(b) Chatam, a limited liability company, is a long-standing client. One of its subsidiaries, Ayora, has made losses
for several years. At your firm’s request, Chatam’s management has made a written representation that goodwill
arising on the acquisition of Ayora is not impaired. Your firm’s auditor’s report on the consolidated financial
statements of Chatam for the year ended 31 March 2005 is unmodified. Your firm’s auditor’s report on the
financial statements of Ayora is similarly unmodified. Chatam’s Chief Executive, Charles Barrington, is due to
retire in 2006 when his share options mature. (6 marks)
Required:
Comment on the ethical and other professional issues raised by each of the above matters and their implications,
if any, for the continuation of each assignment.
NOTE: The mark allocation is shown against each of the three issues.