(b) Ethical and professional matters
Generally 1 mark for each well explained point and recommendation made:
(i) Support offered by Valerian Co
– Northwest Co would not be a going concern without support of parent
– Verbal confirmation not sufficient evidence
– Additional evidence that Valerian Co is capable of providing support
– Examples of further evidence required (½ mark each, maximum of 2 marks)
– Suspicious conduct of parent and group auditor
– Need for professional due care and potential re-appraisal of fraud risk
– Communication with those charged with governance
– Possible modification of auditor’s report if additional evidence not received
(ii) Request not to modify report
– Intimidation threat
– Responsibility for audit opinion remains with Thornhill & Co
– Transfer of debt to Valerian Co would not resolve the problem
– Possible suggestion of inappropriate accounting treatment
– Potential lack of integrity of group audit partner and potential fraud
– Matter should be discussed with senior audit staff
– Possible resignation as auditor
Maximum marks 14
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