Question

Your firm, Adam & Co, was approached by Sky Limited (“the company”) to act as its new

independent auditor for the year ending 31 December 2020.

As an audit partner of the firm you have met with the management of Sky Limited to discuss the

audit appointment. During the meeting, you were told that the company would like to appoint

your firm as the new auditor because of the larger size and better firm reputation as compared with

the current auditor. You were also told that the company was in the course of discussing capital

injection by a third party and in this regard a full scope audit of the company’s financial statements

for the six-month period ended 30 June 2020 (“the Interim Financial Statements”) is required to

support the proposed transaction.

Pursuant to the capital injection agreement (“the Agreement”) the company has to provide the

audited Interim Financial Statements within three months of the date of the Agreement, which is

no later than 15 October 2020 or the deal would be called off. As the company is a small-sized

entity which has a small accounting team and in view of the urgency of the matter, the company

would like Adam & Co to help it carry out the book closing and prepare the Interim Financial

Statements for audit purposes. The company is willing to pay your firm for the time spent plus a

bonus which will be payable after the issuance of the audit opinion and upon the successful

completion of the capital injection.

Required:

(a)

Identify and explain if there are any independence issues in connection with the above-proposed appointment.

(b)

List out any two further considerations in connection with your assessment of the

acceptance.