The National Metal Works Limited manufactures and retails door and window
frames. The company recently dismissed their external auditors. The directors have
approached your firm of accountants to act as their auditors and the directors have
proposed a fee of KShs. 1, 000, 000 plus a bonus of 1% of profits after tax.
Required:
a) Describe the steps you would take before advising the partners of your firm
whether to accept the appointment as auditors or not.
(8 marks)
b) State with reason whether professional auditors should accept the method of
remuneration as proposed by the directors of the client company. (6
marks)
c) Explain the implications of fixing the audit fee by negotiation between the
directors and the external auditors on the independence of the auditor.
(6 marks)