You are the audit manager in Dime & Co, Chartered

You are the audit manager in Dime & Co, Chartered Accountants. One of your audit clients is North Rock & Co (Rock), a company specialising in the manufacture and supply of sporting equipment. Rock has been your audit client for five years, and you have been an audit manager for the past three years, while the audit partner has remained unchanged. You are now planning the audit for the year ending 30 June 2020. Following an initial meeting with the directors of Rock, you have obtained the following information.

(i) Rock is attempting to get a listing on the Australian Stock Exchange. The directors have established an audit committee, as required by corporate governance regulations in Australia. The Board of Directors has not taken further action in this respect. Information on the listing is yet to be made public knowledge.

(ii) Dime & Co has been asked to continue preparing the company’s financial statements as in previous years.

(iii) As the company’s auditors, Rock would like you and the audit partner to attend an evening reception in a hotel, where Rock will present their listing arrangements to banks and existing major shareholders.

(iv) Rock has indicated that the fee for taxation services rendered in the year to 30 June 2019 will be paid as soon as the taxation authorities have agreed on the company’s taxation liability. You have been advising Rock regarding the legality of certain items as ‘allowable’ for taxation purposes, and the taxation authority is disputing these items.

(v) Finally, you have just inherited about 5% of Rock’s share capital as an inheritance on the death of a your godfather.

Required:

(a) Identify and explain the relevance of any factors which may threaten the independence of Dime & Co’s audit of Rock & Co’s financial statements for the year ending 30 June 2020. Briefly explain how each threat in the above circumstances should be managed.

(b) Discuss the actions that the board of directors of Rock must take to meet corporate governance requirements for the listing of Rock.

(c) Explain why Dime & Co need to communicate with Rock’s audit committee regarding the current and future audits.