ExpertMinds LogoExpertMinds
Medium2 marksMultiple Choice
Audit Framework and RegulationEthicsFee DependencySafeguardsSyllabus Area A

ACCA · Question 01 · Audit Framework and Regulation

SECTION A - CASE 1: NEUROCLOUD ANALYTICS CO

NeuroCloud Analytics Co is a fast-growing tech startup providing AI-driven data analytics to the healthcare sector. You are an audit manager at Turing & Co, planning the audit for the year ended 31 December 20X5. NeuroCloud is not a public interest entity (PIE).

During the planning phase, you note the following:

  1. The projected audit fee from NeuroCloud represents 18% of Turing & Co's total fee income for the year.
  2. NeuroCloud has requested Turing & Co to design and implement a new IT system for their financial reporting.
  3. NeuroCloud's CEO also acts as the Chairman of the Board.
  4. An audit junior overheard confidential discussions about a revolutionary unreleased AI model and subsequently purchased shares in NeuroCloud.

Question:
Regarding the projected audit fee representing 18% of Turing & Co's total fee income, which of the following is the most appropriate action in accordance with the ACCA Code of Ethics and Conduct?

Answer options:

A.

Turing & Co must immediately resign from the audit engagement as the fee exceeds the 10% absolute maximum threshold.

B.

Disclose the situation to those charged with governance and arrange for an appropriate reviewer, who is not a member of the audit team, to review the audit work.

C.

No action is required as NeuroCloud is not a Public Interest Entity (PIE), so fee dependency rules do not apply.

D.

Request that NeuroCloud pays a portion of the fee in advance to reduce the financial dependency threat.

How to approach this question

Recall the ACCA Code of Ethics rules on fee dependency. For non-PIEs, if total fees from a client represent more than 15% of the firm's total fees for two consecutive years, safeguards must be applied, such as a pre-issuance or post-issuance review.

Full Answer

B.Disclose the situation to those charged with governance and arrange for an appropriate reviewer, who is not a member of the audit team, to review the audit work.✓ Correct
Under the ACCA Code of Ethics, if total fees from a client exceed 15% of the firm's total fees, a self-interest or intimidation threat arises. The firm must disclose this to those charged with governance and apply safeguards, such as having an independent professional review the work.

Common mistakes

Students often confuse the rules for PIEs (where the threshold is 15% but rules are stricter regarding consecutive years) with non-PIEs, or incorrectly believe that exceeding the threshold requires immediate resignation.
All questions02

Practice the full ACCA AA — Audit and Assurance Practice Exam 5

18 questions · hints · full answers · grading

Sign up freeTake the exam

More questions from this exam

Q02SECTION A - CASE 1: NEUROCLOUD ANALYTICS CO NeuroCloud Analytics Co is a fast-growing tech start...MediumQ03SECTION A - CASE 1: NEUROCLOUD ANALYTICS CO NeuroCloud Analytics Co is a fast-growing tech start...EasyQ04SECTION A - CASE 1: NEUROCLOUD ANALYTICS CO NeuroCloud Analytics Co is a fast-growing tech start...EasyQ05SECTION A - CASE 1: NEUROCLOUD ANALYTICS CO NeuroCloud Analytics Co is a fast-growing tech start...MediumQ06SECTION A - CASE 2: GREENYIELD AGRI-COOP GreenYield Agri-Coop is a large agricultural cooperativ...Hard
View all 18 questions →