H 16026 Tutorial Question Assignme 2 of 7HCLM ES TEQuestion 1Week 1 (7 Marks)Section 301 of the Corporations Act requires companies to have their financial reports audited. Academic research suggests that Big-4 auditors charge higher fees than other auditors and their audit reports are more credible than those issued by other auditors. Required: In times of economic recession would you expect: (a) the demand for audits to increase or decrease? (3 marks) (100-150 words) (b) clients to shift from large (Big-4) auditors to smaller auditors, or from smaller auditors to Big-4 auditors? Why or why not? (4 marks) (100-150 words)Question 2Week 3 (7 Marks)Godwin, Key & Associates is a small, but rapidly growing, audit firm. Its success is largely due to the growth of several clients that have been with the firm for more than five years. One of these clients, Carolina Company Ltd, is now listed on the ASX and must comply with additional reporting regulations.
Carolina Company Ltds rapid growth has meant that it is financially stretched and its accounting systems are struggling to keep up with the growth in business. The client continuance decision is about to be made for the next financial year. The managing partner of Godwin, Key & Associates, Rebecca Sawyer, has recognised that the audit firm needs to make some changes to deal with the issues created by the changing circumstances of its major client and the audit firms overall growth. She is particularly concerned that the audit firm could be legally liable if Carolina Company Ltds financial situation worsens and it fails.Required: (a) Provide guidance to Rebecca about the steps she can take to avoid the threat of litigation if Carolina Company Ltd fails. (3 marks) (150 -200 words) (b) What should Rebecca consider when making the client continuance decision for Carolina Company Ltd for the next financial year? (4 marks) (300-350 words)2HCLM ES INSTITUTE