Max Maxwell has been the audit engagement partner for the external (financial statement) audit of Acme Global Freight Limited (Acme), a listed company, for approximately 10 years and Acme has been an audit client of Max’s accounting firm, Maxwell & Partners, for nearly 30 years. Max’s daughter has just accepted a job with Acme as a group accountant. This role would entitle Max’s daughter to share options in Acme as part of her remuneration package. Acme has just awarded an assignment to advise on the tax treatment of complex financial transactions to a tax partner of Maxwell & Partners. The managing director of Acme has invited Max as a guest to Acme’s corporate box for an upcoming super rugby game and he has also asked if Max would mind accompanying him on some visits to investments banks to discuss Acme raising new share capital. An accounting partner at Maxwell & Partners has seconded a staff member to Acme for a 3-month period to cover for one of Acme’s accountants who is taking parental leave. Acme has recently launched a new insurance division offering life and general insurance products. Acme’s managing director is concerned that the investment made in the insurance division will impact cashflow and has asked Max if he would consider receiving share capital in Acme in lieu of an audit fee for the upcoming audit. Max is not comfortable with the way that Acme is calculating its income tax liability and is considering discussing his concerns with the Inland Revenue Department. What are six ethical threats which may effect max and the audit of Acme? Also what is a course of action for each threat?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Max Maxwell has been the audit engagement partner for the external (financial statement) audit of Acme Global Freight Limited (Acme), a listed company, for approximately 10 years and Acme has been an audit client of Max’s accounting firm, Maxwell & Partners, for nearly 30 years. Max’s daughter has just accepted a job with Acme as a group accountant. This role would entitle Max’s daughter to share options in Acme as part of her remuneration package. Acme has just awarded an assignment to advise on the tax treatment of complex financial transactions to a tax partner of Maxwell & Partners. The managing director of Acme has invited Max as a guest to Acme’s corporate box for an upcoming super rugby game and he has also asked if Max would mind accompanying him on some visits to investments banks to discuss Acme raising new share capital. An accounting partner at Maxwell & Partners has seconded a staff member to Acme for a 3-month period to cover for one of Acme’s accountants who is taking parental leave. Acme has recently launched a new insurance division offering life and general insurance products. Acme’s managing director is concerned that the investment made in the insurance division will impact cashflow and has asked Max if he would consider receiving share capital in Acme in lieu of an audit fee for the upcoming audit. Max is not comfortable with the way that Acme is calculating its income tax liability and is considering discussing his concerns with the Inland Revenue Department.
What are six ethical threats which may effect max and the audit of Acme?
Also what is a course of action for each threat?
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