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IAI Actuarial Core Principles · Business Finance · Regulation of financial reporting of incorporated entities

A listed company's auditor provides statutory audit services and, in the same year, also earns fees from the company for internal audit outsourcing and for valuation of assets that appear in the balance sheet. Which is the most accurate assessment under general auditor regulation principles?

Valuing assets that the same firm then audits creates a self-review threat, and outsourced internal audit is also commonly restricted for statutory auditors. Such non-audit services may be prohibited or limited by regulation or audit committee policy, and disclosure alone does not cure the threat.

  1. ANo issue, because the auditor has the best knowledge of the company
  2. BThe valuation service creates a self-review threat, and both non-audit services may be restricted by the regulator or the audit committee's policyCorrect
  3. CThe only concern is the size of the audit fee relative to the non-audit fee
  4. DThe services are acceptable provided the same team performs all of them
  5. The issue is resolved by disclosing the fees in the directors' report only

Explanation

Valuing assets that the auditor then audits is a self-review threat, and internal audit outsourcing is also commonly prohibited for statutory auditors. Using the same team worsens the problem, and disclosure alone does not remove the threat.

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