ACCA Strategic Professional · Strategic Business Leader · Audit and compliance
Corvane Plc's audit committee is reviewing whether to recommend re-appointment of its external auditor. The auditor has audited the company for 14 years and also earns substantial fees from tax advisory and consulting work for Corvane. Which concern should the committee prioritise in its recommendation?
The committee should prioritise independence threats arising from the auditor's long tenure and significant non-audit fees, which create familiarity and self-interest risks. It should assess safeguards, restrict non-audit services, or consider rotation or tendering, since the auditor reporting to the committee rather than executives is itself desirable.
- AThe auditor's familiarity and non-audit fee dependence, which create threats to independence and objectivityCorrect
- BThe auditor's size relative to competitors, since larger firms are always less independent
- CThe auditor's lack of internal audit experience
- DThe fact that the auditor does not report to the executive directors
Explanation
Long tenure creates a familiarity threat and substantial non-audit fees create a self-interest and self-review threat. The audit committee should assess these and consider safeguards, limits on non-audit services, rotation or tender. Reporting to the audit committee rather than executives is desirable, not a concern.
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