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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Code of Ethics for Professional Accountants

Harbour & Co audits Tandem Ltd, a listed entity. The audit engagement partner learns that her spouse has just inherited a direct shareholding in Tandem Ltd that is material to the spouse. Under the IESBA Code, which description best captures the threat created?

It is a self-interest threat. A material direct financial interest in an audit client held by an immediate family member of the engagement partner is not acceptable unless the interest is disposed of or the partner is removed from the engagement.

  1. AA self-interest threat arising from a financial interest held by an immediate family member, which would normally require action to eliminate it or the partner leaving the teamCorrect
  2. BA familiarity threat, because the partner has known the client for a long time
  3. CAn advocacy threat, because the partner is promoting the client's shares
  4. DAn intimidation threat, because the client may pressure the partner over fees

Explanation

A material direct financial interest in an audit client held by an immediate family member of a team member creates a self-interest threat that safeguards cannot reduce to an acceptable level unless the interest is disposed of or the individual leaves the team. Familiarity relates to long relationships, not shareholdings. Advocacy and intimidation do not describe this situation.

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