March -April 2023:

Question-1(c):
Hoda Vasi Chowdhury & Co., Chartered Accountants have been invited to tender for the audit of CRDL Ltd. Hoda Vasi
Chowdhury & Co., has not previously acted in any capacity for this company but does act for Shanta Holdings Ltd,
which is the CRDL Ltd.’s major competitor.

Requirement:
Under this situation identify and explain the principal ethical issue and state the procedures Hoda Vasi Chowdhury &
Co., would implement to address this issue.

Answer to the Question# 1(c)

Identified Principal ethical issues are:

• Conflicts of interest

• Confidentiality

• East and West may perceive a threat in respect of disclosure/use of information

Procedures to address

• Procedures to ensure staff are aware of confidentiality issues and such issues have been brought to

attention of staff

• Staff to certify awareness of these procedures

• Obtain informed consent of clients

• Use of different partners and teams

• Independent review of arrangements for ensuring confidentiality maintained.

Nov-Dec 2022:
Question-1A):

Honest Sincere & Co. Chartered Accountants (HSC) is the auditor of High Standard Bank Ltd.(HSBL) for the year
ending 31 December 2021. In the recent past, there were a number of news in the national level newspapers as
regards some financial scandals where this HSBL was one of major affected banks. Being a listed company, the
management has been putting substantial effort to defend the scandals issuing press notes and various
advertisements. This bank has a small overseas branch in New York which in fact does not produce any remarkable
(less than 1% of revenue) business for the bank. On the other hand, of the top five branches (4 in Dhaka and 1 in
Khatun Ganj, Chottogram), the khatun Ganj branch alone contributes 15% of gross revenue of the bank.

As part of the audit process the firm planned to visit and work in total seven branches. While sitting with the
management for selecting branches, the DMD of the bank offered the Engagement Team of the firm to cover their
New York branch. The DMD also offered to bear costs of business class tickets and accommodation in a five-star hotel
for the audit team. Mr. Honest, the Engagement Partner accepted the offer and finalized 7 branches including the
New York one. Surprisingly the highest revenue generating branch has not been kept into the list. During the course
of the audit, Mr. Honest accompanied by one professional staff flew to NY and came back after 15 days with the audit
results.

Requirement:

Comment on this audit with respect to code of ethics for the professional accountants in practice.

Answer to the Question# 1(A):

While dealing with an audit engagement, auditors must keep one eye on the potential threat to breaching
fundamental principles.

Let alone others, self-interest threat is naturally inherent to all types of engagements a professional accountant
usually deals with. So, while approaching to accept an engagement, particularly when audit, auditor is expected to
carefully evaluate available information underlying proposed audit engagement. In the given case, we see the bank
was struggling with some issues of scandals published in the national level dailies.

As a result, the management while dealing with auditors would naturally apply trick diverting auditor’s attention
from the points of scandal related news. When the engagement team was selecting branches to be covered as part
of the overall audit methodologies, they should have collected information with regards to scandal and related
branches.

On the other hand, in contrary to independent selection, they depended upon the offer of the management.
Seemingly, the management grabbed this opportunity and made a super lucrative offer requesting to carry out audit
at New York branch which is insignificant contributor to the bank’s revenue. On the other hand, the New York branch
does not appear to be spotted as alleged branch in the scandal under discussion.

So, accepting this offer, the auditor has been caught in the gifts and hospitality trap where such an offer may create
threats to some fundamental principle.
Question-1B) It is often observed that a professional accountant in public practice is asked to provide a second
opinion on the application of accounting, auditing, reporting or other standards or principles to specific
circumstances or transactions by or on behalf of an entity that is not an existing client. Very often regulators seek
such a service from the professional accountants in public practice. Embedded self-interest threat in such an offer
may create threats to compliance with the fundamental principles.

Requirement:

What actions would you prefer as safeguards to address such self-interest threat?

Answer to the Question# 1(B):

Beside self-interest threat there may be a threat to professional competence and due care being fundamental

principle in circumstances where the second opinion is not based on the same set of facts that were made

available to the existing accountant or is based on inadequate evidence. So, prior to accepting some actions

may be considered to address potential threats including self-interest threat as follows:

• With the client’s permission, obtaining information from the existing or predecessor accountant.

