(a) (i) Ethical and professional matters
In general up to 1 mark for each well explained point:
Temporary recruitment of audit partner
– Potential self-review threat
– Potential familiarity threat
– Potential management decision making threat
– Recommendations to reduce the potential threats described (1 mark each to a maximum of 2)
Recruitment services
– Potential self-interest, intimidation and familiarity threat
– Management responsibility in appointing senior management
– As listed entity, service cannot be provided
– Decline engagement
(ii) Implications for audit process
In general up to 1 mark for each well explained point:
– Lack of independence and oversight of board
– Ineffective non-executive board
– Need for increased auditor scepticism particularly in light of potential listing
– Increased fraud/manipulation risk which will need to be reflected in audit approach
– No effective audit committee
– Communication in line with ISA 260 harder with no objective audit committee
– Listed company with increased audit risk
– Extended auditor’s report requirements
Maximum marks 10