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

Marlow & Finch audits Corvane Ltd. During the audit planning, the audit senior discloses that her spouse recently inherited 2% of Corvane's shares, which is material to the spouse's wealth. What is the most appropriate response under the IESBA Code?

The firm should treat the spouse's material shareholding as a self-interest threat to the senior's independence, evaluate it, and normally remove her from the audit team or require disposal of the shares. It is not acceptable to ignore it merely because she does not personally hold the shares.

  1. ANo action is required because the senior herself holds no shares
  2. BThe threat is only significant if the senior is the engagement partner
  3. CThe senior should hold the shares herself instead, to avoid any difficulty with the spouse
  4. DIdentify the self-interest threat, evaluate it, and take action such as removing the senior from the audit team, because a material financial interest of an immediate family member of a team member is a threat that requires actionCorrect

Explanation

A material financial interest held by an immediate family member of an audit team member creates a self-interest threat. The Code requires the firm to evaluate it and apply action such as removing the individual from the team or disposing of the interest. Option A ignores the family relationship, and option C would worsen the situation by creating a direct interest.

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