Question

Slotty Ltd is a manufacturer of gaming machines in Fiji. In a recent investigation by the Fiji Independent Commission Against Corruption (FICAC) they have been alleged to offer incentives to the members of the parliament to support a proposed bill which would allow increased number of gaming machines in licensed premises. However, there are still no charges to the company. The auditors of Slotty Ltd were changed during the current year. The executive director of Slotty Ltd was not happy with the change as the previous auditors had been auditing the company for the past 15 years. The director believes that a lot of time would be wasted in getting the new auditors to understand the systems and processes of the company.

Required: Your audit partner has been just approached to accept the audit engagement of Slotty Ltd. Outline the ethical, legal and other factors to be considered in the decision to accept the audit engagement for the current year and also outline possible steps which are necessary prior to the appointment.

Answer 1

Ethical Factors:

• Is there any self interest threat? Ex. giving on rent a premise of audit partner for game zone.
• Is there any self review threat? Ex. review of any professional advice given in the earlier year when we were not auditors of the company, like on matter of establishing more gaming zones
• Familirarty issue with any of the key members of the management

Legal Factors:

• Consider whether management is not engaged in illegal or unethical acts.
• Consider whether the appointment is legally valid in accordance with governing acts of your counrt

Other Factors

The auditor must obtain the agreement of management that it acknowledges and understands its responsibility:

• For the preparation of the financial statements in accordance with the applicable financial reporting framework.
• For internal controls to enable the preparation of financial statements which are free from material misstatement, whether due to fraud or error.
• To provide the auditor with access to all information necessary for the purpose of the audit.

Procedures:

a) Consider whether the acceptance will create any threats to ethical requirements
(b) Evaluate Integrity of management, for example, client’s involvement in illegal activities, such as money laundering
(c) Make sure we ability to serve the client, that is, only those clients should he accepted where the chartered accountant in practice is competcn: to perform services.

(d) The auditor who, is asked to replace another auditor should consider whether there are any reasons why the audit should not be accepted. This requires direct communication with the existing auditor. It is possible that the auditor is replaced due to disagreement with the client on professional matters. .

If all goes well, than proposal can be accpeted