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Audit and AssuranceSection ASyllabus Area AEthicsGifts and Hospitality

ACCA · Question 03 · Audit and Assurance

CASE 1: AQUAPURE UTILITIES CO

AquaPure Utilities Co is a listed water treatment company. Your firm, Stream & Co, has been the auditor for 6 years. The audit engagement partner, Sarah Jenkins, has been in place for the entire 6 years. AquaPure has requested Stream & Co to provide internal audit services regarding their new environmental compliance system. The Finance Director of AquaPure recently offered the audit team a weekend stay at a luxury spa resort owned by the company. AquaPure's audit committee consists of three executive directors and two independent non-executive directors.

QUESTION:
Which of the following best describes the ethical implications of the Finance Director's offer of a weekend stay at a luxury spa resort?

Answer options:

A.

It creates an intimidation threat and should be reported to the regulatory authorities.

B.

It creates a self-interest and familiarity threat and must be declined as the value is not trivial and inconsequential.

C.

It can be accepted provided the audit team pays a nominal fee to the company.

D.

It can be accepted as it is a standard business courtesy in the utilities industry.

How to approach this question

Assess the value of the hospitality offered. If it is not 'trivial and inconsequential', it must be declined to avoid self-interest and familiarity threats.

Full Answer

B.It creates a self-interest and familiarity threat and must be declined as the value is not trivial and inconsequential.✓ Correct
Gifts and hospitality create self-interest and familiarity threats. The Code of Ethics states that unless the value of the gift or hospitality is trivial and inconsequential, the threat cannot be reduced to an acceptable level by any safeguard, and the offer must be declined.

Common mistakes

Believing that disclosure to the audit partner makes accepting the gift acceptable.
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