Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

a) Dayahang & Co. is being considered as external auditor for audit of Nischal Pvt. Ltd. Dayahang quoted an audit fee of Rs. 3 Lakhs plus 5% of profit.
b) Write down the provision for “Marketing Professional Services” for professional accountant in public practice.
c) A Chartered Accountancy Firm has known that before issuing audit report of certain client “the independence” has breached. How the audit firm shall ensure the significance of such breach?
Answer:
a) Answer
In the given case, Dayahang & Co. is quoting a fee which is based on percentage of profit. Contingent fees may create a self-interest threat to objectivity. The existence and significance of such threats will depend on factors such as the nature of the engagement, range of possible fee amounts, basis for determining the fee, whether the outcome or result of the transaction is to be reviewed an independent third party etc.
Code of ethics requires that professional accountant in public practice shall not quote contingent fees for any professional services.
Also, as per Section 34 of Nepal Chartered Accountants‟ Act, Members holding Certificate of Practice shall not base their remuneration as a percentage on the profit or on any other uncertain results. Hence, quoting of contingent fee is not allowed code of ethics and Nepal Chartered Accountant‟s Act. If the Dayahang & Co. does so they will be liable for professional misconduct.
b) Answer
Section 250 of ICAN Code of Ethics has stated the provision regarding Marketing Professional Services”. Such provisions are:
When a professional accountant in public practice solicits new work through advertising or other forms of marketing, there may be a threat to compliance with the fundamental principles. For example, a self-interest threat to compliance with the principle of professional behavior is created if services, achievements, or products are marketed in a way that is inconsistent with that principle.

A professional accountant in public practice shall not bring the profession into disrepute when marketing professional services. The professional accountant in public practice shall be honest and truthful, and not:

(a) Make exaggerated claims for services offered, qualifications possessed, or experience gained; or
(b) Make disparaging references or unsubstantiated comparisons to the work of another.

If the professional accountant in public practice is in doubt about whether a proposed form of advertising or marketing is appropriate, the professional accountant in public practice shall consider consulting with the relevant professional body.
Notwithstanding anything mentioned herein before, no professional accountant in public practice shall solicit clients through any manner such as advertisement, designing web site etc. except in accordance with the Guidelines on Ethical Marketing & Publicity Practices Professional Accountants issued the ICAN.

c) Answer
Section 290 (42) of ICAN Code of Ethics deals with the matter. Accordingly, the audit firm shall ensure the significance breach of independence considering the following factors:
 The nature and duration of the breach;
 The number and nature of any previous breaches with respect to the current audit engagement;
 Whether a member of the audit team had knowledge of the interest or relationship that caused the breach;
 Whether the individual who caused the breach is a member of the audit team or another individual for whom there are independence requirements;
 If the breach relates to a member of the audit team, the role of that individual;
 If the breach was caused the provision of a professional service, the impact of that service, if any, on the accounting records or the amounts recorded in the financial statements on which the firm will express an opinion; and
 The extent of the self-interest, advocacy, intimidation or other threats created the breach.



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