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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Other current issues

Brenholt LLP audits Castellan plc, a listed company. In the past three years, fees from Castellan for non-audit services have been significant. The firm proposes to provide Castellan with a valuation of a material pension scheme asset that will be recorded in the financial statements, with significant judgement involved. Which response is most consistent with the IESBA Code for a PIE audit client?

The firm should decline. A material, highly subjective valuation for a PIE audit client creates a self-review threat that safeguards such as disclosure or using a different team cannot adequately address under the IESBA Code, so the service is prohibited.

  1. AAccept the work, because disclosing the service to the audit committee removes the threat
  2. BAccept the work if a different team member performs it, since that is always a sufficient safeguard
  3. CDecline the valuation service, because it would create a self-review threat that is generally not capable of being addressed for a PIE where the outcome is material to the financial statementsCorrect
  4. DAccept the work provided the fee is contingent on the valuation being accepted

Explanation

The Code prohibits valuation services for PIE audit clients where the valuation would have a material effect on the financial statements and involves a significant degree of subjectivity, because of the self-review threat. Safeguards such as disclosure or a separate team do not eliminate it. A contingent fee would add a further threat rather than remove one.

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