ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional appointments
Dunmore & Partners is considering continuing as auditor of Calder Foods plc. During the year, the finance director was found to have deliberately overstated inventory, and the board has been reluctant to correct the position. Which response best reflects the requirements of ISQM 1 and ISA 220 (Revised) on continuance?
The firm should reassess management and board integrity as part of the continuance decision, judge whether the risks can be managed, and document its conclusion. If the integrity concerns cannot be mitigated, it should consider withdrawing. Familiarity with the client or adjusting the fee does not address the underlying integrity risk.
- AContinue automatically, because the firm has already audited Calder Foods plc for several years and the knowledge gained reduces risk
- BEvaluate the integrity of management and the board as part of the continuance decision, consider whether the firm can manage the resulting risks, and document the conclusion, including resigning if the risks cannot be managedCorrect
- CContinue the engagement, but reduce the audit fee to reflect the increased risk of misstatement
- DContinue the engagement only if the finance director agrees to resign, without considering any other factors
Explanation
ISQM 1 requires the firm to obtain information on client integrity and to decide on continuance based on its ability to perform the engagement ethically and competently. Management's apparent willingness to mislead is a significant integrity concern. The firm must evaluate and document its conclusion. Prior familiarity or fee changes do not resolve integrity concerns, and a single resignation condition ignores wider factors.
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