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ACCA Applied Knowledge · Business and Technology · The role of regulatory and professional bodies in promoting ethical and professional standards in the accountancy profession

An ACCA member in practice audits Zeta Co. Her firm has just been asked to also design Zeta's accounting system and then audit the results. Which category of threat is MOST clearly raised, and what is the best response?

The self-review threat is raised, because the firm would be auditing an accounting system it designed itself. The firm should evaluate the threat and apply safeguards, or decline the engagement if the threat cannot be reduced to an acceptable level.

  1. ASelf-review threat; the firm should assess it and apply safeguards or decline the non-audit work if it cannot be reduced to an acceptable levelCorrect
  2. BAdvocacy threat; the firm should publicly support Zeta's shares
  3. CFamiliarity threat; the firm should rotate the audit client's directors
  4. DIntimidation threat; the firm should report Zeta to the police

Explanation

Auditing a system that the firm itself designed means the firm would review its own work, which is a self-review threat. The code requires the threat to be evaluated and addressed through safeguards, or the work declined if the threat cannot be reduced to an acceptable level. The other threats do not arise from the facts given.

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