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ACCA Applied Skills · Corporate and Business Law (Global) · Other company officers

Tanvir Ltd's auditor is asked by the board to also design and implement the company's accounting system and prepare its financial statements. Which ground best explains why this threatens auditor independence?

The main concern is a self-review threat. If the auditor designs the accounting system and prepares the financial statements, it would then audit its own work, which undermines objectivity and independence. Fee levels, voting rights and duty of care are not the central issue.

  1. AThe auditor would be reviewing its own work, creating a self-review threatCorrect
  2. BThe auditor would be paid too little for the work
  3. CThe members would lose the right to vote on the auditor's appointment
  4. DThe auditor would no longer owe a duty of care to the company

Explanation

Designing the systems and preparing the statements means the auditor would later audit its own work, which is a self-review threat. Fees, voting rights and duty of care are not the issue raised by the scenario.

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