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

Lindqvist Audit is the auditor of Nordal plc. The engagement partner discovers that the client's chief executive has asked a junior accountant to present misleading information to the bank. The partner has also been told by the chief executive that the audit fee for next year will be doubled if the audit report 'causes no trouble'. The firm identifies threats to objectivity. Under the Code's conceptual framework, what must the firm do FIRST once it identifies such threats?

The firm should evaluate whether the threats are at an acceptable level and, if not, address them by eliminating the circumstances, applying safeguards, or ultimately declining or ending the engagement. Immediate resignation or external disclosure bypasses the conceptual framework and may breach confidentiality.

  1. AResign immediately from the engagement
  2. BEvaluate whether the threats are at an acceptable level, and if not, address them by eliminating them or applying safeguardsCorrect
  3. CDisclose the matter to the bank
  4. DReport the matter to the regulator without further consideration

Explanation

The conceptual framework requires the accountant to identify threats, evaluate them, and address them by eliminating the circumstances, applying safeguards, or declining or ending the engagement if they cannot be reduced to an acceptable level. Immediate resignation or reporting to third parties skips this process and may breach confidentiality.

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