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

Kestrel & Co, an audit firm, is asked to act for Altair Ltd in negotiating the purchase of a business from Borealis Ltd. Kestrel & Co already audits Borealis Ltd. Neither client knows of the firm's role for the other. Under the IESBA Code, what is the firm's most appropriate first step?

The firm should first identify and evaluate the conflict, then consider safeguards such as separate engagement teams and disclosure to both clients with their consent. Confidentiality alone does not remove opposing interests, and late disclosure or silent resignation would not meet the Code's requirements.

  1. AIdentify the conflict of interest and evaluate whether safeguards such as separate teams and disclosure with consent can address itCorrect
  2. BProceed with both engagements because confidentiality obligations remove any conflict
  3. CAccept the Altair engagement and disclose it to Borealis only after the deal completes
  4. DResign immediately from the Borealis audit without informing either client

Explanation

The Code requires a firm to identify and evaluate conflicts, then apply safeguards such as separate teams, and to disclose and obtain consent where needed. Confidentiality alone does not remove a conflict because the firm's interests in the two clients are opposed. Disclosing after completion defeats the purpose of consent.

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