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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Advertising, tendering, and obtaining professional work and fees

Ostrander & Co is tendering for a new audit client, Kelvin Group, which operates in a sector where the firm has no experience. Kelvin's chairman is a close friend of the tendering partner and has hinted that the group is under pressure to report strong profits. Which response best reflects ISA 220 (Revised) and ISQM 1 acceptance and continuance requirements?

The firm should assess client integrity, its own competence, capabilities and resources, and ethical compliance including the familiarity threat from the friendship, and accept only if concerns can be resolved or safeguarded. ISQM 1 requires this evaluation before acceptance; profit pressure alone does not automatically bar acceptance, but it raises risk.

  1. AAccept, because friendship with the chairman improves the chance of obtaining audit evidence
  2. BAccept, since sector inexperience can be remedied after the audit starts
  3. CDecline immediately, because pressure on profits always makes a client unacceptable
  4. DEvaluate the integrity of the client, the firm's competence, capabilities and resources, and ethical compliance including threats from the friendship, and accept only if the identified issues can be resolved or safeguardedCorrect

Explanation

ISQM 1 requires the firm to obtain information on client integrity, its ability to have competence, capabilities and time and resources, and to comply with ethical requirements before accepting. The friendship creates a familiarity threat and the profit pressure raises integrity and risk concerns, but these call for evaluation and safeguards rather than automatic rejection. Option C is wrong because pressure alone is not necessarily disqualifying.

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