• Describing the limitations surrounding any opinion in communications with the client.

• Providing the existing or predecessor accountant with a copy of the opinion.

If an entity seeking a second opinion from a professional accountant will not permit the accountant to

communicate with the existing or process.

Question-1C) Your firm is appointed as an external auditor of M&J Ltd. (MJL), a listed company and a PIE, for the year
ended 30 June 2022. You started the field audit work, and you are leading the audit team. Your firm is a member firm
of an International Audit and Assurance firm based in UK. As per the affiliation agreement, your firm must ensure 1:1
encrypted laptop with adequate controls and security protection. All students and staff must use email hosted
through the parent firm’s domain, which costs Tk. 4,000 per user per year. 31 percent of the students and staff does
not use that e-mail because they shared laptop. Hence, you communicated data and client information to the g-mail
of audit team. A team member kept MJL data in a portable USB pen drive, which was stolen last month from an audit
team member. Sensitive data about the client was subsequently published on the internet by an activist group.

Requirement:

Outline the legal, professional and ethical issues arising from the above scenario and set out the safeguards that
should be introduced by your firm to prevent such data breaches occurring in the future.

Answer to the Question# 1(C):

Stolen USB memory stick

Legal issues:

• Non-compliance with data protection regulation and Digital Security Act.

• Breach of duty of care.

• Liability for losses incurred by the client.

• Potential fines/disciplinary action for the firm by accounting body, ICAB.

Ethical and professional issues:

• Confidentiality principle breached.

• Auditor has a duty to take all reasonable steps to preserve confidentiality.

• External disclosure could damage client’s interests causing loss of trust.

• Lack of professional competence and due care.

• Professional behaviour called into question.

• Damage to firm’s reputation leading to loss of clients/difficulty to attract new clients.

• Damage to profession’s reputation.

Safeguards:

• Data security policy implementation, communication and training.

• Encryption of data and/or password access.

• Data not removed from office.

• Data stored in a secure cloud.

• Restriction of use of USB pen drives.

• Deletion of data after use.

• Conduct training to the staff and students on using customer sensitive data

• Allow laptop 1:1 basis with adequate security features and protection.

• Stop sending email to g-mail.

Question-D) ABC Chartered Accountants (ABC) has been carrying out the external audit of AMC Company Ltd.
(AMCL) since 2015. The next audit will be for the year ending 31 December 2022. The audit manager on the audit of
AMCL for the year ended 31 December 2021 left ABC and became the financial controller of AMCL on 1 November
2022. Mr. Rezaur Rahman, the Finance Director of AMCL became an audit partner at ABC on 1 October 2022. The
Managing Partner of the firm allocated AMCL to Mr. Rezaur Rahman to act as an engagement partner of the audit of
AMCL for the year ending 31 December 2022.

Requirement:

Identify the ‘ethical threats’ and ‘conflict of interest’ that arise from the above scenario, stating why each is a
threat. State from which date the former finance director could become a member of the audit team of AMCL in
accordance with the Ethical Standard issued by IFAC and ICAB.

Answer to the Question# 1(D):

Interchange of personnel between audit firm and client

Ethical threats:

Financial controller who was former audit manager:

Familiarity/trust threat

- predisposed to accept or insufficiently questioning of financial controller’s work.

Intimidation threat

- financial controller/former audit manager previously managed junior audit team members

- could threaten or dominate audit junior team members.

Self-interest threat - reluctant to identify errors when applying for job.

Audit partner who was former finance director:

• Self-review threat of own financial statement work and unable to take impartial view or being inhibited

from questioning judgement in own work.

• Self-interest threat: reluctant to identify errors in own work.

• Familiarity/trust threat: predisposed to accept or insufficiently questioning of work of former colleagues.

The former finance director could become an audit team member after elapsing 2 years from date of leaving AMCL.
July-Aug 2022:

Question-1A) An audit firm has a client company, Zoom Limited, which operates a motor racing circuit. The audit firm
has discovered that the audit manager for the Zoom Limited audit keeps a racing car at Zoom Limited’s circuit and
uses the race track regularly. Because he is the audit manager, Zoom Limited allows him 50% off normal charges for
garaging the car and for use of the race track.

