You are the audit manager in Rahman & Associates. You are reviewing two situations which have recently arisen with respect to potential and existing audit client of your firm. Polar Sdn Bhd's managing director, Jason Lee, has approached your firm to invite you to tender for its audit. Polar Sdn Bhd is a small, owner-managed company providing financial services such as arranging mortgage and advising on retirement plans. The company's previous auditors recently resigned. Jason states this was due to a disagreement on the accounting treatment of commission earned, and because the predecessor auditor thought that their controls were not very good. You are aware that Polar Sdn Bhd has been investigated by the tax authority for alleged non-compliance with its regulations. As well as performing the audit, Jason would like Rahman & Associates to give business development services. The audit of Citra Sdn Bhd's financial statements for the year ended 30 November 2020 will commence shortly. You are aware that the company is in financial difficulties. Citra Sdn Bhd's managing director, Ros has been requesting that the audit engagement partner accompanies her to a meeting with the bank, where a new loan will be discussed and the draft financial statements reviewed. Ros has hinted if the partner does not accompany her to the meeting, she will put the audit out of tender. In addition, an invoice relating to interim audit work performed in August 2020 has not been settled to the firm. Required: Discuss how should Rahman & Associates assess the situation (risk and threats) in a) Polar Sdn Bhd. b) Citra Sdn Bhd (12.5 marks) (12.5 marks) You are the audit manager in Rahman & Associates. You are reviewing two situations which have recently arisen with respect to potential and existing audit client of your firm. Polar Sdn Bhd's managing director, Jason Lee, has approached your firm to invite you to tender for its audit. Polar Sdn Bhd is a small, owner-managed company providing financial services such as arranging mortgage and advising on retirement plans. The company's previous auditors recently resigned. Jason states this was due to a disagreement on the accounting treatment of commission earned, and because the predecessor auditor thought that their controls were not very good. You are aware that Polar Sdn Bhd has been investigated by the tax authority for alleged non-compliance with its regulations. As well as performing the audit, Jason would like Rahman & Associates to give business development services. The audit of Citra Sdn Bhd's financial statements for the year ended 30 November 2020 will commence shortly. You are aware that the company is in financial difficulties. Citra Sdn Bhd's managing director, Ros has been requesting that the audit engagement partner accompanies her to a meeting with the bank, where a new loan will be discussed and the draft financial statements reviewed. Ros has hinted if the partner does not accompany her to the meeting, she will put the audit out of tender. In addition, an invoice relating to interim audit work performed in August 2020 has not been settled to the firm. Required: Discuss how should Rahman & Associates assess the situation (risk and threats) in a) Polar Sdn Bhd. b) Citra Sdn Bhd (12.5 marks) (12.5 marks)
