GORAB & Associates, a local auditing firm in Ghana, has just accepted a new privately held company (Adepa Ltd) as its cl
Posted: Sun Jun 05, 2022 7:25 pm
GORAB & Associates, a local auditing firm in Ghana, has just
accepted a new privately held company (Adepa Ltd) as its client.
The company is considered as one of the largest in the sub region.
It is well known in the real estate industry and its owner, Sir
One, sponsors the Ghana Premier League (GPL) with the company’s
logo and name on the players’ jerseys. Since the company is well
known, the audit partners concentrated on the scope and price of
the engagement. The auditors are well aware of the previous
auditors, but given the reputation of the company, they did not
feel a need to contact the predecessor auditors because it was a
routine “bid for audit” and the current auditors were also bidding.
The auditors, thus, did not find it necessary to write an
engagement letter. After beginning the audit, the auditors find out
the following: a) The audit committee was not involved in the
decision to change auditors and only one of the three audit
committee members are outside directors. b) The company engages in
significant related-party transactions to minimize its tax
liability. Although not illegal, the transactions do not meet the
substance criteria required by the GRA. Company management is
adamant that it will not change unless GRA requires it to change.
c) There are a significant number of related-party transactions
with the owner, and no valid business reason or economic benefit to
the company is associated with these transactions. d) The decision
to invest $15million in sponsoring the GPL was not approved by the
board, but came at the dictate of the company CEO, Sir One, who has
passion for soccer. e) The board consist of mostly family members
with only two members who might be considered outside directors
Required a) What are the important deficiencies in the auditor’s
process of accepting the audit client and what should have been
done prior to accepting the client? b) What choices does the
auditor have regarding continuing the audit or resigning from the
audit? c) How would an engagement letter have been useful to the
audit firm in this engagement?
accepted a new privately held company (Adepa Ltd) as its client.
The company is considered as one of the largest in the sub region.
It is well known in the real estate industry and its owner, Sir
One, sponsors the Ghana Premier League (GPL) with the company’s
logo and name on the players’ jerseys. Since the company is well
known, the audit partners concentrated on the scope and price of
the engagement. The auditors are well aware of the previous
auditors, but given the reputation of the company, they did not
feel a need to contact the predecessor auditors because it was a
routine “bid for audit” and the current auditors were also bidding.
The auditors, thus, did not find it necessary to write an
engagement letter. After beginning the audit, the auditors find out
the following: a) The audit committee was not involved in the
decision to change auditors and only one of the three audit
committee members are outside directors. b) The company engages in
significant related-party transactions to minimize its tax
liability. Although not illegal, the transactions do not meet the
substance criteria required by the GRA. Company management is
adamant that it will not change unless GRA requires it to change.
c) There are a significant number of related-party transactions
with the owner, and no valid business reason or economic benefit to
the company is associated with these transactions. d) The decision
to invest $15million in sponsoring the GPL was not approved by the
board, but came at the dictate of the company CEO, Sir One, who has
passion for soccer. e) The board consist of mostly family members
with only two members who might be considered outside directors
Required a) What are the important deficiencies in the auditor’s
process of accepting the audit client and what should have been
done prior to accepting the client? b) What choices does the
auditor have regarding continuing the audit or resigning from the
audit? c) How would an engagement letter have been useful to the
audit firm in this engagement?