Reference no: EM132955960

Question - Recently Happiness Crawford and David Ndebele formed a company, Crawford and Ndebele Inc., to offer auditing and accounting services to the public. Both are registered with PAAB and with ICAZ as chartered accountants in public practice. One of the first things that they did was to appoint Willie Dube as a director of the company to look after tax matters. Although Dube had never worked in the accounting profession before, he had spent four years with the Zimbabwe Revenue Authority (ZIMRA) and had built up a good reputation. To get the company off the ground, Crawford and Ndebele placed a series of advertisements in a selection of trade journals and Willie Dube wrote to all of the companies and individuals that he had dealt with whilst working for ZIMRA informing them of his appointment and detailing the audit, accounting and taxation services which Crawford and Ndebele offered.

Shortly after setting up the practice, Crawford and Ndebele Inc accepted an engagement to perform a valuation of Springford Pvt Ltd to be used in negotiations for the sale of Springford Pvt Ltd. As part of the engagement, Crawford and Ndebele would also sit in on the negotiations in an advisory capacity. As Springford's usual auditors, Samuel and Ndiweni were also auditors the auditors of Autoworld Ltd, a company interested in purchasing Springford Pvt Ltd, they had declined the engagement. Happiness Crawford performed a comprehensive valuation and in so doing realized that Springford Pvt Ltd would be a very suitable company for a friend of his Trymore Moyo to purchase. On Completion of the engagement, Crawford, without informing Springford Pvt Ltd, contacted Trymore, gave him some important details of the company, an estimate of what Autoworld was likely to offer and helped him work out an attractive offer. In response to this information, Trymore contacted Springford Pvt Ltd (without disclosing his connection to Happiness Crawford), entered negotiations with them at which Happiness Crawford was present and purchased all shares at an amount greater than than what Springford Pvt Ltd shareholders had anticipated. Happiness Crawford turned down the fee which Trymore offered him for his services but suggested to him that he request the company's existing auditors to resign immediately and that he appoint Crawford and Ndebele Inc as auditors of and tax advisors to the Springford Pvt Ltd. Springford is required to be externally audited by virtue of its public interest score. He also asked Trymore Moyo if he would make a long term loan of US$500 000 (at market related interest) to Crawford and Ndebele Inc to assist the new practice in setting up its offices. As they were close friends Trymore agreed to this suggestion and request and the necessary formalities were completed.

REQUIRED -

a) Comment on, in terms of the Code of Professional Conduct, the decision of Samuel and Ndiweni to decline the audit engagement relating to the sale of Sprinford Pvt Ltd.

b) Evaluate the conduct of Crawford and Ndebele Inc in terms of the Code of Professional Conduct, based on the information given above (Regard the actions of Happiness as being the actions of Crawford and Ndebele Inc).

c) Expound on the importance of the term independence in relation to the audit profession.