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ethical issues- Horti co.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › ethical issues- Horti co.

  • This topic has 4 replies, 2 voices, and was last updated 1 year ago by Kim Smith.
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  • September 3, 2021 at 10:54 am #634114
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    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 company

    Which 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 only

    Course of action
    1Can continue with appropriate safeguards
    2Must resign as auditor
    3Must resign as auditor
    4Can continue with appropriate safeguards

    correct ans: 2

    September 3, 2021 at 11:21 am #634125
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    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…

    September 3, 2021 at 6:27 pm #634197
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6789
    • ☆☆☆☆☆

    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).

    September 5, 2021 at 4:16 am #634362
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    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?

    September 5, 2021 at 8:50 am #634388
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6789
    • ☆☆☆☆☆

    Because he will still be a partner in the firm that audits the client. As I wrote “For ANY partner to also be a director …”

    The audit firm cannot be SEEN to be independent if ANY partner sits on the board of a client.

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