5.15 MEDIUM Quality Paper Ltd (QPL) operates a pulp and paper mill that makes high-grade paper,...

5.15 MEDIUM Quality Paper Ltd (QPL) operates a pulp and paper mill that makes high-grade paper, using wood from surrounding forests. Highly toxic chemicals are used to manufacture this paper and are discharged into the nearby river. QPL is currently the subject of an investigation by the Environmental Protection Agency (EPA) for a significant spill of toxic chemicals into the river. There have also been media reports that senior employees of QPL were allegedly responsible for this spill. In addition, the Green Earth Society is threatening to sue QPL for excess logging of oldgrowth forests in the vicinity of its mill. Despite reappointing its current auditors only two months ago for the audit of the current financial year ended 30 June 2018, QPL has now approached you to do the audit, claiming that the current auditor cannot provide the management advisory services that you can offer, and which are required for implementing a necessary major restructure of the company’s internal control system.

(a) Outline briefly what information you should obtain from the previous auditor.
(b) Before deciding whether to accept an engagement, what ethical matters regarding the prospective client and its management should you consider? LO 5.1

Homework Answers

Answer #1

The question itself shows how unethical the business is, removal of an auditor in this type of company would be definetly because of the right back of auditor with the Management about the unethical business practices.

I can imagine this if the previous auditor. The information to be obtained from previous auditor would be

  1. His evidence on the illegal business activities,
  2. Reasons for removal of auditor,
  3. Involvement of senior employees in the illegal business activities.

The better answer to accept the engagement or not is. Yes, we should accept it but the audit should be carried out along with the cooperation of EPA and the government. The auditor if he accepts the engagement, he should make sure himself that he can control this type of practice by the corporation.

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