Farisha Berhad (Farisha) contracted MNO Associates as its external auditor in 2010. MNO provides both audit and taxation services to Farisha. During the five-year period from 2013 to2018, MNO’s audit fee tripled. The audit fee that Farisha paid was about twice as much as what its peers in their industry paid to their auditors. The tax consultation fee paid to MNO was also higher than the industry average. When someone whistle-blows the Chairman of the company on the accounting fraud that happened in the company, it was suspected that the external auditors allowed various accounting irregularities such as improper verification of cash and bank balances by accepting management’s explanation verbally.
Internal auditors were hired from MNO but the different departments, also failed to enquire from the management on the issue of the company took a debt of RM200 million in the latest financial year when the company has RM4.4 billion of cash lying unused in its accounts. Later, it was discovered that the cash amount was faked and could be easily discovered if the internal auditors have enquired further on the issue.

Using a case study technique, advise the Chairman of the company on the best course of action.

Answer rating: 100% (QA)

The best approach to such a situation would include looking at the auditors responsibilities and objectives when it comes to auditing The auditors objectives are to obtain reasonable assurance about w... View the full answer