Abel and Co, Chartered Certified Accountants, recently held a staff training session on quality control.

Abel and Co, Chartered Certified Accountants, recently held a staff training session on quality control. The session concluded with staff being invited to raise matters from their experience relating to the ethical rules on independence.

Some of these matters are given be low.

(i) Shortly before commencing the final audit of a large listed company, a junior staff member on the audit team inherited a substantial number of shares in that company. No action was taken because, although representing a large investment for the staff member concerned, the number of shares was totally immaterial with respect to the company. Moreover; the partner knew that when the company’s results were announced the share price would rise and he did not think it was fair to require the staff member to sell them now.

(ii) The management accountant of another listed company client had an accident and was away from work for three months. At the time of the accident the audit senior was winding up the prior year’s audit and, because of his familiarity with the company’s management accounting system, it was agreed that he would take over as management accountant for the three months.

(iii) In its management letter to another audit client, Abel and Co warned the company that their computer system lacked essential controls. The company decided to install a totally new computer system and Abel and Co’s management consultancy department was appointed to design the new system.

(iv) Abel and Co was recently approached by a large company that was not then an audit client, for a second opinion. The company was in dispute with its existing auditors who were proposing to issue a modified auditor’s report because of disagreement over inventory valuation. Abel and Co’s technical partner reviewed the evidence provided by the company and advised the company that its accounting treatment was in order.

Shortly afterwards Abel and Co were invited to accept nomination as auditors. The reply to the letter of enquiry to the existing auditors made it clear that the inventory valuation dispute was not as straightforward as the company had made it out to be.

Required:

(a) Discuss whether Abel and Co may have impaired their independence or otherwise acted unprofessionally in each of the situations described.

(b) Briefly explain the term ‘confidentiality’ and explain the situations where an auditor may disclose confidential information about a client.

Question B

a. Explain the term Environmental Audit clearly distinguishing it from Financial Audit.

b. Giving examples, discuss the -micro and macro- importance of Environmental Audits to a business organisation of your choice.