MAA303 Audit and Assurance - Chapter 2: Ethics, legal liability and client acceptance

Questions 2.38 and 2.39 are based on the following case.

Chan and Partners Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2017 year Chan and Partners gained a new client, Medical Services Holdings Group (MSHG), which owns 100 per cent of the following entities:
Shady Oaks Hospital, a private hospital group
Gardens Nursing Home Pty Ltd, a private nursing home
Total Cancer Specialists Limited (TCSL), a private oncology clinic that specialises in the treatment of cancer.

Year-end for all MSHG entities is 30 June.

TCSL owns two relatively old linear accelerators used in radiation therapy. Recently, radiographers using these linear accelerators have raised concerns that they have adverse radiation impacts on patients.

The CEO of TCSL, Betty Buick, has approached Tania Fellowes, the audit partner responsible for the financial report audit, about undertaking an engagement in respect of the linear accelerators. Betty has requested Tania provide an opinion that the linear accelerators are fit for use. Betty pointed out that the TCSL audit is up for tender the following year and suggested Chan and Partners might like to take on the linear accelerators engagement without charging a fee as a gesture of goodwill.

Prior to the appointment of Chan and Partners as the auditor for the group which controls TCSL, MSHG, for the 2017 financial year, some preliminary analysis by Tania Fellowes identified the following situations:
1. One of the accountants intended to be part of the 2017 audit team owns shares in MSHG. The accountant’s interest is not material to him.
2. Chan and Partners was previously engaged by MSHG to value its intellectual property. The consolidated balance sheet (statement of financial position) as at 30 June 2017 includes intangible assets of $30 million, which were valued by Chan and Partners on 1 March 2017 following MSHG’s acquisition of the subsidiary Shady Oaks Hospital. The intangibles are considered material to MSHG.

2.38 Ethics of accepting engagements

Required:
Explain why Tania should have reservations about accepting the engagement in respect of the linear accelerators. Make appropriate reference to fundamental ethical principles in your answer.