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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

Brightwell & Co audits Tamarind Foods, a listed entity. The firm also wishes to provide Tamarind with a valuation of a subsidiary, and the valuation would be material to the financial statements and involve a significant degree of subjectivity. Under the IESBA Code, how should the firm respond?

The firm should decline. For a listed audit client, a valuation that is material to the financial statements and highly subjective creates a self-review threat the IESBA Code treats as not reducible by safeguards, so the service is prohibited whatever fee basis, partner or communication is used.

  1. AProvide the service if the audit committee is informed and a different partner leads the valuation
  2. BProvide the service because valuation work is permitted for all audit clients with safeguards
  3. CProvide the service only if the fee is fixed in advance and not contingent
  4. DDecline the valuation service because it would create a self-review threat that cannot be addressed by safeguardsCorrect

Explanation

For public interest entity audit clients, the IESBA Code prohibits valuation services that have a material effect on the financial statements and involve a significant degree of subjectivity. The self-review threat is too significant for safeguards. A different partner, audit committee notification or a fixed fee would not remove the threat.

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