed in a shorter timescale. In addition, the company intends to propose a final dividend once the financial statements are finalized.

Franko Companys finance director has informed the audit engagement partner that one of the companys non-executive directors (NEDs) has just resigned, and he has enquired if the partners at Samyantwi & Associates can help Franko Company in recruiting a new NED. Specifically he has requested the Engagement Quality Control Reviewer, who was until last year the Audit Engagement Partner of Franko Company, to assist the company in this recruitment. Samyantwi & Associates also provides taxation services for Franko Company in the form of tax return preparation along with some tax planning advice. The Finance Director has recommended to the audit committee of Franko Company that this years audit fee should be based on the companys profit before tax. At todays date, 20% of last years audit fee is still outstanding and was due to be paid three months ago.

Required:

i. ii.

Identify and explain TEN ethical threats which may affect the independence of Samyantwi & Associates audit of Franko Company; and (10 Marks)

For each threat, suggest a safeguard to reduce the risk to an acceptable level.

(10 Marks)

Page 2 of 5

Note:

Prepare your answer using two columns headed Ethical threat and possible safeguard respectively