Bon Appetite Limited (“BA”) is a well-known food and beverage company listed in Hong Kong. It runs over 150 Chinese, Asian and Western restaurants and bakery shops in Hong Kong.

Wong, Chen & Co has been the auditor of BA for the past 15 years. From a better corporate governance perspective, the Audit Committee of BA has decided to rotate audit firm in coming year. Thomas Leung, the Chief Financial Officer of BA, has therefore approached Mavis Mok, the audit partner of Tang & Mok CPAs & Co, for an audit service proposal and would like to nominate Tang & Mok CPAs & Co as BA’s new auditor.

Thomas and Mavis were classmates in University and are good friends since then. Thomas frequently seeks Mavis’s advice on various matters including some accounting treatments and tax computation.

Required:

(a) Assuming Wong, Chen & Co continues to be the auditor of BA, discuss any professional and ethical issues arising from the relationship between BA and Wong, Chen & Co. Recommend any possible safeguards to solve the ethical problems.

(b) Assuming Tang & Mok CPAs & Co is appointed to be the new auditor of BA, discuss any professional and ethical issues arising from the relationship between BA and Tang & Mok CPAs & Co. Recommend any possible safeguards to solve the ethical problems.

(c) Explain the procedures that Tang & Mok CPAs & Co should carry out before accepting the auditor appointment from BA.

(d) In the proposed change of auditor appointment, Tang & Mok CPAs & Co should communicate with Wong, Chen & Co to request for “professional clearance”. No reply has been received so far. Suggest follow up actions that should be carried out by Tang & Mok CPAs & Co on this matter.

Answer rating: 100% (QA)

a As per the Companies Act 2013 a tenure of an External Auditor is to be 5 Years for an individual Auditor and 10 Year for a auditor Firm As the audit ... View the full answer