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ACC311 GDB # 1 Solution Spring 2013

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GMT + 3 Hours ACC311 GDB # 1 Solution Spring 2013

Post by Victoria333 Wed May 15, 2013 7:07 pm

Total Marks20Starting DateFriday, May 10, 2013Closing DateTuesday, May 14, 2013StatusOpenQuestion/DescriptionLearning Objective:
The students are expected to learn about ATR 14 observed by the professional auditors in Pakistan.

Background:

Consider the following sections of revised Code of Ethics for Chartered Accountants issued by Institute of Chartered Accountants of Pakistan as background before attempting this GDB:

Section 210
210.1 Before accepting a new client relationship, a chartered accountant in practice shall determine whether acceptance would create any threats to compliance with the fundamental principles. Potential threats to integrity or professional behavior may be created from, for example, questionable issues associated with theclient (its owners, management or activities).
210.9 A chartered accountant in practice who is asked to replace another chartered accountant in practice, or who is considering tendering for an engagement currently held by another chartered accountant in practice, shall determine whether there are any reasons, professional or otherwise, for not accepting the engagement, such as circumstances that create threats to compliance with the fundamental principles that cannot be eliminated or reduced to an acceptable level by the application of safeguards. For example, there may be a threat to professional competence and due care if a chartered accountant in practice accepts the engagement before knowing all the pertinent facts.
Section 240
240.1 When entering into negotiations regarding professional services, a chartered accountant in practice may quote whatever fee is deemed to be appropriate commensurate with the nature and service to be rendered. However, in such cases, chartered accountants in practice should be careful not to quote fee lower than that charged by the chartered accountants in practice previously carrying out the audit unless scope and quantum of work materially differs from the scope and quantum of work carried out by the previous auditor, as it could then be regarded as undercutting.
240.2 Chartered accountants in practice shall comply with ATR-14, Minimum Hourly Charge out Rates and Minimum Fee for Audit Engagements.

The Case:
M/S Atta Ch. Chartered Accountants (ACCA) is currently rated among top five chartered accountancy firms of the country. Mr. Bakshi Khan, the company secretary of Multi Cement Company (MCC) – a company which is a market leader of cement sector, has requested ACCA to act as their auditors for the next financial year in place of their current chartered accountancy firm M/S Haji & Sons Chartered Accounts (HSBA). Overall, ACCA is happy to get the appointment but the HSBA has not yet resigned. Mr. Bakshi has assured that MCC will not reappoint them in future provided ACCA wave off 25 percent of the first year audit fee.
Required:
Whether the above arrangement is acceptable under both legal and ethical guidelines? Explain your answer in the light of ATR-14.
Hint: For solving this GDB, read ATR-14 mentioned in Members’ Handbook from page 11 to page 14 available on the following link:
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GMT + 3 Hours Re: ACC311 GDB # 1 Solution Spring 2013

Post by Victoria333 Wed May 15, 2013 7:09 pm

ACC311 1st GDB Solution spring 2013
Consider the following sections of revised Code of Ethics for Chartered Accountants issued by Institute of Chartered Accountants of Pakistan as background before attempting this GDB:

Section 210
210.1 Before accepting a new client relationship, a chartered accountant in practice shall determine whether acceptance would create any threats to compliance with the fundamental principles. Potential threats to integrity or professional behavior may be created from, for example, questionable issues associated with the client (its owners, management or activities).
210.9 A chartered accountant in practice who is asked to replace another chartered accountant in practice, or who is considering tendering for an engagement currently held by another chartered accountant in practice, shall determine whether there are any reasons, professional or otherwise, for not accepting the engagement, such as circumstances that create threats to compliance with the fundamental principles that cannot be eliminated or reduced to an acceptable level by the application of safeguards. For example, there may be a threat to professional competence and due care if a chartered accountant in practice accepts the engagement before knowing all the pertinent facts.
Section 240
240.1 When entering into negotiations regarding professional services, a chartered accountant in practice may quote whatever fee is deemed to be appropriate commensurate with the nature and service to be rendered. However, in such cases, chartered accountants in practice should be careful not to quote fee lower than that charged by the chartered accountants in practice previously carrying out the audit unless scope and quantum of work materially differs from the scope and quantum of work carried out by the previous auditor, as it could then be regarded as undercutting.
240.2 Chartered accountants in practice shall comply with ATR-14, Minimum Hourly Charge out Rates and Minimum Fee for Audit Engagements.

