ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Vantor plc's audit committee is deciding whether to approve a proposal that the external auditor also provide valuation services for an acquisition that will be material to the financial statements, with the auditor's own team using the valuation to audit the related goodwill. The audit firm suggests using a separate team for the valuation. Which response is MOST consistent with sound governance and ethical guidance for a listed company?

The committee should decline. A material valuation that the auditor would then audit creates a self-review threat, and for a listed public interest entity safeguards such as separate teams are generally not enough to reduce it to an acceptable level. Delaying payment does not remove the threat.

1. ADecline the service, because for a public interest entity a material valuation that the auditor would later audit creates a self-review threat that separate teams are unlikely to reduce to an acceptable levelCorrect
2. BApprove it, because using a separate team always eliminates any threat
3. CApprove it, because valuations are never relevant to the financial statements
4. DApprove it only if the fee is paid after the audit report is signed