Requirement:

What is the ethical position and what measures should the audit firm take to deal with this situation?

Answer to the Question# 1(A):

The transaction between Zoom Limited and the audit manager is a normal commercial transaction for Zoom Limited,
but it is not at arm’s length because the audit manager gets 50% off normal prices. The transaction may not be
material for Zoom Limited, but it is likely to be material for the audit manager.

Consequently, there has been a breach of the ethical code by the audit manager. The audit manager has created a
self-interest threat (and possibly a familiarity threat) by entering into the transaction with Zoom Limited.

• The ethics partner of the audit firm should be consulted and asked to assess the materiality of the transaction
between Zoom Limited and the audit manager and to consider whether disciplinary action is appropriate.

• The audit manager should be removed immediately from the Zoom Limited audit team and replaced by someone
else.

• Those charged with governance of Zoom Limited (the board of directors) or the audit committee should be told
about the action that the audit firm has taken, and the reasons why the action was necessary.

• In view of the threat to the objectivity and independence of the former audit manager, the audit plan for the Zoom
Limited audit should be reviewed and amended if this is considered necessary.

The ethics partner may also wish to check whether the former audit manager has entered into commercial
arrangements on favorable terms with any other audit client.

Question-1B) An audit firm has completed the annual audit for a client company and the audit team has identified a
number of weaknesses in internal controls that have been notified to the client’s management. As a result, the client
has asked the firm to carry out a review of its financial IT systems.

Requirement:

What are the ethical issues to consider in this situation and how might the problems be dealt with?

Answer to the Question# 1(b):

The engagement would involve non-audit work. If the client is not a public c interest entity, the audit firm can accept
this engagement subject to certain conditions:

• The management of the client company must recognize that they have the responsibility for internal controls in the
company. This responsibility cannot be passed on to the auditors.

• The engagement team will not be required to act in a management capacity in any way. For example, they must not
be given any responsibility for the design or implementation of any improvements in internal control that they
recommend. In addition, management must designate a competent employee to be responsible for management
decisions.
• There must be sufficient controls against a self-review threat. For example, the individuals assigned to the
engagement team to do the work should not include anyone who will also be a member of the audit team.

If the client is a public interest entity, the engagement is not permitted by the Code.

Question-1D) IESBA Codes of Ethics set out a set of fundamental principles which should be followed by professional
accountants being members of IFAC. ICAB being member of the IFAC, such principles become mandate for its
members to abide by too.

Requirement: Briefly write about all these principles.

Answer to the Question# 1(D):

ICAB members should:

• Behave with integrity in all professional and business relationships

• Strive for objectivity in all professional and business judgements

• Not accept or perform work beyond competence he/she possess. However, one may accept assistance when

existing competence seems inadequate

• Carry out work with due care, skill and diligence and follow expected technical and professional standards

• Respect the confidentiality of information acquired

• Act professionally and comply with relevant laws and regulations.

March-April 2022:

1. a) ICAB recently restructured its Quality Assurance Department (QAD) for ensuring high quality engagement and
auditing services by its member firms through seamless implementation of ethical guidelines and IFAC Code of Ethics.
You are a Senior Manager at QAD, responsible for reviewing quality control and ethical matters which arise with
regards to the clients of its member firms. You visited the following firms during the year 2021-22 and identified
below matters:

i) D & Co., Chartered Accountants: D & Co., Chartered Accountants audits Newborn Limited. The Chairman of the
Board of Directors of the company has asked whether one of the D’s audit partners can be appointed as a non-
executive director and serve on the audit committee. At present, the audit committee lacks a financial reporting
expert, and the appointment of an audit partner would bring much needed knowledge and experience to ensure
corporate governance codes. On the other hand, the company has changed cost approach to revaluation approach in
reporting of tangible assets in 2019, which they have turned back to cost approach for the year ended December 31,
2021.

