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DUE DATE: 2nd SEMESTER SPRING 2013 FUNDAMENTALS OF AUDITING –ACC 311 ASSIGNMENT
MAY 2013 MARKS: 20
The students are expected to learn ethics to be observed by an auditor in his
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.
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:
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RULES FOR MARKING
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Note related to load shedding: Please be proactive
As you know that Pre Mid-Term semester activities have been started and load shedding
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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.”
find the attachment file and see code of ethics for chartered accountants in Pakistan by Institute of Chartered Accountants of Pakistan
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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?