Sangwani International, a listed company, manufactures and wholesales a wide variety of products including fashion clothes and audio-video equipment. The company is audited by Salome, a firm of Chartered Certified Accountants, and the audit manager is Charles. The following matters have arisen during the audit of the group’s financial statements for the year to 31 March 20X4 which is nearing completion: During the annual physical count of fashion clothes at the company’s principal warehouse, the audit staff attending the count were invited to purchase any items of clothing or equipment at 30% of their recommended retail prices. The chief executive of Sangwani International, Armando Thyolo, owns a private jet. Armando invoices the company, on a monthly basis, for that proportion of the operating costs which reflects business use. One of these invoices shows that Darius Harken was flown to Florida in September 20X3 and flown back two weeks later. Neither Sangwani nor Salome have any offices or associates in Florida. Last week Armando announced his engagement to be married to his personal assistant, Kirsten Fennimore. Before joining Sangwani in January 20X4, Kirsten had been Salome’s accountant in charge of the audit of Sangwani.
Required: Identify and discuss the ethical issues raised in each of the scenarios and the responses required by the auditor in relation to these matters. ( 30 Marks)
From the information provided above, I know to know that
1. Sangwani is a International Listed Company.
2. It Manufactures & Sale the Fashion Clothes & Audio Video Equipment.
3. Salome, a firm of chartered accountant is the auditor of Sangwani & Charles is the audit Manager.
4. Armande Thyolo is the Chief Executive of Sangwani & he owns a private jet which was sometimes used for the business purposes.
5. Armande Thyolo raise an invoice monthly based on the usage.
6. Kirsten Fennimore, personal assisstant of Thyolo is going to marry ArmandeThyolo.
7. Kirsten is incharge of audit of Sangwani before joining the Sangwani.
Issues Identifies was as follows:
1. Usage of Thyolo's Private Jet by Darius Harken to Florida for his personal purpose. I can confirm it was a personal purpose, as there is no office or associates in Florida.
2. Physical Audit of Inventory by the audit team of Salome.
3. Marriage of Armande Thyolo & Kirsten Fennimore.
Responsiblity of the Auditor:
1. Salome, Audit firm should inform Sangwani about the invoice raised by Armande Thyolo for the usage of his Private jet by Darius Harken for his personal visit. That Invoice should not be recorded as expenses in the books of the Sangwani International listed Company. It is to be recorded by the Darius Harken in his books of accounts as his expenses. It should not be a business expense.
2. Physical audit of the Inventory was done by the Audit team of Salome. The report of that audit should be submitted to the Sangwani & recommend them some guidance regarding the maintenance of the stock & also regarding the price at which the inventory was sold to the customers. It was observed that the company has to raise the retail price by 30% to maintain their profit.
3. Marriage of kirsten Fennimore with Armande Thyolo. Generally the audit firm will be disqualified as the auditor of the company if the employee of firm is appointed as an employee in the company. From the information provided, we came to know that Kirsten Fennimore is the employee in the salome audit firm before joining as a personal assisstant to Armande Thyolo, Cheif Executive. As Kirsten Fennimore is resigned in the audit & appointed in the Sangwani. Salome, audit firm was not disqualified as the auditor for the Sangwani International Listed Company.
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