The Case:
M/S Atta Ch. Chartered Accountants (ACCA) is currently rated among top five chartered accountancy firms of the country. Mr. Bakshi Khan, the company secretary of Multi Cement Company (MCC) – a company which is a market leader of cement sector, has requested ACCA to act as their auditors for the next financial year in place of their current chartered accountancy firm M/S Haji & Sons Chartered Accounts (HSBA). Overall, ACCA is happy to get the appointment but the HSBA has not yet resigned. Mr. Bakshi has assured that MCC will not reappoint them in future provided ACCA wave off 25 percent of the first year audit fee.
Required:
Whether the above arrangement is acceptable under both legal and ethical guidelines? Explain your answer in the light of ATR-14.
Hint: For solving this GDB, read ATR-14 mentioned in Members’ Handbook from page 11 to page 14 available on the following link:
icap dot org dot pk/userfiles/file/ha...diting dot pdf


AUDITING ATR-14 (Revised-200
Notes:
i) The terms “Economically Significant Entities” (ESE), “Medium Sized
Entities”(MSE) and “Small Sized Entities” (SSE) shall have the same
meaning as defined in S.R.O.859(I)/2007 dated 21 August 2007 issued
by the Securities and Exchange Commission of Pakistan pursuant to
Section 234 of the Companies Ordinance, 1984.
ii) Considering the practical difficulties being faced by various practicing
members in the determination of audit fee, the Council has decided
that the prescribed minimum audit fee shall be charged without any
exception. However, in case of an existing audit client, the present
audit fee shall be enhanced to the aforesaid prescribed level over a
period of two years with mutual consent provided it is not less than
75% of the prescribed minimum in the first year. Nevertheless, in case
of acceptance of an audit client by a practicing member for the first
time the prescribed fee levels shall be strictly observed.
5. Minimum Audit Fee in Certain Circumstances

. Minimum Audit Fee in Certain Circumstances
For audit engagements of clients in the pre-incorporation / pre-operation
stages or in case of sickness of the project or closed operations or
discontinuation of business, the prescribed minimum audit fee chargeable
by the practicing members shall be as under:
Listed Companies/
ESEs
MSEs SSEs
Minimum audit fee:
Rs.75,000
Rs.50,000 Rs. 30,000
The exception in paragraph 4(ii) above shall apply mutatis mutandis to the above
paragraph 5.
6. The minimum audit fee prescribed in paragraph 4 and 5 above is exclusive of
the below mentioned additional services to be rendered by a statutory auditor
under the Code of Corporate Governance and for any other certifications and
the professional fee for such services shall be charged separately by mutual
consent
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GMT + 3 Hours Re: ACC311 GDB # 1 Solution Spring 2013

