Sunny Days is a start-up company in the renewable energy sector. The founder of Sunny Days, Fritz Herzberg, has developed cutting-edge technology to convert the energy in the sun’s rays to electricity via a novel system of mirrors designed to focus the sun’s rays onto tubes containing a patented type of gas, which then heats and expands to drive turbines. KKK Partners has won the contract for the first statutory audit of Sunny Days on the basis of its expertise in the energy sector. However, the lead partner, Ken Kennedy, recognises that the success of the audit is dependent on the correct assessment of the technology being used at Sunny Days. Ken specified in the successful tender documents that the audit will use an external expert to help with valuation of the company’s assets.

Fritz Herzberg is very protective of his company’s intellectual property and is resistant to Ken’s first suggested expert, Manfred Hamburg. Fritz believes that Manfred Hamburg is hostile towards him because they clashed when they both worked for a German company making photovoltaic cells in the 1990s. Fritz has suggested another expert, Lily Beilherz, with whom he has had good working relations over the last 20 years.

Required

(a) Advise Ken Kennedy about the choice of an expert for the audit of Sunny Days. What must he consider when making his choice?

(b) Sunny Days takes over another renewable energy company during the second year of the audit. The new subsidiary is based in another state and has previously been audited by a local audit firm. How should Ken handle the new audit responsibilities brought about by the client’s expansion? Explain.