未分类题‘Happy and healthy’ is a traditional independent health food business that has been run as a family company for 40 years by Ken and Steffi Potter. As a couple they have always been passionate campaigners for healthy foods and are more concerned about the quality of the foods they sell than the fi nancial detail of their business. Since the company started in 1970, it has been audited by Watson Shreeves, a local audit fi rm. Mr Shreeves has overseen the Potters’ audit for all of the 40 year history (rotating the engagement partner) and has always taken the opportunity to meet with Ken and Steffi informally at the end of each audit to sign off the fi nancial statements and to offer a briefi ng and some free fi nancial advice in his role as what he calls, ‘auditor and friend’. In these briefi ngs, Mr Shreeves, who has become a close family friend of the Potters over the years, always points out that the business is profi table (which the Potters already knew without knowing the actual fi gures) and how they might increase their margins. But the Potters have never been too concerned about fi nancial performance as long as they can provide a good service to their customers, make enough to keep the business going and provide continued employment for themselves and their son, Ivan. Whilst Ken and Steffi still retain a majority shareholding in ‘Happy and healthy’ they have gradually increased Ivan’s proportion over the years. They currently own 60% to Ivan’s 40%. Ivan was appointed a director, alongside Ken and Steffi , in 2008.Ivan grew up in the business and has helped his parents out since he was a young boy. As he grew up, Ken and Steffi gave him more and more responsibility in the hope that he would one day take the business over. By the end of 2009, Ken made sure that Ivan drew more salary than Ken and Steffi combined as they sought to ensure that Ivan was happy to continue in the business after they retired.During the audit for the year ended 31 March 2010, a member of Watson Shreeves was performing the audit as usual when he noticed a dramatic drop in the profi tability of the business as a whole. He noticed that whilst food sales continued to be profi table, a large amount of inventory had been sold below cost to Barong Company with no further explanation and it was this that had caused the reduction in the company’s operating margin. Each transaction with Barong Company had, the invoices showed, been authorised by Ivan.Mr Shreeves was certain Ken and Steffi would not know anything about this and he prepared to tell them about it as a part of his annual end of audit meeting. Before the meeting, however, he carried out some checks on Barong Company and found that it was a separate business owned by Ivan and his wife. Mr Shreeves’s conclusion was that Ivan was effectively stealing from ‘Happy and healthy’ to provide inventory for Barong Company at a highly discounted cost price. Although Mr Shreeves now had to recommend certain disclosures to the fi nancial statements in this meeting, his main fear was that Ken and Steffi would be devastated if they found out that Ivan was stealing and that it would have long-term implications for their family relationships and the future of ‘Happy and healthy’.Required:(a) Explain how a family (or insider-dominated) business differs from a public listed company and, using evidence from the case, explore the governance issues of a family or insider-dominated business. (10 marks)(b) Mr Shreeves is a professional accountant and auditor. Explain why he is considered a professional by society and describe the fundamental principles (or responsibilities) of professionalism that society expects from him and all other accountants. (7 marks)(c) Discuss the professional and ethical dilemma facing Mr Shreeves in deciding whether or not to tell Ken and Steffi about Ivan’s activity. Advise Mr Shreeves of the most appropriate course of action. (8 marks)
