You are a senior manager at the firm LLC Incorporated, a medium sized accounting and audit firm based in Ladysmith. You have been with the firm for 10 years and are being groomed for partnership. B Smith an existing audit partner at the firm has been allocated as your mentor.
B Smith has been a member of the firm’s Quality control committee for 10 years. One of the responsibilities of the committee includes determining whether the firm should accept prospective clients and whether existing clients should be retained. As the firm is well known in the Ladysmith area and is the largest accounting and audit practice in the area, the committee has to review large amount of prospective clients.
As part of the monitoring process you have been assigned the task of reviewing a list of potential clients as follows:
1. Fishing business Ltd, a large fishing company which has recently been convicted for exceeding its fishing quotas and threatened with closure by the authorities if it occurs again. The previous auditors have resigned. The company is in a public company but not listed.
2. La Paint (Pty) Ltd, an interior decorating business which is owned by the wife of LLC Incorporated’s partner in charge of the Taxation department. The company’s public interest score requires that the company be externally audited.
3. Bossman Ltd, a listed company (with a substantial audit fee), whose chairman is an outspoken critic of the King III Report on Corporate Governance. His stance is that business is tough and that all the transparency, disclosure and fairness simply weakens the company as it gives competitors insights they shouldn’t have and that business is not supposed to be fair! (5)
4. Trigger Happy Ltd, a company which hires out mercenaries to foreign governments involved in conflict and anyone else who is interested. The company is not listed on any stock exchange.
Required:
Discuss the matters to which the committee should give consideration when deciding on whether to accept the above prospective clients. Consider each matter separately.
