Case Scenario: Orion Auditors, a mid-sized audit firm, has been the external auditors for RenewGen Systems Ltd (RenewGen), a growing player in renewable energy technology, for the last six years. As the audit manager, you are preparing to plan the audit for the financial year ended 30 June 2024. RenewGen has announced its intent to host a high-profile industry event, celebrating its recent technological breakthroughs. Invitations have been extended to a select audience, including the engagement partner from Orion Auditors, who has been asked to deliver a short address as part of the proceedings. Over the years, the lead partner assigned to RenewGen’s audit has developed a strong professional rapport with members of RenewGen's executive team, including its financial controller. They frequently attend the same conferences and occasionally collaborate on initiatives within the renewable energy sector. A recent industry blog post noted their shared participation in a networking retreat held overseas, though the nature of their involvement remains unclear. In addition to audit services, Orion Auditors provides tax planning advice to RenewGen. Recently, the finance team at RenewGen sought Orion Auditors’ opinion on a complex tax restructuring plan that could have material implications for the company’s financial disclosures. The advisory work coincided with the commencement of audit planning, raising questions about the delineation of services. RenewGen has consistently been one of Orion Auditors' most significant clients, accounting for close to a quarter of the firm’s annual revenue. Discussions regarding this year’s audit fee are still ongoing, with some indications that additional consultancy fees could be requested during the audit process. Notably, a portion of last year’s audit fees remains unpaid, but the firm has expressed confidence that the balance will be cleared before year-end. Required: a) Identify and explain FIVE ethical threats which may affect the independence of Orion Auditors in their audit of RenewGen Systems Ltd.b) For each threat, suggest the relevant safeguards to reduce the risk to an acceptable level.Note: Prepare your answer using two columns headed “Ethical Threat” and “Relevant Safeguards” respectively.
Case Scenario:
Orion Auditors, a mid-sized audit firm, has been the external auditors for RenewGen
Systems Ltd (RenewGen), a growing player in renewable energy technology, for the last
six years. As the audit manager, you are preparing to plan the audit for the financial year
ended 30 June 2024.
RenewGen has announced its intent to host a high-profile industry event, celebrating its
recent technological breakthroughs. Invitations have been extended to a select audience,
including the engagement partner from Orion Auditors, who has been asked to deliver a
short address as part of the proceedings.
Over the years, the lead partner assigned to RenewGen’s audit has developed a strong
professional rapport with members of RenewGen's executive team, including its financial
controller. They frequently attend the same conferences and occasionally collaborate on
initiatives within the renewable energy sector. A recent industry blog post noted their
shared participation in a networking retreat held overseas, though the nature of their
involvement remains unclear.
In addition to audit services, Orion Auditors provides tax planning advice to RenewGen.
Recently, the finance team at RenewGen sought Orion Auditors’ opinion on a complex
tax restructuring plan that could have material implications for the company’s financial
disclosures. The advisory work coincided with the commencement of audit planning,
raising questions about the delineation of services.
RenewGen has consistently been one of Orion Auditors' most significant clients,
accounting for close to a quarter of the firm’s annual revenue. Discussions regarding this
year’s audit fee are still ongoing, with some indications that additional consultancy fees
could be requested during the audit process. Notably, a portion of last year’s audit fees
remains unpaid, but the firm has expressed confidence that the balance will be cleared
before year-end.
Required:
a) Identify and explain FIVE ethical threats which may affect the independence of Orion
Auditors in their audit of RenewGen Systems Ltd.
b) For each threat, suggest the relevant safeguards to reduce the risk to an acceptable
level.
Note: Prepare your answer using two columns headed “Ethical Threat” and
“Relevant Safeguards” respectively.
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