SUGGESTED SOLUTION AUDITING 3A MAY 2022 EXAM 1. Prepare a working paper, describing the issues that you would include in the letter for submission to the engagement partner, as reasons why the reappointment to perform the audit of RBPM should not have been accepted. The following suggests that the pre-conditions of ISA 210:6 may not have been met: 3 a. It seems Michael, as the director, does not acknowledge full responsibility for the preparation of the AFS (1) and internal controls (1), as per his statement that the AFS and related internal control are the responsibility of Linda (1). b. There is also a possible scope or access limitation for the audit: 1 . as the accountant will be away during the audit and won't be available to address any audit 1 queries. · information was lost and not recovered during the break-in. 1 The following should have been considered should have influenced our decision towards not continuing with the audit of RBPM: c. There is a self-interest and familiarity threat to the independence of Dlangezwa due to: 1 . their long association with RBPM as external auditors (eight years); 1 1 . as well as the personal relationship (friendship) that has developed between Michael and the partner. . These would cause the partner (and the team) not to apply their professional scepticism and to overlook issues at the company. 1 . The threats is significant as Dlangezwa has been the auditor for the past eight years (1) and/or Michael is the founder and sole director and the partner has responsibility for the audit and they both have significant influence (1). 2 d. There is also a specific concern with the independence of the partner due to the number of years (eight) that they have been on the audit without rotation. 1 . s92 of the Companies Act requires that an auditor does not serve for more than 5 years. Therefore this legal requirement is not met. 1 . S540 of the CPC also requires that an auditor not serve for more than 7 years. This ethical 1 requirement has also not been met, although the Companies Act requirement takes precedence (Bonus mark = 1). e. Management's integrity is also questionable, due to the following: 1 · The advances (cash) that he pays to himself as and when he pleases. 1 . Adjusting the commission rates up on some transactions when he feels the commission amount is too little. 1 · Unfavourable attitude towards applying correct accounting standards. 1 2 . Michael is not interested in the processing/method of compiling the financial statements - as long as the financial statements reflect good results (1). This is also particularly evident from the lack of interest in the revenue and receipts improvements initiated by the accountant (1). . The loss in the current year, struggle to pay day-to-day expenses and overdraft may be an indicator of a potential inability to settle audit fees by RBPM. 1 f. The following significant risks exist