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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional appointments

Pinecrest & Co is auditor of Ridley Ltd. A close family member of the audit engagement partner has just been appointed as chief financial officer of Ridley, a role with significant influence over the financial statements. Which response is most appropriate?

Pinecrest should evaluate the threat and, because a close family member holds a key financial role at the client, remove the engagement partner from the team if the threat cannot be reduced to an acceptable level. Audit report disclosure or asking the CFO to stand back is not sufficient.

  1. AContinue the engagement, since family members cannot create threats
  2. BDisclose the relationship in the audit report only
  3. CEvaluate the threat, and where it cannot be reduced to an acceptable level, remove the partner from the engagement teamCorrect
  4. DAsk the CFO to refrain from involvement in the audit

Explanation

A close family member in a position to exert significant influence creates a familiarity and self-interest threat. The firm should evaluate it and generally remove the individual from the team, as safeguards are unlikely to be enough. Family members clearly can create threats, the audit report is not the vehicle for such disclosure, and asking the CFO to step back from the audit does not address the partner's position.

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