ACCA Strategic Professional · Advanced Audit and Assurance (International) · Code of Ethics for Professional Accountants
Before accepting appointment as auditor of Zephyr Co, the firm learns that Zephyr's finance director was recently dismissed for alleged falsification of inventory records and that the board has been reluctant to explain this. Which action is most consistent with the IESBA Code and ISQM 1 on client acceptance?
The firm should investigate the integrity concern by obtaining further information, such as discussing it with the board and making enquiries of third parties, and decline the appointment if it cannot be resolved. Management integrity is an acceptance matter, and extra procedures or a higher fee cannot compensate for it.
- AAccept, because concerns about integrity are only relevant after the engagement starts
- BAccept, and rely on increased substantive testing to compensate for any management integrity concerns
- CEvaluate the client's integrity and the firm's ability to perform the engagement, obtain further information, and decline if the matter cannot be resolved satisfactorilyCorrect
- DAccept, provided the audit fee is set at a higher level to reflect the risk
Explanation
Client acceptance requires the firm to consider the integrity of the client's principal owners, key management and those charged with governance, and to obtain information to address the concerns. If integrity doubts remain unresolved, the firm should decline. Extra testing or a higher fee does not remove an integrity problem.
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