You are a Senior Manager in Federer & Co, a firm of Chartered Certified Accountants offering audit and assurance services mainly to large, privately owned companies. The firm has suffered from increased competition, due to two new firms of accountants setting up in the same town. Several audit clients have moved to the new firms, leading to loss of revenue, and an over staffed audit department. Ann Agassi, one of the partners of Federer & Co, has asked you to consider how the firm could react to this situation. Several possibilities have been raised for your consideration: 1. Nadal Co, a manufacturer of electronic equipment, is one of Federer & Co.’s audit clients. You are aware that the company has recently designed a new product, which market research indicates is likely to be very successful. The development of the product has been a huge drain on cash resources. The Managing Director of Nadal Co has written to the audit engagement partner to see if Federer & Co would be interested in making an investment in the new product. It has been suggested that Federer & Co could provide finance for the completion of the development and the marketing of the product. The finance would be in the form of convertible debentures. Alternatively, a joint venture company in which control is shared between Nadal Co and Federer & Co could be established to manufacture, market and distribute the new product. 2. Federer & Co is considering expanding the provision of non-audit services. Maria Williams, a Senior Manager in Federer & Co, has suggested that the firm could offer a recruitment advisory service to clients, specializing in the recruitment of finance professionals. Federer & Co would charge a fee for this service based on the salary of the employee recruited. Maria Williams worked as a recruitment consultant for a year before deciding to train as an accountant. 3. Several audit clients are experiencing staff shortages, and it has been suggested that temporary staff assignments could be offered. It is envisaged that a number of audit managers could be seconded to clients for periods not exceeding six months, after which time they would return to Federer & Co. Question: Identify and explain the fundamental ethical principle and ethical threat involved in each of the above mentioned situations for Federer & Co; and For each threat, suggest what safeguards/actions Federer & Co can take to reduce the risk to an acceptable level.
You are a Senior Manager in Federer & Co, a firm of Chartered Certified Accountants offering
1. Nadal Co, a manufacturer of electronic equipment, is one of Federer & Co.’s audit clients. You are aware that the company has recently designed a new product, which
2. Federer & Co is considering expanding the provision of non-audit services. Maria Williams, a Senior Manager in Federer & Co, has suggested that the firm could offer a recruitment advisory service to clients, specializing in the recruitment of finance professionals. Federer & Co would charge a fee for this service based on the salary of the employee recruited. Maria Williams worked as a recruitment consultant for a year before deciding to train as an accountant.
3. Several audit clients are experiencing staff shortages, and it has been suggested that temporary staff assignments could be offered. It is envisaged that a number of audit managers could be seconded to clients for periods not exceeding six months, after which time they would return to Federer & Co.
Question:
Identify and explain the fundamental ethical principle and ethical threat involved in each
of the above mentioned situations for Federer & Co; and For each threat, suggest what safeguards/actions Federer & Co can take to reduce the risk to an acceptable level.
Step by step
Solved in 3 steps
