26 May Question PROFESSIONAL AND ETHICAL PRACTICE (20 MARKS)
Question
(a) Write a response indicating any erroneous assumptions made in the following statement(5 Marks)
“Auditing neither creates goods nor adds utility to existing goods and therefore does notadd value to business. Auditing exists only because it has been legally mandated”.
Read the case facts below and answer the questions that follow:
Brenda George, a CA, is in charge of the 20X8 audit of Portland Ltd, a listed company. A PhDeconomic researcher conducting a study on the financial operations of firms in the same industryas Portland asked Brenda to contribute her views on the financial operations of Portland. Theeconomist promised to keep confidential any information received from Brenda.
(b) Explain what course of action Brenda should follow in order to discharge her professionaland ethical responsibilities when disclosing information about her audit client to theeconomist. (5 marks)
Also, during the 20X8 audit of Portland Ltd, Brenda was asked by management to conduct afeasibility study to advise management of the best way the company may utilise an IT systemthat meets the company’s requirements. Brenda is technically competent in this area andaccepted the engagement. Upon completion of the study, the company accepted her suggestionsand installed the IT system she recommended.
(c) What is meant by “independence” as applied to the chartered accountant’s function ofauditing and expressing opinion on financial statements? Discuss. (3 marks)
(d) Discuss the effect of Brenda accepting the management services engagement (if any) uponher independence in expressing an audit opinion on the financial statements of Portland Ltd.
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