Answer to the Question# 1(A)I :

D & Co., Chartered Accountants and Newborn Limited

The assurance team’s independence may be threatened if a director or other senior employee at the D’s office is
employed by Newborn Limited. There may be self-interest, familiarity, and intimidation threats, particularly if close
connections remain between the individual and the assurance firm. Such treats include:
i. Self-interest threats - This arises when the accountant or the audit firm had a financial interest or other interest in
a matter. Typically, this means that the accountant’s decisions may be influenced by self-interest and the accountant
will therefore not act with objectivity and independence.

ii. Self-review threats - This occurs when an accountant is required to review or re-evaluate (for a different purpose)
a previous judgment he had made or action that he had taken. Self-review threats can also apply to audit firms. For
example, if an audit firm prepared the financial statements for a client and then acted as auditor, it would be
reviewing its own work and would be reluctant to criticize or question it. This would be a threat to objectivity and
independence.

iii. Advocacy threats - This occurs when the accountant is in a position where he is expected to defend or justify the
position of the client, and act as an ‘advocate’ for the client’s point of view. This would be a threat to objectivity and
independence;

iv. Intimidation threats - This occurs when the accountant is deterred from acting with objectivity due to threats
against him or his firm. This may be a threat by the client to terminate the auditor’s appointment, unless it agrees
with the point of view of the client management; and

v. Familiarity threats - This occurs when the accountant becomes too sympathetic to the client’s position due to
close relationships. For example, this may occur due to a long association over many years in carrying out the annual
audit. However, it may be possible to reduce the threat with safeguards, such as involving an independent third party
to review the audit file. In respect of audit clients, a key audit partner should not accept key management position
from their clients until at least two years after the conclusion of the audit. Self-interest threats may also arise if a
member of the assurance team has reason to believe that they might soon be employed by the assurance client.

ii) XYZ & Co., Chartered Accountants: Kate Limited is currently a non-audit client of XYZ & Co., Chartered
Accountants who has provided a range of non-audit services to the company including bookkeeping, payroll and tax
computation, and advice. The company recently applied for additional financing from its bankers, the amount
requested is significant and the purpose of the loan is to finance the growth aspirations of the company. The
management of Kate Limited has ambitious plans for growth which they believe will result in revenue tripling within
one year and then continuing to grow at a 50% growth rate for at least the next five years. As a pre-requisite for
approving the additional financing request, the bankers have asked the directors of Kate Limited to audit the financial
statements by a big accounting firm. Hence, Kate Limited has asked if your firm will become the company’s auditors,
as well as continuing to provide the existing services. This will include auditing the financial statements for the year
ended December 31, 2022, at the request of the new financers.

Answer to the Question# 1(A)ii:

XYZ &Co. Chartered Accountant and Kate Limited

The points to note are as follows:

i. Independence threats; ii. Objectivity threats; iii. Use of separate audit team; iv. Use of separate departments in the
audit firm; v. New engagement letter; and vi. Ensure no management decision is taken by the auditors.

Appropriate safeguards to be put in place are as follows:

i. Dividing the work of the audit firm into different functions. Employees involved in audit work should not be the
same as those involved in providing consultancy advice to the same client;

ii. Legally separating the consultancy department from accounting/ auditing arm of the firm to preserve auditor’s
objectivity and independence; and

iii. Ensuring that different members of staff and partners are responsible for different services provided to clients.
iii) M&J and Company, Chartered Accountants:

Baraka Group is an audit client of M&J and Co., Chartered Accountants. An investigation into the group’s tax affairs
started in December 2020. The tax authorities are investigating the possible underpayment of taxes by each of the
companies in the group, claiming that tax laws have been breached. The group’s tax planning was performed by
another firm of chartered accountants, ABC & Co, but the group’s audit committee has asked if your firm will support
the group by looking into its tax position and liaising with the tax authorities in respect of the tax investigation on its
behalf. ABC & Co. has resigned from their engagement to provide tax advice to the Group. The matter is to be
resolved by a tribunal which is scheduled to sit in March 2022.

