Our Free Services

Our orders are delivered strictly on time without delay

Paper Formatting

Double or single-spaced
1-inch margin
12 Font Arial or Times New Roman
300 words per page

No Lateness!

Our orders are delivered strictly on time without delay

Our Guarantees

Free Unlimited revisions
Guaranteed Privacy
Money Return guarantee
Plagiarism Free Writing

Audit senior at Branche & Co and have been allocated to the audit of Mello Vibes Co (Mello)

Question 2

You are an audit senior at Branche & Co and have been allocated to the audit of Mello Vibes Co (Mello), a listed company which has been an audit client for eight years and specializes in manufacturing musical instruments.

Beverly Oak was the audit engagement partner for Mello and as she had completed seven years as the audit engagement partner, she has recently been rotated off the audit engagement. The current audit partner, Sandeep Pine, has suggested that to maintain a close relationship with Mello, Beverly should undertake the role of independent review partner this year. In addition, Mello has requested that Beverly assist them by attending their audit committee meetings, as a non-executive director has recently left the company. Mello has also asked Sandeep and the other partners at Branche & Co to help them in recruiting a new non-executive director.

The total fees received by Branche & Co for last year equated to 16% of the firm’s total fee income. The current year’s audit fee has not yet been confirmed, but along with taxation and other possible non-audit fees the total income from Mello this year could be greater than for last year. Last year’s audit fee was being paid monthly by Mello, but no payments have been made for the last three months. The audit manager for Mello has just announced that he is leaving Branche & Co to join Mello as the financial controller.

Required:

Using the information above:

(i) Identify and explain FIVE ethical threats which may affect the independence of Branche & Co’s audit of Mello Vibes Co; and (10 marks)
(ii) For each threat explain how it might be reduced to an acceptable level. (15 marks)

Sample Answer

Ethical Threats to Independence and Safeguards for Mello Vibes Co. Audit

As an audit senior at Branche & Co, it's essential to identify and address the ethical threats that compromise the firm's independence when auditing Mello Vibes Co (Mello). Auditor independence is crucial for providing an objective and credible opinion on the financial statements of a listed company.

firm being too sympathetic to management’s views and less objective in its professional skepticism.
4. Self-Interest Threat (Overdue Fees)	The fact that last year's audit fee is three months overdue constitutes an overdue fee threat, which is a form of self-interest threat. When fees are significantly overdue, the firm essentially becomes a creditor of the client. The audit team may feel pressured to issue a clean opinion to ensure the client remains a going concern and is thus able to pay the outstanding debt.
5. Intimidation/Familiarity Threat (Management Recruitment)	The audit manager leaving to become Financial Controller at Mello creates a Familiarity Threat (due to a former colleague holding a key financial reporting role). Furthermore, Mello requesting that Branche & Co help them in recruiting a new non-executive director (NED) creates an Intimidation Threat. This involvement puts the firm in a position of helping the client fill a key governance role (a supervisory role over the auditor), potentially compromising the appearance of independence.

(ii) Explanation of Safeguards to Reduce Each Threat

Ethical Threat	Safeguard to Reduce Threat to an Acceptable Level
1. Self-Interest Threat (Fee Dependence)	The firm must reduce its reliance on Mello's fees. Since the fee percentage (16%) is above the acceptable threshold for a listed company (typically 15% over two consecutive years), Branche & Co should either: a) Require an external quality control review by a professional not from the firm. b) Decline further non-audit services to reduce the fee ratio. c) If the fee remains above 15% and the firm cannot reduce it, they may need to resign from the audit engagement.

Ethical Threat

Safeguard to Reduce Threat to an Acceptable Level

1. Self-Interest Threat (Fee Dependence)

The firm must reduce its reliance on Mello's fees. Since the fee percentage (16%) is above the acceptable threshold for a listed company (typically 15% over two consecutive years), Branche & Co should either: a) Require an external quality control review by a professional not from the firm. b) Decline further non-audit services to reduce the fee ratio. c) If the fee remains above 15% and the firm cannot reduce it, they may need to resign from the audit engagement.

Our Services

Research Paper Writing
Essay Writing
Dissertation Writing
Thesis Writing

Daily Statistics

134 New Projects
235 Projects in Progress
432 Inquiries
624 Repeat clients

Why Choose Us

Money Return guarantee
Guaranteed Privacy
Written by Professionals
Paper Written from Scratch
Timely Deliveries
Free Amendments