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The following scenario relates to questions 31 – 35
It is 1 July 20X5. You are an audit manager at Horti & Co and you are considering a number of ethical
issues which have arisen on some of the firm’s long?standing audit clients.
Tree Co
Horti & Co is planning its external audit of Tree Co. Yesterday, the audit engagement partner,
Charlie Thrower, discovered that a significant fee for information security services, which were
provided to Tree Co by Horti & Co, is overdue. Charlie hopes to be able to resolve the dispute
amicably and has confirmed that he will discuss the matter with the finance director, Percy Marsh,
at the weekend, as they are both attending a party to celebrate the engagement of Charlie’s
daughter and Percy’s son.
Which of the following statements correctly explains the possible threats to Horti & Co’s
independence and recommends an appropriate safeguard in relation to the audit of Tree
Co?1)An intimidation threat exists due to the overdue fee and Tree Co should be advised that
all fees must be paid prior to the auditor’s report being signed
2) A self?review threat exists due to the nature of the non?audit work which has been
performed and an engagement quality review should be carried out
3) A self?interest threat exists due to the relationship between Charlie and Percy and
Charlie should be removed as audit partner
? 1, 2 and 3
? 1 and 2 only
? 2 only
? 3 onlyWhy in this scenario, there is no self review threat because External auditor is providing non-audit services which may create the self review threat isnot it??
And the fee is overdue which indicates that there may be intimidation threat also
so can you do clarify me in the question why the isnot all true
They have told only the option 3 is trueNot all non-audit services give rise to a self-review threat – e.g. valuation of any assets, which will be included in the financial statements that are subject to audit – YES
But IT advisory/Info security/Recruitment services etc etc – how does the audit of the FS give rise to self-review? (Answer – It doesn’t)
(1) is a financial interest – so self-interest (in being paid) – not intimidation.
This is the answer and justification in ACCA’s Study Hub …
3 only
Tutorial note: A self-interest threat would arise due to the personal relationship between the audit engagement partner and finance director.
A self-interest threat, not intimidation threat, would arise from the overdue fee (1) and a self-review threat is unlikely given the nature of the non-audit work (2).
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