ACCA Strategic Professional · Advanced Audit and Assurance (International) · Code of Ethics for Professional Accountants

Verano Group is a listed company (a public interest entity) audited by Castell LLP. Castell's tax team has been asked to design and implement a tax planning scheme for Verano. The scheme's effectiveness depends on a particular accounting treatment that Castell will audit, and the amounts involved are material to the financial statements. What is the appropriate conclusion under the IESBA Code?

Castell should decline the engagement. Tax advice whose effectiveness hinges on a material accounting treatment that the firm will audit creates self-review and advocacy threats that safeguards such as separate teams, audit committee approval or fee limits cannot reduce to an acceptable level for a listed audit client.

1. ACastell may provide the service if the tax team is separated from the audit team, because this removes the self-review threat
2. BCastell may provide the service if the audit committee approves it, because approval is an acceptable safeguard for this threat
3. CCastell may provide the service if the fee is below 15% of the audit fee, because the fee is then not significant
4. DCastell should not provide the service, because a tax advice service whose effectiveness depends on an accounting treatment that is material and subject to audit creates a threat that cannot be reduced to an acceptable levelCorrect