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

Calder & Reeve, a firm of auditors, audits Norvale Ltd, a listed entity. The firm is asked to provide a recurring bookkeeping service in which staff prepare the journal entries and the trial balance for Norvale's accounting records. Under the IESBA Code, how should the firm respond to this request for a public interest entity (PIE) audit client?

The firm should decline. The IESBA Code generally prohibits accounting and bookkeeping services, including preparing financial statements, for public interest entity audit clients because the self-review threat cannot be reduced to an acceptable level by safeguards such as staff separation or management approval.

  1. AAccept the engagement provided the audit partner is not involved in the bookkeeping work
  2. BAccept the engagement provided the management of Norvale approves all journal entries it prepares
  3. CAccept the engagement provided the fee for the service is below 15% of the total fees received from Norvale
  4. DDecline the engagement, because preparing accounting records and financial statements for a PIE audit client is generally prohibitedCorrect

Explanation

The IESBA Code generally prohibits a firm from providing accounting and bookkeeping services, including preparing financial statements, to an audit client that is a PIE, except in emergency situations. Different staff or management approval does not remove the self-review threat to an acceptable level, so the first two options are wrong. The fee percentage test also does not override the prohibition.

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