Greg Co grows crops on a large farm according to strict organic principles that prohibits the use of artificial pesticides and fertilizers. The farm has an organic certification, which guarantees its products are organic. The certification has increased its sales of flour, potatoes and other products, as customers seek to eat more healthily. Greg Co is run by two managers who are the only shareholders. Annual revenue is £50 million with a profit before tax of 5%. Both managers have run other businesses in the last 10 years. One business was closed due to a suspected tax fraud although no case was ever brought to court. Greg Co’s current auditors provide audit services. Additional assurance on business controls and the preparation of financial statements are provided by a different accountancy firm. Last year, a neighbouring farm, Blake Co started growing genetically modified (GM) crops, the pollen from which blows over Greg Co’s fields on a regular basis. This is a threat to Greg Co’s organic status because organic crops must not be contaminated with GM material. Greg Co is considering court action against Blake Co for loss of income and to stop Blake Co growing GM crops. You are an audit partner in Lion & Co, a 15 partner firm of auditors and business advisors. You have been friends with the managers of Greg Co for the last 15 years, advising them on an informal basis. The managers of Greg Co have indicated that the audit will be put out to tender next month and have asked your audit firm to tender for the audit and the provision of other professional services. Required: Using the information provided, identify and explain the ethical threats that could affect Lion & Co and their safeguards.
Greg Co grows crops on a large farm according to strict organic principles that
prohibits the use of artificial pesticides and fertilizers. The farm has an organic
certification, which guarantees its products are organic. The certification has
increased its sales of flour, potatoes and other products, as customers seek to
eat more healthily.
Greg Co is run by two managers who are the only shareholders. Annual revenue
is £50 million with a profit before tax of 5%. Both managers have run other
businesses in the last 10 years. One business was closed due to a suspected
tax fraud although no case was ever brought to court.
Greg Co’s current auditors provide audit services. Additional assurance on
business controls and the preparation of financial statements are provided by a
different accountancy firm.
Last year, a neighbouring farm, Blake Co started growing genetically modified
(GM) crops, the pollen from which blows over Greg Co’s fields on a regular basis.
This is a threat to Greg Co’s organic status because organic crops must not be
contaminated with GM material. Greg Co is considering court action against
Blake Co for loss of income and to stop Blake Co growing GM crops.
You are an audit partner in Lion & Co, a 15 partner firm of auditors and business
advisors. You have been friends with the managers of Greg Co for the last 15
years, advising them on an informal basis. The managers of Greg Co have
indicated that the audit will be put out to tender next month and have asked your
audit firm to tender for the audit and the provision of other professional services.
Required:
Using the information provided, identify and explain the ethical
threats that could affect Lion & Co and their safeguards.
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