MAA303 Audit and Assurance

Task:

Use professional and ethical judgement in applying relevant legal and professional pronouncements to all stages of a given assurance engagement

You have been newly appointed as the audit manager at Sharadha & Co. Chartered Accountants (Shar). Shar is a small accounting firm with audit clients consisting of small and medium scale businesses.

You found the following issues at Shar when examining your work allocation.

(a)Shar’s largest audit client is Marina Limited (Marina), a retail and wholesale business of hardware industry. Shar receives a significantly large audit fees from Marina. Further, Shar provides a range of services to Marina: financial reports audit; management consultancy and tax planning. 

Last year Marina introduced an online sales system with an intention to improve sales. Shar has provided consultancy service to Marina by introducing internal control system to online sales. Consultancy fee is not yet paid by Marina.

(b)Carter Ltd (Carter) has been Shar’s audit client for the last 17 years. Shar’s audit teams have consistently maintained excellent relationship with Carter’s accounting and other staff. The same audit team, except for the audit manager, has been allocated to Carter’s upcoming financial reports audit. 

Maria Kanan (Maria), a former audit manager of Shar, was the audit manager for Carter for last five years. This year Maria resigned from Shar and joined Carter as the Financial Controller. You are the audit manager for Carter’s audit from the current year and you are planning for Carter’s financial reports audit.

(c)ForbSoftware, a popular software supplier, is an audit client of Shar. ForbSoftware has paid marketing fees (in addition to audit fees) to Shar for several years and the current year’s marketing fee is recognised as an accrued expense in ForbSoftware’s draft financial statements. In your further investigation you found that the marketing expenses are related to ‘referral fees paid/payable to Shar for recommending ForbSoftware to Shar’s audit clients regarding supplying MYO500 and Q&B300 accounting software’. 

Required

1.Identify and discuss the ethical and other professional issues found in above three cases.

Recommend the actions that should be taken in relation to each of the issues identified in the above three cases.