Question

Part 1/THE AUDITING PROFESSION 3-20 (Objective 5-7) Iman Radwan serves on the audit com cations, Inc., a telecommunications start-up company awan serves on the audit committee of Eagle Communi- company. One of the audit committee's responsibilities is to evaluate cations start-up company. The company is currently a private tors independence in performing the audit of the company's financial su at committee's responsibilities is to evaluate the external audi ducting this vear's eve ng this years evaluation, Iman learned that Eagle Communications external auditor also performed the following IT and e-commerce services for the company 1. Installed Eagle Communications' information system hardware and software selected by Eagle management. 2. Supervised Eagle Communications' personnel in the daily operation of the newly installed information system. 3. Customized a prepackaged payroll software application, based on options and speci- fications selected by management 4. Trained Eagle Communications' employees on the use of the newly installed infor mation system. 5. Determined which Eagle Communications products would be offered for sale on the company's internet website. 6. Operated Eagle Communications local area network for several months while the com- pany searched for a replacement after the previous network manager left the company. Consider each of the preceding services separately. Evaluate whether the performance of each service violates the IESBA Code of Ethics. 5-21 (Objectives 5-6,5-7) Zeina El Magd encounters the following situations in doing the audit of a large auto dealership. Zeina is not a partner. and then rewrit of money. The 4. Samir, CPA, substantial lin is a 100 perce stantial limite 5. After the aud do the accou are severald to his super 6. Jamal, CPA the audit, ta Decorating business de company.) he doesn't opment co president join his co Which of the pre fundamental pri 5-23 (hieti Required

Answer 1

All the above except 5 may lead to conflict of interest in conducting external audit and as such should not be outsourced to external auditors.

The management may say that the errors in the accounting are due to errors in installing the softwares by external auditors and may lead to collusion etc. also.

The management may contend that external auditors supervised the personnel and so there will be conflict of interest by blaming the supervision for the errors etc.

Errors in payroll may be attributed to incorrect customisation and lead to losing objectivity, collusion etc.

The management may contend that the personnel were trained in a specific way that lead to errors and omissions, mistakes, even frauds.

Consultation on products to be sold on the company's intranet does not lead to conflict of interest as the actual products that can be sold in the intranet is at management discretion. However if the management can in future contend that due to the external auditor's determination of products, the sales actually decreased, the external auditor may lose objectivity and there may be conflict of interest. So consultation role is allowed, not actual decision making.

The management may contend that there were issues in local area network for any error / omission / fraud noted by the external auditors and so leads to conflict of interest, losing objectivity, collusion to protect relationships etc.

In general, where there are chances of disputes between management and external auditors on work done by external auditors, there are chances of losing objectivity and collusion to protect relationships etc.