Ethical threat created by long association with audit client

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Reference no: EM132169691

You are a manager in Nelson & Co., a firm of Chartered Certified Accountants, with three offices and 12 partners. About one third of the firm’s clients are audit clients, the remainder are clients for whom Nelson & Co. performs tax, accounting and business advisory services. The firm is considering how to generate more revenue, and you have been asked to evaluate two suggestions made by the firm’s business development manager.

An advertisement could be placed in national newspapers to attract new clients. The draft advertisement has been given to you for review:

Nelson & Co. is the largest and most professional accountancy and audit provider in the country. We offer a range of services in addition to audit, which are guaranteed to improve your business efficiency and save you tax.

If you are unhappy with your auditors, we can offer a second opinion on the report that has been given.

Introductory offer: for all new clients we offer a 25% discount when both audit and tax services are provided. Our rates are approved by ACCA.

A new partner with experience in the banking sector has joined Nelson & Co. It has been suggested that the partner could specialise in offering a corporate finance service to clients. In particular, the partner could advise clients on raising debt finance, and would negotiate with the client’s bank or other provider of finance on behalf of the client. The fee charged for this service would be contingent on the client obtaining the finance with a borrowing cost below market rate.

You are required to:

1. Evaluate each of the suggestions made above, commenting on the ethical and professional issues raised. Your response should be at minimum 200 words. You need to take into consideration ACCA’s Fundamental Principles and the threats to comply with them when completing your answer

2. You have set up an internal discussion board, on which current issues are debated by employees and partners of Nelson & Co. One posting to the board concerned the compulsory rotation of audit firms, whereby it has been suggested in the press that after a pre-determined period, an audit firm must resign from office, to be replaced by a new audit provider.

3. Based on the above you are required to:

(i) Explain the ethical threats created by a long association with an audit client.

(ii) Evaluate the advantages and disadvantages of compulsory audit firm rotation.

Note : This shold be a new post and not one already posted.

Reference no: EM132169691

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