ACC311 Fundamentals Of Auditing Assignment No.1 Solution Spring Semester 2013

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ACC311 Fundamentals Of Auditing Assignment No.1 Solution Spring Semester 2013


Assignment:
Nabi Buksh Chartered Accountants (NBCA) is a large audit firm having specialization in the audit of large specialized retailers. NBCA has been working as auditor of Multi Food Company (MFC) – a large fast food chain store for the last five years. Recently, MFC’s main competitor – Hot Food Company (HFC) has also approached NBCA to act as their auditors. Both the companies are highly competitive and upon sensing this deal, MFC is keenly concerned about its business secrets which are likely to leak.

This year MFC’s internal audit department is overly stressed due to lack of employees and this department is unable to cop it. Therefore, MFC management is considering either to hire more employees or outsource the functionality of this department. Hiring option requires extensive training of new recruits but the year closing is on, whereas, the outsourcing requires experts to visit regularly to test controls both at the outlets and head office. In this regard, MFC is considering NBCA for outsourcing its internal audit functions while letting NBCA to remain its external auditors.

The managing director of MFC has just recruited his eldest son – Mr. Big as the company’s purchase manager. He would receive company’s shares in place of monetary salary as his compensation. Mr. Big has suggested to his father – the Company’s MD to appoint NBCA as internal auditors on the condition that their remuneration will be equal to 5% of the company’s yearly profits. He is of the view that this deal would certainly align the interests of NBCA and MFC.

Required:

1. How NBCA can assure MFC over up-keeping of its business secrets? (4 marks)
2. What are the pros and cons of outsourcing for MFC of its internal audit functions? (5 marks)
3. Is it appropriate for NBCA to work as internal auditor of MFC? Why and why not? (5 marks)
4. Should NBCA accept Mr. Big’s offer. Why and why not? (6 marks)

Note: For answering the above questions, you need to read “Code of Ethics for Chartered Accountants”