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

Brightwater LLP audits Calder Holdings, a listed company. Calder asks Brightwater to also provide a valuation of a significant pension-related asset that will be material to the financial statements. Under the IESBA Code's provisions for public interest entities, what is the appropriate response?

Brightwater should decline. For a public interest entity, the IESBA Code prohibits valuation services that are material to the financial statements and involve significant subjectivity, because the resulting self-review threat cannot be reduced to an acceptable level by safeguards such as separate teams, second partner review or audit committee approval.

  1. AAccept, provided the valuation team is separate from the audit team
  2. BAccept, provided the audit committee pre-approves the service and the fee is disclosed
  3. CDecline the valuation service because it would create a self-review threat that safeguards cannot address for a PIECorrect
  4. DAccept, provided a second partner reviews the valuation

Explanation

For PIE audit clients the IESBA Code prohibits valuation services where the valuation would have a material effect on the financial statements and involves a significant degree of subjectivity, as the self-review threat is too high. Separate teams, review, or committee approval are not adequate safeguards in that situation.

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