Breakpass plc

Your firm is the external auditor of Breakpass plc, which has a turnover of $25 million and a profit before tax of $1.7 million. The entity operates from a head office at Breakpass and has sales and inventory holding centres in different parts of the country. The directors have decided the entity has reached a size when it needs an internal audit department. As is becoming increasingly common, the directors have asked your firm to provide this service to the entity as well as being the statutory auditor of the entity's annual financial statements. In answering the question, you should consider:
(a) The effects of the ACCA's Rules of Professional Conduct in relation to providing an internal audit service to Breakpass;
(b) The extent to which your audit firm can rely on the internal audit work when carrying out the statutory audit of Breakpass;
(c) The arrangements over control of the work and reporting of the internal audit staff:
(i) The extent to which the internal audit staff should be responsible to Breakpass, and who should control their work;
(ii) the extent to which the internal audit staff should be responsible to a manager or partner of your firm, and whether the same manager and partner should be responsible for both the internal audit staff of Break pass and the external audit.

Requirements

In relation to your audit firm becoming internal auditors of Break pass:

(a) Describe the matters you should consider and the action you will take to ensure your firm remains independent as external auditor of the annual financial statements;

(b) Describe the advantages and disadvantages to Break pass of your firm providing an internal audit service;

(c) Describe the advantages and disadvantages to your audit firm of providing an internal audit service to Break pass