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Plant Co is a large private company, with a financial year to 30 June, and has been an audit client of
Horti & Co for several years. Alan Marshlow, a partner of Horti & Co, has acted as the engagement quality control reviewer (EQCR) on the last two audits to the year ended 30 June 20X8. At a recent meeting, he advised that he can no longer be EQCR on the engagement as he is considering accepting appointment as a non?executive director and will sit on the audit committee of Plant Co.
The board of directors has also asked Horti & Co if they would be able to provide internal audit services to the companyWhich of the following correctly identifies the threats to Horti & Co’s independence and proposes an appropriate course of action for the firm if Alan Marshlow accepts appointment as a non?executive director of Plant Co?
Threats
1Self?interest and familiarity
2Self?interest and self?review
3Self?review and familiarity
Familiarity onlyCourse of action
1Can continue with appropriate safeguards
2Must resign as auditor
3Must resign as auditor
4Can continue with appropriate safeguardscorrect ans: 2
maam I dont understand why the answer is option 2! how does self review threat arises fro Horti &co.? And why can’t appropriate safeguards be adopted and threat minimised?
and why not familiarity threat arises? as the audit team could trust Alan and not perform detailed SPs over balances, as they would be too familiar and trusting of Alan…
For any partner to also be a director of an audit client the threat to independence would be SO GREAT that NO safeguards would be sufficient to reduce the threat to an acceptable level.
As a NED on the audit committee, he would have responsibilities for the rigour/integrity of the financial statements/financial reporting processes (page 15 of the notes) – the EQCR includes review of financial statements as well as the auditor’s report thereon (page 110).
Yes but Ma’am before he accepts his position as an NED on the audit committee of plant co he is leaving the role of EQCR so then why does the entire audit firm needs to resign?
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