ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management

Audit firm Mercer & Partners audits Zenith plc, a listed company. The audit committee chair says she wants the firm to also provide the valuation of a significant pension asset used in the financial statements, claiming that independence threats can be managed by disclosure to TCWG alone. Under the IESBA Code for public interest entities, what is the correct position?

The firm must not provide the valuation if it would materially affect the financial statements and create a self-review threat that cannot be addressed. Under the IESBA Code for public interest entities, disclosure to or approval by TCWG, a fixed fee or a second partner review does not remove that threat.

1. ADisclosure to TCWG is sufficient, since the Code treats TCWG approval as always eliminating any self-review threat
2. BThe firm may provide the valuation if a different partner reviews it, whatever its materiality
3. CThe firm must evaluate the self-review threat, and must not provide the valuation service if it would have a material effect on the financial statements and the threat cannot be addressedCorrect
4. DThe valuation is permitted if the firm charges a fixed fee rather than a contingent fee