. The audit partner has just advised you that he has been approached to accept t
ID: 2470062 • Letter: #
Question
. The audit partner has just advised you that he has been approached to accept the appointment of auditor to Games Limited. Games Limited is a manufacturer of gaming machines and has been named in a recent anti-corruption enquiry as having offered incentives to state government members to support a proposed bill which would allow an increased number of gaming machines in licensed premises. No charges have yet been laid against Gaming Limited's or any of its employees. The audit partner explains to you that Games Limited's auditors were re-appointed for the current financial year at the Annual General Meeting held two months ago. However, Games Limited managing director is unhappy with the existing auditing firm as the audit partner assigned to Games Limited has been changed.
Required: The audit partner is unsure whether he should accept the appointment and has asked you to outline any ethical, legal and other factors to be considered in his decision about whether to accept the appointment for the current year, and to indicate the steps that need to be taken prior to the appointment.
Explanation / Answer
Appointment of auditors requires approval of the share holders. Board of directors would first select the auditor and propose to the shareholders in the Annual General Body meeting. Once appointed, only shareholders can approve the change of auditors later. Hence, managing director's (MD)wish to change the auditor would not have any weightage in this process unless he gets Board's and Shareholders' consent. Also, the reason putforth by MD for this change doesnt have an acceptable rationale because change of audit partner is not an offense from the audit firm. In fact frequent change in audit partners by the firm would unearth the issues which were left unresolved or which were ignored knowingly or unknowingly. This is a healthy practice and being implemented in all the audit firms across the globe as a best practice. Also, if the auditor has to accept this appointment , he has to first send a letter to the existing audit firm expressing his interest and seek their consent. This is the part of code of ethical conduct of all Certified Accountants/ Auditors. Even if the auditors gave their consent due to ongoing allegation on hte company, he should ensure that adequate disclosures were made to concerned regulatory authooriites in such a way that he is not responsible for the audited financials for the period prior to his appointment.
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