【正确答案】When the audit client imposes fee pressure on the audit firm, an intimidation threat to objectivity arises. IESBA’s Code of Ethics for Professional Accountants defines the intimidation threat as the threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, and gives an example of an intimidation threat where the audit firm is being pressured to reduce inappropriately the extent of work performed in order to match the fee they can obtain to the work performed. The matter should have been discussed with Wire Co’s audit committee, with the audit firm stressing that the new locations would lead to an increased scope of the audit, and therefore the fee should increase rather than remain the same. It should also be brought to the attention of Bunk & Co’s partner responsible for ethics. The fee pressure has resulted in the materiality level being increased. This leads to a risk that insufficient audit evidence may have been obtained to support the audit opinion, with the risk heightened by the fact that some review procedures were not carried out. This in itself indicates that appropriate quality control procedures have not been applied to the audit. ISA 220 Quality Control for an Audit of Financial Statements requires the audit engagement partner to review the audit documentation to be satisfied that audit work is complete and that sufficient appropriate audit evidence has been obtained to support the conclusions reached and for the auditor’s report to be issued. There are also quality control issues with the selection of samples to be used in tests of detail. First, the use of judgemental sampling may result in sample sizes which are smaller than would have been selected using statistical sampling methods,or in the selection of items which are not representative of the whole population. ISA 530 Audit Sampling requires the auditor to determine a sample size sufficient to reduce sampling risk to an acceptably low level, and to select items for the sample in such a way that each sampling unit in the population has a chance of selection. The risk is that the use of judgement has led to inappropriate audit conclusions being made. Second, it seems that some items in the populations were completely excluded from the sample. There is a high risk that these items have not been subject to sufficient audit procedures and that the relevant assertions have not been covered by audit testing. For example, if the non-current assets have not been physically verified, and no other procedures relevant to their existence have been performed, then assets recognised in the financial statements may be overstated. Given the pressure on fees which seems to be affecting the quality of audit work performed, Bunk & Co may wish to consider whether it is appropriate to continue with the audit engagement. The audit firm’s concerns should be communicated to those charged with governance of Wire Co, and the audit committee should be made aware of the implications of the fee pressure on the audit.

【正确答案】The off-shoring of audit work has become increasingly common in the audit profession in the last few years, with global audit firms using low-cost overseas audit offices or service centres to perform some audit procedures. There is no regulation to prohibit this practice, but quality control implications have been brought into question. If the overseas office is performing only low-risk and non-judgemental work, the risk to audit quality is relatively low. However,it seems in the case of Wire Co’s audit other more subjective tasks were included in the off-shoring arrangement, such as the review of board minutes. In order to properly assess the contents of the board minutes for audit implications, the work should be performed by an auditor with sufficient knowledge and understanding of the audit client to be able to identify matters which are significant in the context of that audit. It is unlikely that an auditor in an overseas office with no direct understanding or experience of Wire Co would be able to identify relevant matters for the attention of the rest of the audit team. If Bunk & Co wishes to continue the off-shoring of audit procedures, then controls must be put in place to ensure that only appropriate tasks are included in the arrangement, and that monitoring and review procedures are performed to give comfort on the quality of the work performed. The audit firm must ensure that its firm-wide policies adhere to the requirements of ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and that commercial considerations do not take priority over the performance of high quality audits. Tutorial note: Credit will be awarded for other relevant comments on the issue of off-shoring audit work.

【正确答案】Russell Bell moving from Wire Co to Bunk & Co to take up the position of audit partner creates potential threats to objectivity.The IESBA Code states that self-interest, self-review or familiarity threats may be created if a member of the audit team has recently served as a director, officer, or employee of the audit client. Though the threats may be mitigated somewhat by him not being a formal member of the audit team of Wire Co, the fact that Russell helped the audit team by providing information about the audited entity means that the threats described above apply in this situation, and there is a perception of a lack of independence of the audit team. The IESBA Code requires that if, during the period covered by the audit report, a member of the audit team served as a director or officer of the audit client, or was an employee in a position to exert significant influence over the preparation of the client’s accounting records or the financial statements on which the firm will express an opinion, that person may not be included in the audit team. Clearly Russell’s former position as finance director of Wire Co means that this requirement should have been applied to him. The matter should be discussed with Bunk & Co’s partner responsible for ethics, and it should also be discussed with Wire Co’s audit committee, who are responsible for oversight of auditor independence. The second issue is that Russell retained a shareholding in Wire Co for six months after his appointment as an audit partner in Bunk & Co. This gives rise to a self-interest threat to objectivity, as it would have been in Russell’s interests to act in such a way as to maximise his financial interest in Wire Co until the point when he sold his shares. There is a general prohibition on auditors holding a financial interest in an audit client, and the IESBA Code states that when a financial interest arises, it should be disposed of immediately in the case of an audit team member, or as soon as possible in the case of an individual who is not a member of the audit team. Given Russell’s seniority, and the fact that he seems to have closely advised the audit team on matters relating to Wire Co, he should have made the disposal immediately. Concerns may arise over Bunk & Co’s procedures in relation to staff and partner disclosure of financial interests in audited entities. Six months is a long period for the shares to have been held, and the firm should have procedures in place to ensure that such matters are monitored and quickly resolved. A review of the firm’s procedures should take place, and Russell should be asked why he did not dispose of the shares more quickly. Finally, the audit firm’s policy on cross-selling non-audit services raises ethical issues. The IESBA Code states that a self-interest threat is created when a member of the audit team is evaluated on or compensated for selling non-assurance services to that audit client. This is because the audit team member clearly has a financial interest in successful cross-selling,which may result in the selling of services which are inappropriate to the client, or which give rise to other ethical threats which exist when non-audit services are provided to audited entities. The significance of the self-interest threat depends on: – The proportion of the individual’s compensation or performance evaluation which is based on the sale of such services; – The role of the individual on the audit team; and – Whether promotion decisions are influenced by the sale of such services. The IESBA Code states that a key audit partner shall not be evaluated on or compensated based on that partner’s success in selling non-assurance services to the partner’s audit client. Therefore if Bunk & Co is to continue with this policy, care must be taken that partners’ performance are not evaluated based on their success in cross-selling to their audit clients. It is not prohibited for other audit team members to cross-sell, but safeguards must be in place to reduce the potential threat to an acceptable level, such as a review of audit work performed. It may be prudent, however, for the audit firm to consider other ways to increase revenue and to evaluate staff performance which do not raise threats to objectivity