ACCA · Question 03 · 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:
How should Sterling & Co respond to the request to provide valuation services for QuantumLeap AI's proprietary algorithms?
Answer options:
Accept the engagement, as providing non-audit services to audit clients is always permitted if separate teams are used.
Decline the engagement, as it creates a self-review threat that cannot be reduced to an acceptable level due to the subjectivity and materiality.
Accept the engagement, provided the valuation is disclosed in the notes to the financial statements.
Decline the engagement, as it creates an advocacy threat which is prohibited for tech startups.
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