QUESTION ONE $[24]$ You are a member of the Quality control Committee of a large audit firm, XYZ & Co$.$ Part of the committee$$s responsibility is to determine whether prospective clients are acceptable and whether existing clients should be retained. Being a large practice, numerous potential clients are brought to the committee for consideration and the following list includes a number of recent cases where the audit appointment is available:

$1.$ Bob Ltd$,$ a company which hires out mercenaries to foreign governments involved in conflict and anyone else who is interested. The company is not listed on any stock exchange.

$2.$ Joe Ltd$,$ a listed company $($with a substantial audit fee$),$ whose chairman is an outspoken critic of the King $3$ Report on Corporate Governance. His stance is that business is tough and that all the transparency, disclosure and fairness simply weakens the company as it gives competitors insights they shouldn$$t have and that business is not supposed to be fair!

$3.$ Smokeit $($Pty$)$ Ltd$,$ a company which manufactures cigarettes.

$4.$ Downs Ltd$,$ a public company which owes its current auditors R$800000$ in audit fees. The company$$s audit committee claims that the current auditors have overcharged.

$5.$ Cheeky Ltd$,$ a company which has on two previous occasions sued its auditors and on both occasions the auditors $($different firms$)$ have admitted negligence and settled out of court.

$6.$ D$$cor $($Pty$)$ Ltd$,$ an interior decorating business which is owned by the wife of XYZ$$s partner in charge of the Taxation department. The company$$s public interest score requires that the company be externally audited.

$7.$ Worldwide Ltd$,$ a well$-$known international corporation with operations world wide and its head office in Johannesburg.

Required:

$1\mathrm{.}1.$ Discuss what an auditing firm sets out to achieve by implementing policies and procedures relating to the acceptance of new clients as required by ISQC $1.(5)$

$1\mathrm{.}2.$ Outline how information about a prospective client can be obtained. $(5)$

$1\mathrm{.}3.$ Comment on matters to which your committee should give consideration in deciding on whether to accept the above audit appointments.