MAA303 Audit And Assurance - Chapter 2: Ethics, Legal Liability And Client Acceptance

Case Information

James Chen is a young accountant with audit experience in one of the Big 4 and mid-tier accounting firms. James has just started his new role as an audit senior in B&D Associates (Chartered Accountants) (B&D). B&D is a small accounting firm with wide range of clients in small and medium scale businesses. James found the following issues while examining the audit work that has been allocated for him to review.  

1. Mulgrave Electrical Appliances (MEA) MEA is a small company. The last year audit of MEA has been carried out by Sam Kerr, an audit senior at B&D by himself (not by an audit team). Sam Kerr left the office soon after handing over the audit file to the manager to accept his new job at Jacob International as the CFO.When reviewing the audit file of MEA, James has a doubt whether or not the recorded audit work was really carried out. Examples: some of the audit procedures refer to documents that MEA does not maintain; and some of the explanations do not match with the information obtained about MEA. However, the audit working paper file appears to be plausible and complete. James decided to discuss this matter with the audit manager.
2. Myar and DyZons are audit clients of B&D. Myar is planning to tender a sizable contract to supply materials to DyZons. Myar management has requested an advice from B&D in preparing the tender. Myar’s request email has been opened by James because both audits are undertaken by James and his team.
3. Elite Organizers (EO), an audit client of B&D, is an event organizing company. The CEO of EO is in the middle of a discussion with your engagement partner, Michael Young, about a statewide program for accountants and auditors. This program is designed to provide technical updates of new accounting standards; changes to company tax laws and new audit regulations. Michael is of the view that B&D can invest in this business opportunity, provide resource persons and share profits with EO. 

REQUIRED

2.15 Explain the difference between the self-interest, self-review and familiarity threats. How do they pose a problem for the value of the audit?