You have also been asked to consider the acceptance of a potential new client, the Broadway Group (the Group). Welford & Co has recently been approached by the audit committee of the Group, to become its audit provider.

The parent company of the Group, Broadway plc, is a listed company, and the Group has a total of 14 subsidiaries, 10 of which are foreign subsidiaries. The Group is a food processor, and each of its foreign subsidiaries provides a particular ingredient used in the Group’s main processing plant, which is based in the UK. The subsidiaries produce raw ingredients including corn, wheat, vegetables and nuts.

If Welford & Co decides to accept the appointment, it will provide the audit for the Group consolidated financial statements, and for the individual financial statements of some of the subsidiaries.

The Group audit committee has suggested that to keep the audit fee as low as possible, Welford & Co could audit the companies based in the UK but the foreign subsidiaries would be audited by local firms. These foreign subsidiaries contribute 60% to the Group’s total assets.

The Group has recently become involved with a business in Farland, a remote country, which produces tropical fruit. The business is not incorporated as a company and local regulations in Farland only require financial statements to be prepared or an audit to be performed for companies.

From an internet search regarding the Group, you have also obtained the following information:

Local protestors
One subsidiary, Palm Co, has been accused of environmental damage, due to its operations impacting on the rainforest and causing harm to wildlife. There have been some protests by concerned citizens in the country where Palm Co is located. Digital recordings of these protests have spread world-wide on social media.

Expansion of operations
The Group has recently expanded its operations in a certain country by acquiring a large area of land on which to grow wheat. To receive government approval for the acquisition, a significant ‘incentive payment’ was made to a government minister. This has been reported widely in the media.

Required:
Evaluate the matters which should be considered before Welford & Co accepts the audit of the Broadway Group. (10 marks)