Class question 15 marks

You are a newly appointed partner in the auditing firm Max

and Alex Inc. You have previously been working in the
mining industry. The firm is relatively new and all the
partners are young and dynamic. The firm has grown very
fast and already has a listed company as a client. You are
trying to appoint additional staff as there are currently a
shortage in personnel because of the growth rate.

A friend of yours, Cobus Green, asked you to act as

auditor of his company, Safety Mirrors Limited a listed
company. You and Cobus were at school together and still
go on holiday together each year. The previous auditors
resigned. Management has agreed that you may contact
the previous auditor and placed no limitations on the audit.

You organized a meeting with the directors. A summary of

the information gathered at the meeting follows:

 The company’s turnover decreased and thus has cash

flow problems because of this. Management assured
you that the problems are not of a long-term nature, as
they expect that new safety mirrors developed
containing a GPS will sell well.

 Management is responsible for financial reporting and

use a very simple computer system and asked you to
advise them regarding the acquisition of a new
computer system appropriate to their accounting
needs.
 Cobus is an experienced and successful businessman
with a good business reputation who had previously
been a member of management of a wholesale gholf
shop. The other two directors are very young and
inexperienced. After graduating with BComm degrees,
they both worked in America for a year. They brought
the money they earned there, back to South Africa to
start Safety Mirrors Limited one years ago. They are
Cobus’ brothers and do not know a lot about internal
controls and .are still busy to implement internal
control measures and asked you to help them with
this.

REQUIRED

Discuss the aspects that you will consider before you

decide to accept the appointment as auditor of Safety
Mirrors Limited (15)
(Source – SU)
Factor Reason

Factor Reason