Answer to the Question# 1(A)iii:

M&J, Chartered Accountants and Baraka Group Limited

The points to note are as follows:

i. Potential threat of professional competence
ii. Due care; and
iii. Lack of/or incomplete information
A member invited to undertake recurring or non-recurring work, which is additional to and related to continuing
work carried out by another chartered accountant or adviser should normally notify that other chartered accountant
(ABC & Co) of the work he has been asked to undertake. It is generally in the interest of the client that the existing
auditor be aware of the nature of the additional work being undertaken. The existing chartered accountant will be
provided with the opportunity to communicate with the member to provide information, absence of which, might
otherwise prevent the additional work from being carried out effectively. Additionally, such notification could affect
the way an existing chartered accountant discharges his continuing responsibilities to his client. Notification should
always be given to the existing chartered accountant. It should be noted that the application of accounting standards
or principles clearly requires particular sensitivity to avoid adversarial positions between an auditor and other
chartered accountants wherever possible.

iv) MK & Co., Chartered Accountants

Dunhill Limited is an audit client of MK & Co., Chartered Accountants. The management team of the company has
asked you to perform a valuation of the shares of another, MABS Limited, with a view to buying the entire
shareholding from its 3 shareholders. MK audited also MABS Limited for the last 3 years. Dunhill increased 75% of
audit fees for the year ended 31 December 2021.

Requirements:
Discuss the ethical and other professional issues raised for each of the above cases, and recommend actions which
should be taken by the companies concerned and Chartered Accountants firms above.

Answer to the Question# 1(A)iv:

MK Chartered Accountants and Dunhill Limited

The points to note are as follows:

i. Objectivity threats;

ii. Lack of independence;

iii. Confidentiality threats; iv. Conflicts of interest;

v. Advocacy threats; and

vi. Self-review threats

Advise to clients involved in take-over bids or share issues

Auditors are often asked to give advice. However, where clients are involved in a contested take-over bid, the
auditors could find themselves in a position where they are potentially acting for both parties where the situation
arises:

i. There is a danger that the firm cannot give objective professional advice in the best interest of both parties due to a
possible lack of independence; and

ii. The firm may be in possession of confidential information relating to each party, with a risk that the information
may inadvertently become available to the other party due to a possible breach of confidentiality. Guidelines in this
area are as follows:
i. There is no reason, in principle, why firms should not act for both parties when a contested takeover bid occurs
However, a firm should not be the sole or main advisor to both parties;

ii. If the accountants are in possession of material confidential information and feel that their position in this respect
is questionable, they should take advice from the appropriate financial regulatory authority for example, the stock
exchange involved in the take-over or the national regulator of the financial market; and Conflicts of interest may
arise in connection with issues of shares to the public because the accountants may be advising both the company
issuing the shares and potential investors, such as companies interested in buying the shares.

Nov-Dec 2021:

1. (a) You have recently joined A Q Shaha & Co. (AQS) Chartered Accountants. Two months before

your joining, you purchased some shares of Diamond Agro Limited whose price has subsequently

fallen significantly and resulted in unrealized loss. You have decided to hold the shares with

expectation that share price will rise in future. After your joining in AQS, you have been assigned

with the team engaged in audit of financial statements of Diamond Agro Limited.

Requirement:

Identify the ethical issue involved and discuss what actions you need to take to overcome the issue

according to International Standards on Auditing (ISAs). 3

(b) Angelic Hotel Limited (Angelic) is a prominent hotel in the city. Your firm frequently organizes

various training sessions and business meetings at the conference room owned and maintained by

Angelic. Also, your firm rents room at Angelic for many foreign delegates who visits your firm on

various business purposes. Your firm has an agreement with Angelic under which your firm will

select Angelic as the preferred hotel service provider, and Angelic will provide reduced rate, credit
facilities and priority services. Your firm has a good business relationship with Angelic and has clear

understanding of its business model. Because of this relationship, board of directors has expressed

their intention to appoint your firm as their next auditor in the upcoming Annual General Meeting.

