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

During the audit of Sable Retail, a listed client, the engagement partner learns that a close family member of a senior audit team member has just been appointed finance director of Sable. What is the most appropriate immediate response under the IESBA Code?

The firm should evaluate the threats and, because a close family member holds a key financial reporting role, normally remove that individual from the audit team. The Code applies to all team members, not only the partner, and the firm cannot instruct the client on its appointments.

  1. ATake no action because family relationships only matter for the engagement partner
  2. BInform the client's shareholders at the next general meeting and continue unchanged
  3. CEvaluate the familiarity and self-interest threats and, where they cannot be reduced to an acceptable level, remove the individual from the audit teamCorrect
  4. DAsk the family member to resign from the finance director role

Explanation

A close family member in a position to exert significant influence over the financial statements creates familiarity and self-interest threats for the team member. The firm must evaluate the threat and apply safeguards such as removing the individual from the team, which is usually required here. The relationship is not limited to the partner, and the firm cannot dictate the client's appointments.

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