Reference no: EM132547541

Question - ABC Company Limited declares dividends based on its profit. A newspaper ranked the company as number one in the country for its best performance and goodwill in the market in the last three years. In the fourth year (2010), company's profit dramatically declined, its cash flows from the operations resulted in a negative figure and a negligible amount of dividend was declared from the reserve. These concerns drew attention of the securities regulators and other oversight bodies. The media immediately took these issues and published special comments on the internal governance and auditor's independence problems.

The audit committee of the company looked influential in the corporate governance process. It had two members including the chairman of the board as the chairman of this committee. The CEO was the second member of this committee. Both of them were graduates (MBAs) from marketing discipline of Harvard University.

The external auditor was a Big 4 audit firm that continuously acted as the auditor of ABC Company Limited for the last six years. At the request of the CEO, the auditor provided consultancy services for 11 hours in 2010 and 10 hours in 2009. Given the financial condition of the company in the fourth year and friendly relationships with the auditor, the CEO asked the external auditor to change the audit practice for 2010. When the ABC Company's annual report for 2010 was published in 2011, there was no auditor's independence declaration in the company's annual report.

Required - Read the above case carefully referring to the Corporations Act 2001, APES 110 Code of Ethics for Professional Accountants and other related regulations, and then answer the following questions.

(a) Discuss in your group the issues relating to independence and expertise of the audit committee. Confirm corporate audit requirements and procedures using questioning and active listening.