Requirement:

Discuss the matter your partner should consider while accepting Angelic as an audit client and

how he should respond to the board of directors of Angelic. 3

(c) Pharma Plus Limited (PPL) is an audit client of your firm and your firm has been reappointed as auditor

for the year ending 31 December 2021. On 1st August 2021, PPL has acquired 70% shares of Nova

Research Limited (NRL). Your firm is responsible for designing and implementing SAP system in

NRL which is expected to be completed by 30 September 2021. Once SAP is implemented, NRL will

have automated control over financial management and reporting. NRL plans to record all the

transactions occurred during the year in SAP system and prepare its financial statements for the year

ending 31 December 2021. Financial statements of NRL will be consolidated with the financial

statements of PPL.

Requirement:

Discuss whether any ethical issue arises from providing audit service to PPL and consulting service

to NRL. 3

(d) Ahmed and Mushtaq are the team members of Petronus Media Limited (Petronus). They have

completed field work for the year ended 30 June 2021. After completion of the audit, they took an

Uber ride to transport the hard copy audit files from client premises to their office. Around half an

hour later, after reaching their office, they noticed that they have got off Uber without the audit files.

They called back the Uber driver and requested to return those files. Uber driver handed over those

audit files later at that afternoon and the audit team confirmed that no documents went missing.

Requirement:

Identify the ethical issues involved and current course of actions for Ahmed and Mushtaq.

(f) You are the audit senior, engaged in the audit of GTex Limited, a multinational thread

manufacturer. You have been assigned to audit trade receivables and you have identified that one

of the major clients of GTex Limited is Q Fashion, a 100% export-oriented company. Your firm

is also the auditor of Q Fashion. One of your friends is the audit manager of Q Fashion and you
share the same apartment with him. Due to COVID-19 lock down, both the audit manager and

yourself are working remotely from home. Recently you overheard the audit manager discussing

in an audit team meeting that Q Fashion was facing financial difficulties due to cancellation of

orders by foreign buyers. He even mentioned that Q Fashion is contemplating voluntary liquidation

under the Companies Act, 1994 due to severe financial difficulties. You checked the expected

credit loss calculation provided by GTex Limited and identified that no impairment loss had been

considered for material amount of trade receivables from Q Fashion as at 30 June 2021.

Requirement: Explain the professional and ethical issues in this scenario.

March-April 2021:

1. (a) Salman Apparels Limited (SAL) is a private limited company and a very old client of your firm.

Recently several staff of your firm including some of your team members have joined accounts

and finance team of SAL. Your engagement partner believes that their joining in SAL would

help in early completion of upcoming SAL audit since these former staff are aware of audit

requirements and procedures.

Discuss about partner’s view and share your opinion about continuing SAL audit

engagements. Suggest appropriate actions. 4

(b) Your firm has been providing accounting and financial statements preparation service of

Carnival Limited (Carnival). On 30 September 2020 Carnival was fully acquired by Rejoice

Limited (Rejoice) which is an audit client of your firm. Rejoice management provided you

consolidated financial statements for year ended on 31 December 2020 incorporating financial

information of Carnival. Carnival is material for rejoice as it is the only subsidiary of Rejoice

Limited.

Discuss the ethical issues involving audit of Rejoice Limited and suggest appropriate

actions to be taken by your firm. 4

(c) Your firm is auditing group reporting package and statutory financial statements of Sonali

Brothers Limited (SBL) for the year ended 31 December 2020. Group auditor has sent audit

instruction including group reporting materiality which is much higher than materiality for

statutory audit. During audit you have identified several material misstatements for which
correction entries have been suggested. In the meantime, management has already shared the

unaudited group reports to the group management for consolidation purpose and refused to

make adjustments in group reporting package. However, they have agreed to make the

corrections in the statutory financial statements and requested to issue an unmodified opinion

for both group reporting package as well as for statutory audit.

Suggest appropriate response to the management of SBL. 4

(d) Kamal is member of audit team engaged in audit of Moon Trading Limited (MTL) for the year

ended 31 December 2020. While working in a client premises, his team members has surprized

him with a cake and gifts to celebrated his birthday. Kamal was amazed and shared some

pictures of the gifts and cake in Facebook. Later that day, one of his team members notified him

that MTL’s recent financial statements are visible in the photo background. Kamal immediately

removed the photo and believes professional codes are not violated.

