Audit | Accounting homework help

Question 2

You are an audit senior at Branche & Co and have been allocated to the audit of Mello Vibes Co (Mello), a listed company which has been an audit client for eight years and specializes in manufacturing musical instruments. Beverly Oak was the audit engagement partner for Mello and as she had completed seven years as the audit engagement partner, she has recently been rotated off the audit engagement. The current audit partner, Sandeep Pine, has suggested that to maintain a close relationship with Mello, Beverly should undertake the role of independent review partner this year. In addition, Mello has requested that Beverly assist them by attending their audit committee meetings, as a non-executive director has recently left the company. Mello has also asked Sandeep and the other partners at Branche & Co to help them in recruiting a new non-executive director. The total fees received by Branche & Co for last year equated to 16% of the firm’s total fee income. The current year’s audit fee has not yet been confirmed, but along with taxation and other possible non-audit fees the total income from Mello this year could be greater than for last year. Last year’s audit fee was being paid monthly by Mello, but no payments have been made for the last three months. The audit manager for Mello has just announced that he is leaving Branche & Co to join Mello as the financial controller.

Required:

Using the information above:

(i) Identify and explain FIVE ethical threats which may affect the independence of Branche & Co’s audit of Mello Vibes Co; and (10 marks) (ii) For each threat explain how it might be reduced to an acceptable level. (15 marks)