You are an audit manager in MCD & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits GF Co (GF), a food retailer, but GF’s main competitor, MK Co (MK), has approached the audit firm to act as auditors. Both GF and MK are listed companies. GF is concerned that if MCD & Co audits both companies then confidential information could pass across to MK.

The audit engagement partner for GF has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from GF as a warehouse manager. Emma’s employment contract states that if a bonus is to be paid it will be awarded as shares in GF rather than in cash. GF is offering MCD & Co a 5% bonus on top of the audit fee if this year’s audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director’s time as he is busy working on other projects.

The auditors have decided to go forth with the decision to accept the audit engagement of MK Co. The previous auditors of MK have resigned due to a conflict that arose in respect to accounting treatment of provisions recorded in the statement of financial position of MK.

Requirements:

Briefly discuss the threats to independence that exists for MCD in relation to the audit of GF Co and describe how the auditors can reduce the threats to independence.

Analyse the decision of acceptance of audit of MK Co in light with the procedures before the acceptance of an audit and also in lights of ISA 210.

Answer rating: 100% (QA)

Requirement 1 The auditor should obtain sufficient appropriate audit evidence regarding the appropri ... View the full answer