ACCA Strategic Professional · Strategic Business Leader · Audit and compliance
Dalmar Retail's audit committee wants to strengthen auditor independence. Which action would be MOST effective in doing so?
The audit committee, made up of independent non-executives, should recommend the auditor's appointment and approve non-audit services and fees. This reduces management's influence over the auditor. The other options each add self-interest or familiarity threats rather than strengthening independence.
- AHaving the audit committee, rather than executive management, recommend auditor appointment and approve non-audit services and feesCorrect
- BLetting the finance director negotiate audit fees and scope privately
- CAllowing the audit firm to hold shares in Dalmar to align interests
- DAppointing the former finance director's firm as auditor
Explanation
Placing appointment, fee and non-audit service decisions with a committee of independent non-executives limits management influence over the auditor. Letting the finance director control fees increases the self-interest and intimidation risk. Auditor shareholdings and appointing the former executive's firm both create further threats.
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