Discuss what actions the audit firm and Kamal should take. 3

(e) Recently the Institute of Chartered Accountants of Bangladesh (ICAB) has introduced a

document verification system (DVS) which allows audit practitioners to generate a unique

document verification code (DVC). Describe the purpose of Document Verification System

(DVS) and use of DVC.

Discuss briefly how it would benefit audit profession.

November-December 2020:

1. (a) You are leading the audit team responsible for audit of the financial statements of Codex Limited, a

software development company. Codex is prominent in digitalizing the operating procedures of various

companies through their software. During your audit, you have met HR Manager and the Software

Development department head. You have also come to know that Codex is currently hiring a software

developer for which one of your friends has applied. Your friend has requested you to recommend him

to the selection committee where HR Manager and the Software Development department head are

members. Discuss whether you should recommend your friend to the selection committee. Identify any

ethical or professional issues involved. 3

(b) Habib Garments Limited (HGL) is a recurring client of your firm where you are serving as Audit

Manager. You have been assigned to audit of HGL financial statements for the year ended 31 December
2019. As part of addressing fraud risks and testing management override of controls, your team has

decided to perform manual journal entry testing (JET) on revenue and trade receivables accounts. You

have identified 900 unusual trade receivable credits journals and revenue journals for which

corresponding entries were not Trade receivables or cash ledgers. Corresponding accounts of these

unusual revenue journals are from 40 different classes of transactions. Because of the strict deadline, your

team has planned and requested for your permission to check 25 journal entries which exceeds

performance materiality and ignore the rest of the journal entries.

Requirements: i) Identify ethical or professional issues involved from continuing this plan. 3

ii) Suggest appropriate audit procedures to your team. 3

(c) Your firm’s report to management and those charged with governance, prepared during the external audit

of Vancot Dyeing Ltd. (VDL) for the year ended 31 December 2019, identified a number of significant

internal control deficiencies in VDL’s inventory system. In March 2020, the company modified its

inventory system to address the deficiencies identified in your firm’s report. The directors of VDL have

requested that your firm accept an engagement to evaluate the design and operation of the system and

confirm in an assurance report that the system is now free from any control deficiencies.

Requirement: For the above prospective engagements, identify the professional and ethical issues

and steps your firm should take before deciding whether to accept the engagement. 4

(d) During your audit of Sky Castle Limited (SCL), you have noticed that SCL is making continuous losses

in operation, leading to negating retained earnings. It is currently dependent on its parent, Sea Palace

Limited (SPL), to provide finance to continue operating. You have determined that there is a threat to

going concern. However, Managing Director of SCL has informed you that SPL has no plan to close

operation of SCL and prepared the financial statements on the going concern basis. He has also provided

you with an email from SPL’s directors stating that SPL will continue to provide SCL with ongoing

financial support. No other procedure has been performed other than receipt of email confirmation.

Discuss whether the email can be reliable as audit evidence and identify whether any additional audit

procedures should be performed in relation to the email confirmation. 4

(e) Kowshik Furnitures Ltd. (KFL) is currently undergoing its statutory audit for the year ended 31 March

2020. KFL’s auditor has identified several inconsistencies in the financial statements that violates

accounting standards and companies existing accounting policies. KFL’s auditor has informed
management that they are going to express an adverse opinion on the company’s financial statements.

However, KFL’s management believe that audit opinion should be unmodified and approached your firm

to provide a second opinion on the auditor’s report. Identify and explain the ethical issues that may arise

for your firm from this request and state how your firm should deal with this request.

May-June 2019:

1. a) You are team senior of Shamim & Co. and currently engaged in client with extremely tight

schedule. You have assigned one junior team member to audit the revenue of the client. During

his audit, the junior team member selected several samples and identified several control

deficiencies and misstatements for which further work is necessary. To save time and complete

the engagement on time, your team member has proposed to remove the samples and select

newer samples without any misstatements or deficiencies.

