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Audit Assurance Assignment

The document discusses an audit assurance assignment involving two companies, MFC and HFC. MFC's internal audit department is understaffed and must decide whether to hire employees or outsource functions. MFC is considering outsourcing to NBCA, its external auditor, while keeping NBCA as its external auditor. However, NBCA also audits MFC's competitor HFC, so MFC is concerned about its business secrets leaking. Additionally, the new purchase manager at MFC, Mr. Big, proposes NBCA become internal auditor with compensation of 5% of yearly profits.

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70 views2 pages

Audit Assurance Assignment

The document discusses an audit assurance assignment involving two companies, MFC and HFC. MFC's internal audit department is understaffed and must decide whether to hire employees or outsource functions. MFC is considering outsourcing to NBCA, its external auditor, while keeping NBCA as its external auditor. However, NBCA also audits MFC's competitor HFC, so MFC is concerned about its business secrets leaking. Additionally, the new purchase manager at MFC, Mr. Big, proposes NBCA become internal auditor with compensation of 5% of yearly profits.

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Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Audit Assurance 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?
2. What are the pros and cons of outsourcing for MFC of its internal audit functions?
3. Is it appropriate for NBCA to work as internal auditor of MFC? Why and why not?
4. Should NBCA accept Mr. Big’s offer. Why and why not?
Solutions:
1. How NBCA can assure MFC over up-keeping of its business secrets?
Ans. Nabi Buksh Chartered Accountants (NBCA) is a large audit firm having specialization in
the audit of large specialized retailers. NBCA assure MFC over up-keeping of its business secret
because of its past good performance. And if NBCA hired their employed and not outsource
visiting executive then the NBCA safe the secret of MFC. NBCA need to hired new employee
and trained them not outsource the visiting executive to safe and secure the business secret of
MFC and another Client.

2. What are the pros and cons of outsourcing for MFC of its internal audit functions?
Ans. 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.

3. Is it appropriate for NBCA to work as internal auditor of MFC? Why and why not?
Ans. If NBCA are going to outsourcing employee for internal audit of MFC then it is not
appropriate because if NBCA outsource then visiting executives involves in this internal audit so
the secrets of MFC are leaked due to visiting executives and MFC is keenly concerned about its
business secrets which are likely to leak. So that is not appropriate for NBCA.

4. Should NBCA accept Mr. Big’s offer. Why and why not?
Ans. Yes NBCA have to accept the offer of Mr. Big’s because NBCA have lack of employee and
He would receive company’s shares in place of monetary salary as his compensation. Mr. Big
ready to work on compensation salary so that is good for NBCA and need to accept the offer of
Mr. Big’s.

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