Case Study 1

Intended audience: Professional Accountants in Public Practice

A sole proprietor public accountant called X is one of a few directors and sole shareholder of a tax and corporate advisory firm (TCA). They are considered to be network firms as defined in the Code of Professional Conduct and Ethics (the Code).

TCA provides book keeping services to approximately ten of X’s audit clients.

X says that the accounting records of the clients are prepared by TCA’s staff and sent directly to the clients for review and approval. There is no conclusive evidence to say whether X signed off the accounting / book keeping work. Therefore, the question is whether X is responsible for the sign off of both the independent auditor’s reports and the accounting / book keeping work together with the compilation of unaudited accounts, such that a “self review threat” is created as per paragraph 100.10(b) of the Code;

 X has responded that: 

 Issues:

Although it was known who performed the work, it was unclear whether the staff were employees of the audit practice of X or TCA at the time where the work was performed.

Considerations / Recommendations:

In addressing self review threats, paragraph 100.11 says that safeguards created by the profession, legislation or regulation and safeguards in the work environment may eliminate or reduce such threats to an acceptable level. Paragraphs 100.12 to 100.15 elaborate on the nature of such safeguards.

X has also responded that there are safeguards in place against self review threat, including: 

In addition to the above safeguards, TCA should also ensure that clients understand that the two practices are separate entities, through issuing separate engagement letters from TCA to all the audit clients of X’s audit practice for TCA’s accounting / non audit services.