Reference no: EM132003495

Topic - Auditing

Question 1 - You are a partner in Messrs Rolando & Co, Certified Accountants. You are approached by Mr. Ismail, the managing director of Al Sharqiya Enterprises Ltd, who asks your firm to become the auditors of his company. In return for giving you this appointment Mr Ismail says that he will expect your firm to waive fifty percent of your normal fee for the first year's audit. The existing auditors, Messrs Hannood & Co. have not resigned but Mr. Ismail informs you that they will not be re-appointed in the future.

Required:

i. Critically evaluate the legal and ethical considerations for Al Sharqiya Enterprises Ltd. to remove its auditors Messers Hannood & Co. and appoint Messers Rolando & Co. in their place.

ii. Evaluate the legal options the two auditing firms can use to their benefit.

Please follow such as this example for question 1 (1000 words). And apply Omani law and regulations IFRS.

1) Introduction auditing and importance of external auditors to be independent

2) Analysis of the case by using step by using the example below (step by step from appointing external auditors to procedure to removal exciting one. And answering the questions from legal and ethical way.

3) Conclusion

Example to follow and you should write more with more details:

An auditor is an independent professional person who is qualified to audit a company's financial statements.

The following is a brief note on the statutory requirements on the appointment, resignation or removal of an auditor.

Appointment

The first auditor of a company would usually be appointed by the directors, or alternatively the shareholders may appoint the auditor at the first Annual General Meeting ("AGM").

Auditors are appointed at the AGM and hold office from the conclusion of the AGM to the conclusion of the next AGM. A retiring auditor shall be re-appointed without any resolution being passed unless:

He is not qualified for re-appointment;

A resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be re-appointed; or

He has given the company notice in writing of his unwillingness to be re-appointed.

Resignation & Removal

Where an auditor ceases to hold office either by resignation or removal, the auditor and the company is obliged under Regulation 62of SI No. 220 of 2010 (European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010 to notify the Irish Auditing and Accounting Supervisory Authority ("IAASA") within one month of the date of cessation.

When an auditor resigns before the end of their term or state that they do not wish to be reappointed, they must explain this in a notice to the Companies Registration Office ("CRO") within 14 days. Under Section 185 (1) of the Companies Act 1990, the notice should state whether there are any circumstances connected with their resignation which should be brought to the attention of the company's members or creditors. This notice is made public.

If there are circumstances which the auditor considers should be brought to the attention of the company's members or creditors of the company, the company must, within 14 days either send a copy of the notice to all those who are entitled to receive copies of the statutory accounts, or apply to the court for relief from such requirement.

Where the auditors' notification specifies that there are no such circumstances, it must be accompanied by a statement of the reasons for the auditors' resignation.

When an auditor is being removed from office, they have the right to require the directors of a company to convene an Extraordinary General Meeting ("EGM") of the company to consider the circumstances of removal. The auditor also has the right to make written representations to the company and require their circulation to the members and others who have a right to receive notice of the EGM.

The IAASA must be provided with a copy of the resolution removing the auditor and a copy of any representations made to the company which were provided to the company members. Notice of removal of an auditor must also be notified to the CRO on a Statutory Form H3within 14 days of the resolution being passed.

There are exceptions to the requirement to notify IAASA on cessation of office by an auditorwhere the cessation of office by an auditor is due to a company:

Becoming audit exempt;

Being liquidated; or

Being struck off the Companies' Register.

Grounds For Auditor Removal

There must be substantial grounds for removing an auditor and the removal has to be in the best interests of the company which does not include any illegal or improper motive with regard to avoiding disclosures or detection of any failure to comply with the Companies Acts.

Question 2 - The examination of evidence is fundamental to the audit process. SAS 400 Audit evidence states that: "the auditors should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusion on which to base the audit opinion". Evidence is available to the auditors from sources under their own control, from the management of the company and from third parties. Each of these sources presents the auditors with differing considerations as to the quality of the evidence to produce.

Required: With the help of examples critically evaluate the quality of the audit evidence coming from different sources. Also justify the general considerations which the auditors must bear in mind when evaluating audit evidence.

Question 2: 900 words

Introduction the importance of audit evidence and their quality

Evidence categories sources:

1- Under their control + at least 3 examples (paragraph)

2- From the management of the company + at least 3 examples (paragraph)

3- Third party + at least 3 examples (paragraph)

Conclusion (paragraph)

Question 3 - Ms. Juliet Roy is always very busy. She is the owner of a very successful fashion design business. One of their regular suppliers is Lamis Richards. Abeer is a trusted accountant of Ms. Juliet. It is Abeer's job to list the purchase invoices which need paying and to prepare the cheques for Ms Juliet's signature, which she does on a weekly basis. Juliet always makes sure that there is an invoice correctly listed for every cheque signed. However it is sometimes important for Abeer to pay an invoice quickly in order to receive exclusive materials which are often used for designing. For this reason Juliet always leaves a few signed blank cheques with Abeer.

Required: Put yourself in the role of internal audior of Ms. Juliet's firm and point out the possible consequences associated with the current system. Also suggest corrective measures.

Question 3: 600 words

Introduction: Definition and importance of audit internal control

8 types of internal control: the below are the types (paragraph)

Only write the types with only one sentence for each types without explanation in details.

1- Organization control ( lines of authority) authority from top to bottom : board of directors to employees

2- Segregation of duties

3- Physical control (petty cash)

4- Authorization and Approval: such as general manager can give final approved.

5- Arithmetical and accounting: bank reconciliation statement.

6- Personnel (number of people needs to the work)

7- Supervision (should be continuously in daily basis)

8- Management (should be implemented in each level not only top level . And it is a backbone of the organisation.

Analysis the case (paragraph) by analysing which type of internal control types has broken.

Such as issues blank cheque, full authority to the accountant, not checking the inventory and the supplier only she check the invoice , bank reconciliation, etc.

Suggestion corrective measures (paragraph)

Conclusion (paragraph)

15 proper Harvard references (only Harvard referencing).