Nana Adom Company Ltd, end its financial year on 31st December, which is traditionally a busy time

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Question:

Nana Adom Company Ltd, end its financial year on 31st December, which is traditionally a busy time for Samy antwi and Associates. Nana Adom Company Ltd., currently has an internal audit department of five employees but they have struggled to undertake the variety and extent of work required by the company, hence Nana Adom Company Ltd. is considering whether to recruit to expand the department or to outsource the internal audit department. If outsourced, Nana Adom Company Ltd. would require a team to undertake monthly visits to test controls at the various shops across the country, and to perform ad hoc operational reviews at shops and head office. Nana Adom Company Ltd is considering using Samyantwi and Associates to provide the internal audit services as well as remain as external auditors. Required: Discuss any SIX advantages and FOUR disadvantages to both Nana Adom Company Ltd. and Samyantwi and Associates for outsourcing the internal audit department functions. (5 marks) b) The audit engagement partner for ABC Company Ltd. has been in place for approximately six years and his son has just accepted a job offer from ABC Company Ltd. as a sales manager; this role would entitle him to shares in ABC Company Ltd. as part of his remuneration package. Ackah and Associates have been appointed as internal as well as external auditors. ABC Company Ltd. has suggested that the external audit fee should be renegotiated with at least 20% of the fee being based on the profit after tax of the company as they feel that this will align the interests of ABC Company Ltd and Ackah and Associates. DC: ACD01-F004

Required:

i. Explain any FIVE ethical threats which may affect the independence of Ackah and Associates in respect of the audit of ABC Company Ltd, and for each threat explain how it may be reduced.

ii. Explain any FIVE factors that should be considered by an external auditor before reliance can be placed on the work performed by a company’s internal audit department.