1-You are a partner in a medium sized firm of chartered certified accountants. The following opportunities have arisen.
A major audit client, Lilac Co, is seeking loan finance from its bank to fund an expansion into a new factory. The expansion should result in an increase in capacity of 30%. Lilac has conducted market research and is confident that they will be able to sell the added output. The financial director has recently telephoned you and mentioned that the bank are keen to obtain a reference from the audit firm, relating to Lilac's ability to repay the loan and whether the business plan is reasonable. He said 'they just need their forms filled, for their files. They know we can repay. We're one of their best clients.' Your audit team is about to commence the audit for the year ended 31 March 20X8.
Required
Comment on the matters you would consider in relation to giving such a reference to the bank.
2- The finance director of Laurel Co, another audit client, telephoned you yesterday. He recently attended a half-day course on the importance of corporate governance run by your firm. Laurel's long term plans include the possibility of flotation on a stock exchange. The finance director has told the other directors the issues discussed at the course and they feel that it might be a good idea to engage the firm to undertake an assurance engagement to assess risk management and the internal control system at Laurel Co.
Required
Comment on the matters you would consider in relation to accepting and planning such an engagement.