Which Course of Action Should You Follow

question 20

Essay

Which course of action should you follow?
a) You have to decline as it is a definite conflict and is effectively ruled out by the ethical guidelines of your RSB.
b) It is a conflict of interest and there is a danger of being involved in management decision making which is prohibited specifically by the ethical rules. Providing separate teams were used and the internal audit was overseen by another partner it would be possible to take on the work. The external audit team must remain independent of the internal audit team and there must be no communication between them except at arm's length during the course of the audit.
c) It will help the audit by giving you a better insight into the company so could be looked at as an extension of the external audit. You could use the same team and simply amend the external audit programs accordingly.
d) If this was the USA it would be illegal and cases such as Enron demonstrate the dangers of being seen to go soft on the company because of all the lucrative non audit work - best to avoid the whole thing even if it means a rival firm becomes involved with your client.

---

Definitions:

Spanish Empire

Was one of the largest empires in world history, spanning the Americas, parts of Asia, Africa, and Europe, characterized by its vast territories and colonial wealth from the 16th to the 19th centuries.

Overextending Resources

The act of stretching resources beyond their capacity, often leading to depletion or failure of a system or organization.

Losing Power

The process or state of an entity or individual's diminishing authority, control, or influence over others or self.

Price Revolution

A period of marked inflation in Europe from the 15th to the 17th century, largely due to the influx of silver and gold from the New World and growing population.