2. You are the audit manager of Cloud & Co and you are planning the audit of Connect Financials Co (Connect), who specialize in the provision of loans and financial advice to individuals and companies. Cloud & Co has audited Connect for many years.
The directors are planning to list Connect on a stock exchange within the next few months and have asked if the engagement partner can attend the meetings with potential investors. In addition, as the finance director of Connect is likely to be quite busy with the listing, he has asked if Cloud & Co can produce the financial statements for the current year.
During the year, the assistant finance director of Connect left and joined Cloud & Co as a partner. It has been suggested that due to his familiarity with Connect, he should be appointed to provide an independent partner review for the audit.
Once Connect obtains its stock exchange listing it will require several assignments to be undertaken, for example, obtaining advice about corporate governance best practice. Cloud & Co is very keen to be appointed to these engagements, however, Connect has implied that in order to gain this work Cloud & Co needs to complete the external audit quickly and with minimal questions/issues.
The finance director has informed you that once the stock exchange listing has been completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior member of the engagement team a short‐term loan at a significantly reduced interest rate.