Requirements:

i. Identify any ethical issue involved. How will you respond to your team member? 2

ii. What actions will you take to resolve the situation arising. 3

b) Essential Bank Limited (EB) is well known for its credit card facilities and various promotional

offers to its credit card holders. You have recently obtained a credit card and got an offer for a

foreign tour package for 2 weeks at a discounted price with option for 3 to 12-month interest

free equal monthly instalments (EMIs). Discounted price for the package is BDT 95,000 where

regular price is BDT 125,000. You have accepted the offer and taken a 6-month EMI option.

After you have returned from the tour, you have been informed that your firm has been

appointed as statutory auditor of EB and you have been assigned as engagement manager.

Discuss whether you are fit for the engagement team. Explain whether any actions need to be

taken by you. 5

c) Your firm were auditor of Mamun Limited for five years and you were engagement manager

in previous year. Recently board of Mamun Limited decided to change the auditor as part of

their auditor rotation policy. In this regard, Finance director of Mamun Limited has visited you

and your partner at your office. FD informed you about the company policy of auditor rotation
and requested to provide clearance to new auditor. In addition, he also informed that Mamun

Limited will take non-audit services from your firm. Finance Director thanked you and your

partner for the audit services in previous years. As token of appreciation, on behalf of the board,

he presented both of you with moderately expensive cell phone. Discuss whether you and your

partner should accept the present. Identify any ethical issue arising from receiving gift from

Mamun Limited. 3

d) After successfully completing your CA Certificate level exam, you have recently joined Huq

Hakim & Co., Chartered Accountants (HHC) leaving your position of senior accounts officer

in Golden Times Limited, a watch making company. Right after your joining, HHC has been

appointed as auditor of Golden Times Limited (GTL). As you have experience of working in

GTL and accustomed with company policies, your firm have assigned you as team leader of

GTL audit team.

Requirements:

i. Would you accept the audit assignment? Explain with reason? 2

ii. Identify probable threats to objectivity and independence from accepting the assignment.

Suggest appropriate safeguard to address the threats. 3

e) Mr. Sarker is engagement partner of Greenfield Limited audit for past 10 years and currently

preparing for the upcoming audit. He is very much concern about any potential threat to legal, ethical

and professional standards. He assessed that necessary safeguards have been taken for identified

threats and no new threat exists. Evaluate whether the assessment of Mr. Sarker is correct. 2

2. a) Atik & Co. has recently audited financial statement of Cargo Homes Limited (CHL) and issued

qualified opinion in relation to revenue recognition. Directors of CHL were not happy about the

modified opinion. They have decided to have the financial statements audited once again by a

separate auditor. They have approached to your firm and invited you to re-audit the financial

statements.

Requirements:

Explain whether your firm should accept the engagement. 4

b) Mahin Mobin Corporation (MMC) is currently evaluating an investment opportunity in Dhaka

Woods Limited (DWL). MMC has received a cash flow forecast from management of DWL.
MMC has asked your firm to provide an opinion whether the cash flow forecast is reliable and

assumptions are valid.

Requirements:

i) What are the matter your firm should consider before accepting the assurance engagement

for prospecting financial statements? 2

ii) Identify the difference between cash flow projection and cash flow forecast. 2

iii) What assurance standards will be applicable for this engagement? 1

iv) Explain how this engagement is different from audit of Cash Flow Statements. 2

c) Hoque Islam & Co (Hoque Islam) is a firm of Chartered Accountants which has seen its revenue

decline steadily over the past few years. Currently the firm is trying to increase its revenue and

client base. It has developed a new strategy where it has guaranteed to its new clients that its

audits will minimise disruption to companies operation as they will not last longer than two

weeks. Hoque Islam is currently considering two prospective audit clients.

1. Sharif Limited is a cement manufacturing company. In response to fixed fee quotation of Hoque

Islam, Sharif Limited has proposed percentage of its final pre-tax profit as form of audit fee. The

partners are excited about this option as they believe it will increase the overall audit fee.

2. Zahir & Brothers Ltd. which has year-end on 30 June. It requires its audit to be completed by

mid-August. However, this is a very busy time for Hoque Islam and so it is intended to use

more junior staff as they are available.

Requirement:

Discuss whether the clients should be accepted