You are a junior manager at Smit & Ng, a firm of Chartered Accountants. You are responsible for reviewing ethical matters which arise with the firm's portfolio of clients. During recent investigations you identified the following matters:

(a) Medina Co

Until recently, your firm has provided a range of non-audit services to Medina Co including bookkeeping, payroll and tax computation and advice. Medina Co recently obtained an offer for a significant amount of finance to help the company grow. The management of Medina Co has ambitious plans for growth which they believe will result in revenue doubling within one year and then continuing to grow at a similar rate for at least the next five years. In order to secure the funding, the directors decided to have the financial statements audited and requested three audit firms (including Smit & Ng) to tender for the audit engagement.

After a rigorous tender process, it was announced at the beginning of March by Medina Co that Smit & Ng was successful in securing the audit engagement and will audit the financial statements of Medina Co for the year ending 30 June 2020, as well as continuing to provide the existing services.

At a social gathering last week, the audit partner, Steve Warner, confided to you that he "lowballed" on their tender for the audit so that the firm could continue providing other lucrative services to Medina Co.

(c) Heggen Co

The planning for the audit of Heggen Co's financial statements for the year ending 31 March 2020 will commence shortly. In preparation the audit partner, Max Warren, telephoned Heggen Co's finance director, Jim Carrey, to set up a planning meeting and to remind him that fees relating to the audit engagement from the previous year were still outstanding. Mr Carrey raised concerns about the conduct of the previous audit, stating numerous examples of when he and his staff had

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been interrupted when they were busy. He stated that he wanted guarantees that this year's audit will be more efficient, less intrusive and cheaper, otherwise he will seek an alternative auditor.

Required

1. Identify and discuss the ethical and other professional issues found in the above three cases.

2. Discuss the advantages and disadvantages from a client's perspective of engaging its auditor to perform non-audit services in addition to the audit. (NB. Do not discuss this from the auditor's perspective, discuss this from the client's perspective)