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

Corvin & Partners audits Delta Retail. During the year the firm designed and implemented the financial reporting software that generates Delta's accounting records, which feed directly into the financial statements being audited. Which threat is most directly created, and what is the key reason?

The main threat is self-review. Because the firm designed and implemented the system that produces the accounting records, the audit team would be assessing information generated by the firm's own work, which could impair objectivity and its willingness to challenge errors originating from that system.

  1. AAdvocacy threat, because the firm promoted the client's interests
  2. BSelf-review threat, because the audit team may rely on outputs of a system the firm itself createdCorrect
  3. CIntimidation threat, because the client could threaten to replace the firm
  4. DSelf-interest threat, because the firm owns shares in Delta

Explanation

When the firm designs a system that produces information used in the audit, the audit team may have to evaluate results of the firm's own work, a self-review threat. The scenario mentions no share ownership or threats from the client, so the self-interest and intimidation options are unsupported. No advocacy occurred because the firm did not promote the client's position.

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