ACCA Strategic Professional · Advanced Audit and Assurance (International) · Other current issues
Following corporate failures, regulators propose reforms to increase audit quality and reduce concentration in the audit market. Which reform proposal is most directly aimed at reducing the self-review and independence threats from the same firm both auditing a company and providing it with substantial non-audit services, while also addressing market concentration?
Operational separation of audit and advisory practices combined with joint or shared audits involving smaller challenger firms addresses both concerns. Separation reduces conflicts and self-review threats from non-audit services, while shared audits open the market to challengers. The other options do not tackle both independence and concentration.
- ARequiring auditors to attend the annual general meeting
- BOperational separation of audit and advisory practices, coupled with mandated joint audits or shared audits involving challenger firmsCorrect
- CRequiring auditors to issue longer going concern disclosures only
- DIncreasing the audit committee's size to ten members
Explanation
Separating audit from advisory work tackles the incentive and self-review problem from non-audit services, while joint or shared audits with challenger firms address concentration among the largest firms. The other options do not address both issues: AGM attendance and going concern wording affect communication, and committee size affects governance only.
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