Case Study 3 Bersatu Credit Bhd a) Ethical threats There are six ethical threats which may affect

t the independence of Chew, Camalia & Cos audit of Bersatu. The first threat is self interest threat. Self interest threat is when the auditor having close business relationship with the audit client and the audit firm has a financial interest in the clients affair. Receiving gifts and hospitality from audit client may also affect the independence of auditor. This threat can be seen in the case as the finance director would like the engagement team to attend a weekend away at a luxury hotel as a thank you for all their hard work. The second threat is self review threat. This threat can be identified when the audit firm which being the auditor is also involved in the preparation of accounting records and financial statement of the audit client. In this case, self review threat occurred when the financial director has asked if Chew, Camalia& Co can produce the financial statement of Bersatu for the current year. Familiarity threat might as well affect the independence of Chew, Camalia& Co. This kind of threat happened when the audit firms long association with the audit client may be over influencing the auditors professional judgement with regards to the audit. Familiarity threat can be identified when Bersatu is keen to appoint Chew, Camalia& Co to undertake the engagements due to their familiarity with the company and the appointment will definitely affect the independence of audit team. Other than that, the audit firm may be intimidated by threat that they may be sued by the audit client or may be sued by the audit client or loss of audit engagement and this is so called intimidation threat. This kind of threat can be seen in the case as the senior member of the engagement team had been offered a short-term loan at a significantly reduced interest rate. A close business relationships between a firm and a member of the audit team created financial interest among auditors and this may affect the audit independence. The other threat is an advocacy threat. This threat arises when the audit firm is promoting the shares of the listed client. The threat may affect the independence of Chew, Camalia& Co if the practitioner acting as an advocate on behalf of an audit client in litigation with third parties.

b) Safeguards of ethical threats Ethical Threats Self interest threat Safeguards Remove the member of the

engagement team that is involve in the threat Self review threat The audit client responsible to

prepare the financial statements by themselves and should not asked the audit firm to produce the financial statements Familiarity threat Assigned engagement team which are not directly related or familiar with the client companys environment. Intimidation threat Any audit member that had received any offer from Bersatu should not be assigned to do the client audit. Advocacy threat Any favour to promote the clients shares should not be accepted. The engagement team should not also attending the meetings with potential investors as this will affect

independence.

c) Explain the benefits to Bersatu of establishing an audit committee. An audit committee is a selected number of members of a companys board director that is in charge of overseeing financial reporting and disclosure of the company. They were also responsible for overseeing all internal and external audit functions of the company. There are several benefits to Bersatu of establishing an audit committee as follow: Firstly, improve financial practices and reporting which means an audit committee can periodically meet with the financial officers to review, monitor and direct activities and results related to the maintenance of internal controls and preparation of financial reports. Thus, they can prevent any fraudulent occurs towards the company and financial reporting. Secondly, influence appropriate action against fraud can be done if there is an audit committee. This means an audit committee should take an active role in the prevention, deterrence, and detection of fraud and encourage the organization to establish an effective ethics and compliance program. The audit committee should constantly challenge management and auditors to ensure that the organization has appropriate fraud identification programs and controls in place, and that investigations are undertaken if fraud is detected. Thirdly, enhance the internal audit function is one of the benefit of establishing an audit committee. When an internal audit team reports directly to the audit committee, it can be the eyes and ears of the audit committee about h ow well Bersatu is doing to meet its financial and compliance responsibilities, and effect change in practices and internal controls, when necessary. An audit committee should take actions immediately once there are problems in management of the company. Lastly, establish an audit committee also will enhance the external audit function. An audit committee can meet with an auditor to monitor the external auditors services and activities to ensure that independence is maintained between the external auditor and those involved in managing the Bersatus affairs. In addition, an audit committee can meet with the external auditors to get independent observations about managements efforts to maintain strong internal controls, appropriate financial reporting and sound business practices.

d)

What are other assurance services that can be provided by Chew, Camelia& Co to Bersatu ? An assurance service is an independent professional service that improves the quality of information for decision-makers. Such services are valued because the assurance provider is an independent and perceived as being unbiased with respect to the information examined. The primary purpose of the management consulting engagement is to generate a recommendation to management. Thus, Chew, Camelia& Co can provide other assurance service such control over and risks related to investments including policies related to derivatives. This service may contain assess the processes in BersatuCos investment practices to identify risks and to determine the effectiveness of those processes in the BersatuCos investment. In addition, Chew, Camelia& Co may provide fraud and illegal acts risk management. By having this service, they will develop fraud risk profiles and asses the adequacy of company systems and policies in preventing and detecting fraud and illegal acts. Another service can be provided is compliance with trading policies and procedures. While by having this service, Chew, Camelia& Co may examine transactions between trading partners to ensure that transactions comply with agreements and also may identify risks in the agreements between Bersatu and its third party. As conclusion, due to an individuals who are responsible for making business decisions seek assurance services to help improve the reliability and relevance of the information used as the basis for their decisions, the demand for other assurance services is expected to grow as the demand for information increases.

e) 5 elements of corporate governance to enhance the corporate governance practise in Bersatu are: Culture Culture is belief and values of human life where it influence on employee behaviour. Effective cultures align well with business needs, yet support development of risk management and governance competencies. They are dedicated to openness, transparency, high ethical standards, and fair competition, while at the same time meeting customer and stakeholder commitments.

Structure Structure is regard to the composition of personnel in the firm. Implementing a structure requires identifying appropriate systems to ensure communication across the organization, and creating systems that enable the structure to function. Structure affects culture by reinforcing individual organizational roles. By having functional structure, the corporate governance in Bersatu can be improve.

Leadership Leaders that have good leadership style can improve standards of governance and the practice of risk management. Appropriate leadership styles are critically important for developing values, ethical character in followers, culture, and organization-building.

Alignment Proper alignment also requires conflicts between functions be addressed. Unnecessary overlaps of jobs and areas of accountability, as well as gaps in responsibility, must be identified and resolved. Alignment can be improved in a variety of ways such as ensuring strategy-making processes align performance objectives with risk propensity and regulatory demands on the firm. This will lead to the good corporate governance.

System System here refers to all the composition in the firm such as accounting system, governance and so on. Failure having good system will give huge impact to the firm such as bankruptcy. When system is properly maintain and conduct, it will enhance the governance practise of Bersatu.