Post by Victoria333 Wed May 15, 2013 7:09 pm

ATR-14 (Revised-2008)
MINIMUM HOURLY CHARGE OUT RATES AND MINIMUM FEE FOR
AUDIT ENGAGEMENTS
1. The audit engagements carry immense responsibility and which has
increased manifold in recent years. To meet the expectations of various
stakeholders, stringent regulatory requirements and ever increasing
demand to increase the level of due care, the members need to perform the
audit exercising very high degree of “professional competence.” Such work
is also required to be properly documented to support the opinion
expressed by the auditors.
2. The Council of the Institute of Chartered Accountants of Pakistan (ICAP)
has recently issued a notification making it mandatory, for the firms doing
audit of listed and public sector entities, to observe from 1 July 2009 ISQC
1, Quality Control for Firms that Perform Audits and Reviews of
Historical Financial Information and Other Assurance and Related
Services Engagements, issued by IFAC and has also notified, ISA 220
Quality Control for Audits of Historical Financial Information, ISA 230
Audit Documentation etc. These standards require extensive
documentation of audit procedures and recruitment of qualified staff.
Furthermore the minimum stipend rate for audit trainees have also
significantly increased. Hence, the cost to perform audit by the firms has
significantly increased to ensure that quality control procedures are
adequately complied with by the firms.
3. The Council of the ICAP periodically reviews and prescribes minimum
hourly rates, which it considers reasonable and compatible with the
increase in the cost to complete the engagements and quality of
professional standards to be observed by the practicing members of the
Institute. The current minimum chargeable rates as prescribed by the
Council of the Institute are shown below:AUDITING ATR-14 (Revised-2008)
Rupees
Per man-hour
Partner 7,500
Qualified Support Staff:
Above 8 years
4 to 8 years
Below 4 years
5,000
4,000
3,000
Supervisor 2,000
Senior 1,000
Semi-Senior 750
Junior 500
4. The level of fee is to be mutually agreed between the auditor and his
client, which largely depends upon the volume of work involved and
estimated time to be incurred on the audit engagement. The Council whilst
recognizing this principle is however, of the view that there has to be a
minimum threshold of audit fee. To achieve the desired objective, the
following minimum audit fee is prescribed (which may be increased by
consent having regard to specific circumstances of an audit engagement).
Schedule of Minimum Audit Fee:
Type of entity Minimum
Fee Rupees
Listed companies
Turnover up to 500 million 250,000
Turnover over 500 million up to 1 billion 300,000
Turnover over 1 billion up to 5 billion 500,000
Turnover above 5 billion 1,000,000
Economically Significant Entities
Turnover up to 1 billion 250,000
Turnover over 1 billion up to 5 billion 400,000
Turnover above 5 billion 800,000
Medium Sized Entities 125,000
Small Sized Entities 75,000AUDITING ATR-14 (Revised-2008)
Notes:
i) The terms “Economically Significant Entities” (ESE), “Medium Sized
Entities”(MSE) and “Small Sized Entities” (SSE) shall have the same
meaning as defined in S.R.O.859(I)/2007 dated 21 August 2007 issued
by the Securities and Exchange Commission of Pakistan pursuant to
Section 234 of the Companies Ordinance, 1984.
ii) Considering the practical difficulties being faced by various practicing
members in the determination of audit fee, the Council has decided
that the prescribed minimum audit fee shall be charged without any
exception. However, in case of an existing audit client, the present
audit fee shall be enhanced to the aforesaid prescribed level over a
period of two years with mutual consent provided it is not less than
75% of the prescribed minimum in the first year. Nevertheless, in case
of acceptance of an audit client by a practicing member for the first
time the prescribed fee levels shall be strictly observed.
5. Minimum Audit Fee in Certain Circumstances
For audit engagements of clients in the pre-incorporation / pre-operation
stages or in case of sickness of the project or closed operations or
discontinuation of business, the prescribed minimum audit fee chargeable
by the practicing members shall be as under:
Listed Companies/
ESEs
MSEs SSEs
Minimum audit fee:
Rs.75,000
Rs.50,000 Rs. 30,000
The exception in paragraph 4(ii) above shall apply mutatis mutandis to the above
paragraph 5.
6. The minimum audit fee prescribed in paragraph 4 and 5 above is exclusive of
the below mentioned additional services to be rendered by a statutory auditor
under the Code of Corporate Governance and for any other certifications and
the professional fee for such services shall be charged separately by mutual
consent.AUDITING ATR-14 (Revised-2008)
· Attend the Audit Committee Meetings of clients
· Issue a Review Report on Statement of Compliance with Best Practices
of Corporate Governance
· Issue Review Report on half – yearly financial statements
· Special certification required by regulators over and above normal
scope of audit
7. The minimum audit fee determined in accordance with this ATR shall not
be less than the present audit fee of an existing client.
8. In case of joint audits, fee may be shared among the auditors as may be
mutually agreed between them.
9. The fee may be reviewed annually to cover inflationary effects in costs.
10. The hourly rates and fee are exclusive of traveling and hotel expenses, out
of pocket expenses and other incidental costs which would be
reimbursable to auditors at actual.
11. In case of a religious or charitable institution or a company “not for
profit”, the practicing members may undertake to do the audit on a token
fee or on an honorary basis.
12. At the time of quality control review, the reviewer will ensure the
compliance of this ATR.
This Directive supersedes ATR-14 (Revised) issued pursuant to the Council’s
decision of 30 March, 2007 and would apply to all audit appointments made after
August 31, 2008.
(197th meeting of the Council held on July 25, 2008)
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