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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

Under the IESBA Code, the definition of a public interest entity (PIE) is being applied by Corvin & Co. Which statement is correct about how the firm should treat an audit client that is a bank with a small number of shareholders and no listed securities?

The firm should assess the bank as a possible PIE. The IESBA Code goes beyond listed entities to include entities defined as PIEs by law or regulation and those of significant public interest, such as deposit-taking banks. If it is a PIE, stricter independence and transparency requirements apply.

  1. AIt is not a PIE because only listed entities are PIEs under the Code
  2. BThe firm should consider whether it is a PIE, since the Code treats entities such as banks and insurers as PIEs where they are specified by law or regulation or where the firm determines they are of significant public interest, so stricter independence requirements may applyCorrect
  3. CIt is a PIE only if its audit fee exceeds 15% of the firm's total fees
  4. DIt is automatically exempt from the PIE requirements because it has few shareholders

Explanation

The IESBA Code's PIE definition covers listed entities and also entities defined by regulation or legislation as PIEs, and those the firm determines to be of significant public interest, for example due to the nature of the business such as deposit-taking. Unlisted status does not exclude a bank. Fee proportion is a separate self-interest consideration, not a PIE test.

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