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Regarding the answer in respect of Self Review threat of Banburry Co., I have some concerns as below.
The responses state that:
The self review threat would be severe if the valuation involves a high degree of subjectivity, and cannot be performed according to an established methodology. Does it mean if the assumption leading to valuation to perform depends on the subjectivity of the audit partner then the risk of self review threat could not be managed and then the service could not be performed?
In addition, why the response does not mention the safeguard to reduce self- interest risk. Can I provide the below responses in respect of self – interest threat:
Self-interest: The audit firm should not accept the services if the fee is significant and materially affect FS. In addition, it could take into consideration that the nature of the service could not involve management decision.
I do not have a BPP Kit and there is no client Banburry in the Peaches Q as originally published by ACCA. There is a client Banbury in Q4 of the D13 Q Chester & Co. So I can only offer guidance in answer to your question.
A valuation service may give rise to a self-review threat. The main factor in determining the existence and significance of the threat is whether it will have a material effect on the financial statements. The Code says that for a PIE, there are NO safeguards that could reduce the self-review threat to an acceptable level if the valuation is material.
For a non-PIE client, a further factor to consider is how subjective is the valuation. If there is an established methodology for the type of valuation which does not involve significant judgement, the threat will be far less than if the firm providing the audit service has to exercise significant judgment in coming up with the amount of the valuation. he Code says that for a non-PIE, there are NO safeguards that could reduce the self-review threat to an acceptable level if the valuation is material AND involves a significant degree of subjectivity.
Therefore, for a non-PIE client, some valuations may be provided, with appropriate safeguards (different teams, etc).
There is always a potential self-interest threat for any work that involves fees, but there is no prohibition on accepting work on fee grounds (other than contingency fee basis) – the 15% threshold applies only to PIEs and safeguards include hot/cold reviews. So a significant fee would not be grounds for not accepting the work. In a similar vein, for the “management threat”, as long as the client has suitable management personnel to take responsibility for any outcome/decision, this would not be insurmountable.
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