ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems
Brightwell Ltd's external auditor has provided audit services for 12 years and, in the same period, also designed the company's new internal control software and prepared its tax planning strategy for a fee exceeding the audit fee. The audit committee is reviewing the position. Which risk is MOST significant for audit quality?
The most significant risk is to auditor objectivity through familiarity and self-review threats. Twelve years of tenure builds over-close relationships, and auditing systems the firm designed means reviewing its own work, while high non-audit fees add dependence. The audit committee should consider limiting non-audit services or rotating the auditor.
- AFamiliarity and self-review threats to auditor objectivityCorrect
- BDetection risk caused by the auditor's lack of experience of the business
- CInherent risk arising from the nature of the company's industry
- DControl risk from the company's lack of a budget system
Explanation
Long tenure creates familiarity threats, and designing the systems the auditor later audits creates self-review threats. The large non-audit fee also creates dependence. Experience of the business is not the issue here, so detection risk from inexperience is wrong.
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