ACC311 Assignment No. 1 Solution Spring 2013

DUE DATE: 2
nd
SEMESTER SPRING 2013
FUNDAMENTALS OF AUDITING –ACC 311
ASSIGNMENT
NO. 01
MAY 2013 MARKS: 20
Learning objectives:
The students are expected to learn ethics to be observed by an auditor in his
profession.
Assignment:
Nabi Buksh Chartered Accountants (NBCA) is a large audit firm having specialization in the audit of
large specialized retailers. NBCA has been working as auditor of Multi Food Company (MFC) - a large
fast food chain store for the last five years. Recently, MFC’s main competitor - Hot Food Company
(HFC) has also approached NBCA to act as their auditors. Both the companies are highly competitive
and upon sensing this deal, MFC is keenly concerned about its business secrets which are likely to leak.

This year MFC’s internal audit department is overly stressed due to lack of employees and this
department is unable to cop it. Therefore, MFC management is considering either to hire more
employees or outsource the functionality of this department. Hiring option requires extensive training
of new recruits but the year closing is on, whereas, the outsourcing requires experts to visit regularly to
test controls both at the outlets and head office. In this regard, MFC is considering NBCA for
outsourcing its internal audit functions while letting NBCA to remain its external auditors.
The managing director of MFC has just recruited his eldest son – Mr. Big as the company’s purchase
manager. He would receive company’s shares in place of monetary salary as his compensation. Mr. Big
has suggested to his father – the Company’s MD to appoint NBCA as internal auditors on the
condition that their remuneration will be equal to 5% of the company’s yearly profits. He is of the view
that this deal would certainly align the interests of NBCA and MFC.

Required:
1. How NBCA can assure MFC over up-keeping of its business secrets? (4 marks)
2. What are the pros and cons of outsourcing for MFC of its internal audit functions? (5 marks)
3. Is it appropriate for NBCA to work as internal auditor of MFC? Why and why not? (5 marks)
4. Should NBCA accept Mr. Big’s offer. Why and why not? (6 marks)
Note: For answering the above questions, you need to read “Code of Ethics for Chartered Accountants”


issued by Institute of Chartered Accountants of Pakistan. You can download this document at:
[You must be registered and logged in to see this link.]

IMPORTANT:
24 hours extra / grace period after the due date are usually available to overcome uploading difficulties. This
extra time should only be used to meet the emergencies and above mentioned due dates should always be
treated as final to avoid any inconvenience.
OTHER IMPORTANT INSTRUCTIONS:
D
EADLINE:
• Make sure to upload the solution file before the due date on VULMS.
• Any submission made via email after the due date will not be accepted.
FORMATTING GUIDELINES:
• Use the font style “Times New Roman” or “Arial” and font size “12”.

• It is advised to compose your document in MS-Word format.
• You may also compose your assignment in Open Office format.
• Use black and blue font colors only.
REFERENCING GUIDELINES:
• Use APA style for referencing and citation. For guidance search “APA reference style” in Google and
read various website containing information for better understanding or visit
APA REFERENCE STYLE: Table of Contents

RULES FOR MARKING
Please note that your assignment will not be graded or graded as Zero (0), if:
• It is submitted after the due date.
• The file you uploaded does not open or is corrupt.
• It is in any format other than MS-Word or Open Office; e.g. PowerPoint, PDF etc.
• It is cheated or copied from other students, internet, books, journals etc.
Note related to load shedding: Please be proactive
Dear students!
As you know that Pre Mid-Term semester activities have been started and load shedding
problem is also prevailing in our country now a days. Keeping in view the fact, you all are
advised to post your activities as early as possible without waiting for the due date. For your
convenience; activity schedule has already been uploaded on VULMS for the current
semester, therefore no excuse will be entertained after due date of assignments, quizzes or
GDBs.

What is Code of Ethics?
The "Code of Conduct" is essentially a set of professional ethical standards regulating the relationship of Chartered Accountants with their clients, employers, employees, fellow members of the group and the public generally.
The maintenance of ethical standards is the collective concern of the Institute as well as all members of the profession. The ideal situation, of course, would be that the maintenance of ethical standards at individual member level is so self-evident that its further mention need not be made. However, the human nature being what it is, a man may often place his personal gain above service. Therefore, it is necessary to keep on reinforcing the idea of keeping up and observing the highest ethical standards repeatedly.”