Question

You are an audit manager of David and Goliath Accounting Firm (DG) and obtained the Client Evaluation (Client Acceptance and Continuance) documentation of Food Plus Pty Ltd (FPPL), a large private proprietary company that operates a small chain of convenience stores. You are currently reviewing the 2018 audit working papers and note that the assurance services senior has documented a situation that may lead to a breach of audit independence for your audit firm.

The audit team has noted that DG has put forward a proposal to FPPL to provide consulting services. The CFO of FPPL has told the audit team that if they do not remove comments in the audit summary review memorandum to be provided to the audit committee about a weakness in the revenue and receivables process, he will not award DG the consulting work. The audit manager has concluded that the key threat to independence in situation is ‘advocacy’.

REQUIRED:
Explain whether the audit manager has correctly identified the key potential threat to independence the situation above. Your answer should clearly identify what you believe is the key threat to independence. Justify your answer.

Answer 1

Yes, the Audit manager has correctly identified the key potential threat to independence for the above situation of FPPL and the key threat to independence was the theart to advocacy which means that the auditor of DG is involved in promoting the client position or opnion, to the point where the auditor his objectivity is potentially compromised. The ket threat of indepence is advocacy where in the auditor of DG will have compromise his objectivity and remove the comments in the audit summary review memorandum to be provided to the audit committee about a weakness in the revenue and receivable process of the FPPL for not doing so the DG will not be awarded the consulting in this situation the safeguards are declined which means its not allowed and its politely decline.