Question

Liona is the managing partner of Ross and Associates, a small audit firm. Liona's role includes managing the business affairs of the firm, and she is very worried about the amount of fees outstanding from audit clients. Broomers Pty Ltd, one of the client of Ross and Associates, has not paid its audit fees for two years despite numerous discussions between Liona, their audit partner Ball, and the management of Broomers Pty Ltd. Broomers Pty Ltd's management has promised the fees would have been paid before the audit report for this year has been published, Liona rang Ball this morning to ensure that the audit report was not issued because Broomers Pty Ltd had paid only 10 per cent of the outstanding account. She discovers that Ball is about to sign the audit report. 4 Required: (a) Explain the ethical problem in this case. Why is it a problem? . (150 – 200 words) (b) What can be done about it? (50 – 100 words)

Answer 1

a) Ethical problem in this case is accommodating an audit for which audit fees has not paid for 2 years. The non-acceptance of fees will disturb the independence of auditor, one of the vital feature of an audit professional. It will lead to making detrimental opinion on the financial statements and may cause auditor to work under burden. In this case, auditor should not have acknowledged the audit of client for which audit fee has not been paid for two years. The taking of audit is against professional ethics.

b) Better choice is to keep the audit files with auditor so that auditor can implement lien on client's books until the audit fee is paid to him. Auditor should present next audit report only after full payment of fees has been received. This has to be deliberated with the client.