You are an audit senior working for Lawrence LLP (Lawrence). Your firm has recently been appointed as
Question:
You are an audit senior working for Lawrence LLP (“Lawrence”). Your firm has recently been appointed as the external auditor for Fitness World Ltd (“FW”) which operates fitness clubs across the UK. The outgoing auditors did not seek reappointment following the conclusion of the previous year’s audit. You recently met with FW Finance Director, Gemma Jones. During the meeting, Gemma said the following.
Requested that the engagement partner is appointed as non-executive director and attends the audit committee’s quarterly meetings so that your audit firm can be made aware of any issues quickly;
Requested that your firm calculates the amounts to be included in respect of taxation in the financial statements;
Offered members of the audit team a free one-year package to a fitness club of their choice. The proposed fees for audit and non-audit services amount to 1% of the firm’s annual fee income.
a) Explain the threats to objectivity of Lawrence arising from the matters listed above and describe the safeguards, if any, that should be put in place to mitigate those threats.
b) Your firm has been the external auditor of Time Ltd (Time) for many years. You have performed preliminary analytical procedures whilst planning the audit for the year ended 31 Jan 2019. Trade receivable days have increased to 39 days compared with 32 days at 31 Jan 2018. Road’s credit terms are 30 days. List the audit procedures you would include in the audit plan for the year ended 31 Jan 2019 given the change since the prior years.
Auditing Cases An Interactive Learning Approach
ISBN: 978-0133852103
6th edition
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt