ENEM is not a listed company. They operate a chain of 35 supermarkets. The management has established effective internal controls especially over cash receipts and payments to employees and suppliers.  The internal audit department of ENEM has been playing an important role in continuous evaluation and monitoring of these internal controls. 

However, the Head of internal auditor (HIA) has recently resigned along with his two assistants.

Your firm has been the auditor of Enem for many years.  The CEO of Enem has approached your firm for help in resolving the situation and has proposed the following alternatives:

(i) Internal audit department will be outsourced to your firm.

(ii) Your firm would recruit Head of Internal Control to fill the vacancy. Enem would pay a fee equivalent to 2 months In consideration of the gross salary of the Head of Internal Control

(iii) Enem would recruit the Head of Internal Control and your firm would provide audit staff on secondment for six months to assist him in understanding and accomplishing the tasks. The CEO has showed his inclination to hire Mr. Ali, the manager responsible for the audit of Enem.

 

Required

Comment on each of the above alternatives as follows:

(a) Discuss the threat involved and explain the safeguards, if any, available to the firm which may eliminate or reduce the threat to an acceptable level.

(b) In the light of the Code of Corporate Governance, explain whether you would have accepted the proposals, had EL been a listed company.