You are a Manager in the audit firm called Ali & Son Associates and this is your first time you have worked on one of the firm’s established clients, Maharibiko Co. The main activity of Maharibiko Co. is providing investment advice to individuals regarding savings for retirement, purchase of shares and securities and investing in tax efficient savings schemes. Maharibiko is regulated by the relevant financial services authority.
You have been asked to start the audit planning for Maharibiko Co. by Mr. Salim, a partner in Ali & Son Associates: Mr. Salim has been the engagement partner for Maharibiko Co. for the previous nine years and therefore has excellent knowledge of the client. Mr. Salim has informed you that he would like his daughter Zaidu to be part of this year’s audit team. Zaidu is currently studying for her first sitting of the foundation papers for her CPA (T) qualification. Mr. Salim also informs you that Mr. Fahd, the audit senior, received investment advice from Maharibiko Co. during the year and intends to do the same next year.
In an initial meeting with the finance director of Maharibiko Co, you learned that this year, the audit team will not be entertained on Maharibiko Co’s yatch as used to be in previous years as this could appear to be an attempt to influence the opinion of the audit. Instead, he has arranged a balloon flight costing less than one-tenth of the expense of using the yatch and hopes this will be acceptable. The director also states that the fee for taxation services this year should base on a percentage of tax saved and trusts that your firm will accept a fixed fee for representing Maharibiko Co. in a dispute regarding the amount of sales tax payable to the taxation authorities.
(i) Explain the ethical threats which may affect the auditor of Maharibiko Co. and for each ethical threat, discuss how the effect of the threat can be mitigated.
(ii) Discuss the benefits that Maharibiko Co. will achieve by establishing an Internal Audit Department.
(b) Imani & Co. (Imani) are the auditors of Swala Oil and Gas Co. Ltd (Swala). Swala has approached the bank to extend their overdraft facility limit in order to finance a short term project they intend to undertake. The bank has required the cash flow projections to be provided by Swala and assurance over those projections be provided by Imani & Co.
Explain the type of assurance engagement that will be undertaken by Imani, the form of assurance that will be provided and why this type of assurance is appropriate for cash flow projections