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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional appointments

Dunmore & Partners is invited to tender for the audit of Kestrel plc. Kestrel's board proposes that Dunmore also design and implement the accounting system that generates the financial statements to be audited. Kestrel is a listed public interest entity. What is the most appropriate response under the IESBA Code?

Dunmore should decline the system design and implementation. For a listed public interest entity, building the system that produces the financial statements creates a self-review threat that safeguards such as second partner review or disclosure cannot reduce to an acceptable level, so the Code generally prohibits it.

  1. AAccept both, since a second partner reviewing the work is an adequate safeguard
  2. BAccept both but disclose the arrangement to shareholders in the audit report
  3. CDecline the system design and implementation, because for a public interest entity the self-review threat is generally not capable of being reduced to an acceptable levelCorrect
  4. DAccept both if the fee for the system work is below 15% of the audit fee

Explanation

Designing and implementing a system that generates information forming part of the financial statements creates a self-review threat. For a public interest entity the Code generally prohibits such services. A second partner review or disclosure does not remove the threat, and a fee percentage test does not solve self-review.

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