ACCA · Question 02 · Audit Framework and Regulation
SECTION A - CASE 1: QUANTUMLEAP AI
SCENARIO:
You are an audit manager at Sterling & Co. You are reviewing the client portfolio and ethical considerations for a prospective new client, QuantumLeap AI, a rapidly growing tech startup developing machine learning algorithms for healthcare. The CEO of QuantumLeap AI has offered Sterling & Co a 15% equity stake in the company in lieu of audit fees for the first three years, citing cash flow constraints. Furthermore, the audit partner's spouse recently purchased a small number of shares in QuantumLeap AI. QuantumLeap has also requested that Sterling & Co provide valuation services for their proprietary algorithms, which are highly subjective and material to the financial statements.
QUESTION:
Regarding the audit partner's spouse purchasing shares in QuantumLeap AI, which of the following statements is true?
Answer options:
Because the shares are held by a spouse and not the partner, no ethical threat exists.
It creates a self-interest threat. The shares must be disposed of immediately, or the partner must be removed from the engagement.
It creates an intimidation threat. The partner should be allowed to remain on the engagement provided an independent review is conducted.
It creates a familiarity threat. The firm must resign from the audit engagement entirely.
18 questions · hints · full answers · grading
Expert