ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments

Harlow & Co has been the statutory auditor of Veridian Ltd for five years. Veridian's parent now asks Harlow to also perform acquisition due diligence on Veridian's proposed purchase of Sable Ltd, including advising on the price to pay and negotiating with Sable's owners. Veridian is not a public interest entity. Which is the most accurate assessment under the IESBA Code?

Negotiating on the client's behalf and advising on price creates advocacy and possibly self-review threats to independence. For a non-public interest entity, the firm must assess their significance and apply effective safeguards, or decline the additional work. It is wrong to say no threat arises or that resignation is automatic.

1. ANo threat arises because due diligence is always permitted alongside audit
2. BOnly a familiarity threat exists and it can never be addressed
3. CNegotiating on the client's behalf creates an advocacy or self-review type threat that may be significant, so the firm should assess whether safeguards can reduce it to an acceptable level or decline the roleCorrect
4. DThe firm must resign as auditor immediately in all cases