Upon joining the firm, the partners request that you review the firmâ€™s audit clients to ensure
that the independence requirements of APES 110 are being met. Your review has revealed
(a) Paul Smith, the current senior manager on the audit of John Deer (JD) Ltd which
specialises in the production in mining equipment, has just entered into a business
venture (PJ Motors) with the CFO of JD Ltd, whereby they are both equal partners in
a business retailing motor vehicles. Paul has informed you that this is not a problem
since the 2 entities (JD Ltd and PJ Motors) are in different non-competing industries.
(b) PMG has recently accepted an engagement to provide audit services to Stocky Ltd.
Upon discussion with the manager of the Audit Team for Stocky Ltd, you were
informed that one of PMGâ€™s partner, Jeff Batesâ€™ daughter currently works at Stocky
Ltd. You later found out that Jeffâ€™s daughter is the Financial Accountant at Stocky
Ltd. Jeff Bates is not on the Audit Team of Stocky Ltd.
(c) PMGâ€™s secretarial services division has a pool of experienced and qualified company
secretaries. These qualified company secretaries are either outsourced full time or
part time to listed entities in Australia. Due to cost effective quality services, this
division has a high growth in the last three years. Treck Manufacturing Ltd and
Platinum Fabricators Ltd are two listed companies to whom secretarial services have
been outsourced and assurance services provided.
(d) Audrey Jones, a senior auditor at PMG, has been on the audit team of Barminco Ltd
for a number of years. The account clerk of Barminco resigned 9 months ago, and
Barminco has yet to replace him. As a result, Barminco is significantly behind in their
bookkeeping. The financial controller of Barminco recently asked one of PMGâ€™s
partners to allow Audrey to join Barmincoâ€™s accounting team for a period of up to 6
months in order to bring their bookkeeping up-to-date and ready for the year end
(e) While discussing with one of your colleagues, Shelly McDonald, she told you that she
had a great weekend attending a musical show at the theatre. She further let out that
the tickets to the show were gifted to her by the CFO of Macmahon Ltd at the
completion of this yearâ€™s review because he was so please with the speed and
efficiency to which the audit was completed.
For each of the independent situations above, and using the conceptual framework in
APES 110, answer the following questions.
1. Identify potential threats to independence & recommend safeguards to reduce
the independence threat (5 marks)
2. Provide an objective assessment of whether audit independence can be