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Dear tutor,
I have some concern regarding this question
“It is 1 July 20X5, and you are working as an audit manager at NAAB & Partners , a large audit firm that focuses on auditing retail companies.
The audit partner at Pro Co has worked on the audit for about six years. Recently, her son accepted a job at Pro Co as a sales manager, and as part of his pay, he will receive shares in the company.
Pro Co has asked NAAB & Partners to provide tax advice to reduce its tax liability. The company suggested that the fee could depend on how much tax is saved, and the fee is expected to be quite large.
The company also plans to set up an audit committee but currently has no independent non-executive directors with suitable financial experience. Therefore, they have asked the audit firm to help by reviewing candidates and advising on their qualifications and financial expertise.
question:
Which of the following statements is TRUE in respect of the request for assistance with
recruitment of independent non?executive directors for Pro Co?
? No threat arises and no safeguards are required
? The audit engagement partner cannot provide assistance and another partner must
provide assistance
? The audit firm cannot provide assistance and the request must be declined
? The audit engagement partner can provide the assistance but an engagement quality
review must be performed
”My doubt is why the answer is not Option 3? From the theory, I learned that engaging in recruitment activities can lead to self-interest threats because the audit firm may be reluctant to criticise the performance of those staff members as the advice they gave on recruitment looks bad. Is the theory not applicable to the case of this question?
Thank you!
Welcome to my forum! Your “theory”, that certainly applies to recruiting a finance director, say, of an audit client, applies here also as a self-interest threat. The audit client is asking for help recruit a NED to an audit committee – a committee that advises the board on the matters concerning the external audit – including appointment and independence (!) The audit firm must decline because it would be seen to have a vested interest in the outcome. Please say if that isn’t a sufficiently clear explanation.
Dear tutor,
Thank you for your reply. I totally agree with your point. Actually I thought the same way like you did: recruiting a NED working in the audit committee obviously creates self-interest threat because of their special roles & responsibilities.
However, the answer to the question is option 1: “No threat arises and no safeguards are required” and this is the explanation which made me confused:
“The ACCA Code of Ethics and Conduct states that reviewing qualifications and assessing
competence of applicants does not generally create a threat to objectivity as the auditor is
not making any management decisions that could cause a threat to objectivity. Pro Co can
provide this service if it will not result in the firm assuming management responsibilities. ”Can you please help?
Please feel free to let me know if you do not understand my point/question.
Thank you in advance!P/S: thank you for your warm welcome. I am happy to be here and learn from your valuable knowledge.
I don’t recognise the question and there are things about the way it is written which suggest that it not a past exam question, though it is “in the style of”.
I confess I did not read it with suffienct care and it is true that mere screening “Reviewing the professional qualifications of a number of applicants and providing advice on their suitability for the position” does not usually create a threat …. but it is with the proviso “as long as individuals within the firm do not assume a management responsibility”. So this, at least, should be safeguarded.
The Code goes on to say that the evaluation of the threat should include the role of the individual to be recruited (in this case a NED) and suggests as a safeguard that the service might be provided using professionals who are not members of the audit team.
This illustates that safeguards shouldn’t be dismissed as unnecessary when something is not specifically prohibited.
Weighing up the options, B seems best as it says yes you could provide this service with a safeguard. My initial response was over-cautious becuase I missed that this was simply “screening”.
All that said, you shouldn’t worry about the “nuances” in such Qs, as real exam questions have to be objective 🙂
Dear tutor,
Thank you for your help and explanation. What I understand from your reply is that the answer to the question should be option B “The audit engagement partner cannot provide assistance and another partner must provide assistance” as the service can be rendered by another partner, provided that safeguard is on place.
But why the answer is option 1 “No threat arises and no safeguards are required”? I am really confused.
This is the original question (I have paraphrased it when creating this post):
“It is 1 July 20X5. You are an audit manager in NANCO & Partner, a large audit firm which specialises in the audit of retailers.
Cookies Co
Cookies Co’s management has decided to establish an audit committee. The company does not have any independent non?executive directors with recent and relevant financial experience and have requested our firm’s assistance with this. Management has requested that the audit engagement partner assists by reviewing qualifications and advising on technical, financial competence of applicants.
Which of the following statements is TRUE in respect of the request for assistance with
recruitment of independent non?executive directors for Cookies Co?– No threat arises and no safeguards are required
– The audit engagement partner cannot provide assistance and another partner must provide assistance
– The audit firm cannot provide assistance and the request must be declined
– The audit engagement partner can provide the assistance but an engagement quality review must be performed”I think B is the best of the available answers but this is not a past exam Q, so you shouldn’t worry about it. To be sure you are looking at real exam style and standard Qs & As, I recommend you practice Qs in the CBE platform and ACCA mis-named “study” hub – as it includes good revision question practice. If using a publisher’s “kit”, past exam “OT Case” Qs should be no older than 2018 – if earlier they will be adapted and similarly not true exam style and standard.
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