Reference no: EM13557841

East field Distributors

Your firm is the external auditor of East field Distributors, a limited liability company which has revenue of $25 million and a profit before tax of $1.7 million. The company operates from a head office at East field and has sales and inventory holding centers in different parts of the country. The directors have decided the company has reached a size when it needs an internal audit department. As is becoming increasingly common, the directors have asked your firm to provide this service to the company as well as being the external auditor of the company's annual financial statements.

In answering the question, you should consider:

The effects of the ACCA's Code of Ethics and Conduct in relation to providing an internal audit service to Eastfield Distributors

The extent to which your audit firm can rely on the internal audit work when carrying out the external audit of Eastfield Distributors

The arrangements over control of the work and reporting of the internal audit staff:

The extent to which the internal audit staff should be responsible to Eastfield Distributors, and who should control their work

The extent to which the internal audit staff should be responsible to a manager or partner of the external audit firm, and whether the same manager and partner should be responsible for both the internal audit staff of Eastfield Distributors and the external audit.

Required

In relation to your audit firm becoming internal auditors of Eastfield Distributors:

1. Describe the matters you should consider and the action you will take to ensure your firm remains independent as external auditor of the annual financial statements

2. Describe the advantages and disadvantages to Eastfield Distributors of your firm providing an internal audit service

3. Describe the advantages and disadvantages to your audit firm of providing an internal audit service to Eastfield Distributors.