ACC – Hertenstein Ltd., and Ajax Ltd

December 14, 2020

Question 1
Elise Dallimore is the partner in charge of the audit of Hertenstein Ltd, a large listed public company. Elise took over the audit from Marjorie Platt, who has recently retired from the audit firm. Marjorie was a very experienced auditor and the author of several reports into  ethical standards in business, but Elise did not regard her highly for her ability to grow non­ audit service fee revenue. Elise sees an opportunity to increase the provision of non­audit services to Hertenstein Ltd and thus increase her reputation within the audit firm.

a. Comment on Elise’s belief that increasing non­audit service fee revenue from her audit client would increase her reputation in the audit firm.
b. Which non­audit services would you advise Elise to avoid trying to sell to Hertenstein Ltd because of the potential ethical issues for the audit firm?
c. Would I make any difference to your answers if Hertenstein Ltd was a proprietary company, not a listed public company?

Question 2
Ajax Ltd is a listed company and a new client of Delaware Partners, a medium­sized audit firm. Jeffrey Rush is the engagement partner on the audit and has asked the members of the audit team to commence the process of gaining an understanding of the client, in accordance with ASA 315. One audit manager is leading the group investigating the industry and economic effects. And another is helping Jeffrey consider issues at the entity level. Jeffrey is holding discussions with members of the audit committee and his talks will cover a wide range of issues, including the ASX Corporate Governance Council’s Corporate governance principles and recommendations. He has a meeting arranged for next week with the four members of the audit committee, is an independent director.
Based on the above information, can you conclude that Ajax Ltd complies with Principle 4 of the ASX Corporate Governance Council’s Corporate governance principles and recommendations? Explain.