Alan acquired a small fledgling company, EVM Pte Ltd (EVM) with his two business partners, Ben and Carly on 1 June 20x8. EVM, under the previous owners, had been struggling and slashing its operational costs to stay afloat for the last two years. Alan and his partners were confident that they would be able to turn the company around in the next 12 months despite the challenging business climate ahead. Although EVM was exempted from audit under the Singapore Companies Act, the partners unanimously agreed to have the financial statements of the company audited on an annual basis with effect from its financial year ended 30 June 20x8. On 15 July 20x8, Alan approached your firm to explore the possibility of engaging your firm as its auditor. The financial year ended 30 June 20x8 shall be the company’s first audit. Based on the draft management accounts, profit before tax was $200,000 and total assets was $400,000. A part-time accounts clerk, an accountancy undergraduate, was hired on 1 July 20x8 to keep the books and prepare the monthly financial statements. The previous bookkeeper left the company on 6 June 20x8. The company recorded about $2,000 worth of inventory as at 30 June 20x8 and a physical stock-take was conducted on that day. When you inquired about his partners, Alan mentioned that Ben is EMV’s Chief Financial Officer, while Carly heads the business development and client acquisition functions. On a lighter note, Alan quipped that Ben and Carly are always the sensible ones, while he is ‘the strategic-idealistic-kind of guy’. “We complement each other and make a good team. Carly makes sure we do not overpromise and underdeliver to our clients. As for Ben, do you know that he donated half of his $1 million prize money in the Changi Millionaire Grand Draw to a charitable organization?” You recalled reading a similar article in yesterday’s newspaper, to which Alan proudly acknowledged “Yes, that’s our CFO!”

Question 1
Examine the case and illustrate the rationale behind the partners’ decision to invest in a statutory audit for EMV Pte Ltd even though was not mandatory.

Question 2
Based your discussion with Alan on 15 July 20x8, appraise six (6) considerations for client acceptance. Conclude whether your firm should accept the appointment.

Answer rating: 100% (QA)

Question 1 Rationale Behind Opting for a Statutory Audit The decision by Alan Ben and Carly to invest in a statutory audit for EVM Pte Ltd despite it not being mandatory under the Singapore Companies ... View the full answer