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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments

Vantor Assurance is the external auditor of Pell Ltd. Pell's parent asks Vantor to perform commercial due diligence and financial due diligence on a competitor, Quill Ltd, for a bid. Vantor also audits the parent. Quill's finance director, who is Vantor's former partner, left the firm two months ago. Which is the most significant issue for Vantor to address before accepting?

Vantor must evaluate threats under the IESBA Code, especially familiarity and self-interest from the former partner's recent move to Quill, and conflicts or confidentiality issues between clients. It should apply safeguards such as separate teams or independent review, or decline if threats cannot be reduced to an acceptable level.

  1. AWhether it has adequate fee income from the parent group
  2. BWhether the former partner's recent departure creates a familiarity or self-interest threat, together with the need to consider threats and safeguards under the IESBA Code and any confidentiality conflictsCorrect
  3. CWhether Quill's financial statements are prepared under IFRS
  4. DWhether the due diligence report will be signed by the engagement partner in blue ink

Explanation

Under the IESBA Code the firm must identify threats such as familiarity and self-interest arising from the recent association with Quill's finance director, and consider confidentiality and conflicts between the parent client and the target. Safeguards such as a cooling-off period, separate teams or other reviews must be evaluated. Fee income and the accounting framework are not the central ethical concern.

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