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

Harlow & Co audits Tindale Ltd, a non-listed company. Tindale's finance director asks Harlow to prepare the year-end financial statements from the trial balance, and management will review and approve them. Under the IESBA Code, which statement is correct?

For a non-public-interest audit client, the firm may prepare financial statements from management's records if it evaluates and addresses threats and management accepts responsibility. The blanket prohibition on such services applies to public interest entities, so it does not automatically bar this engagement.

  1. APreparing the financial statements is prohibited because it creates a self-review threat that can never be addressed for a non-PIE audit client
  2. BThe service is permitted for a non-PIE client if safeguards address any threats, and management takes responsibility for the statementsCorrect
  3. CThe service is permitted only if Harlow also prepares the audit working papers from the same records
  4. DThe service is permitted only if the fee for it exceeds the audit fee, to show that the firm is not reliant on the audit

Explanation

For an audit client that is not a public interest entity, the Code permits routine or mechanical accounting and preparation services where the firm evaluates threats and applies safeguards, and management retains responsibility. Option A is wrong because the prohibition applies to PIEs unless emergency circumstances exist, not to all clients. The fee-based condition in option D has no basis in the Code.

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