ExpertMedium2 marksMultiple Choice
ACCA · Question 27 · Syllabus F: Professional ethics
ChemWorks, a heavy manufacturing firm, hired an accounting firm to design and implement a new inventory valuation software system. Six months later, ChemWorks hires the exact same accounting firm to conduct their annual statutory external audit, which includes auditing the inventory valuations produced by the new software.
Which structural threat to independence does this situation create?
ChemWorks, a heavy manufacturing firm, hired an accounting firm to design and implement a new inventory valuation software system. Six months later, ChemWorks hires the exact same accounting firm to conduct their annual statutory external audit, which includes auditing the inventory valuations produced by the new software.
Which structural threat to independence does this situation create?
Answer options:
A.
Self-interest threat
B.
Self-review threat
C.
Advocacy threat
D.
Familiarity threat
How to approach this question
Identify the conflict: the firm is auditing (reviewing) a system that they themselves (self) built.
Full Answer
B.Self-review threat✓ Correct
A self-review threat occurs when a professional accountant is required to evaluate the results of a previous judgment made, or service performed, by themselves or their firm. Auditing a system they designed is a classic example.
Common mistakes
Choosing Self-interest. While financial interest is always present, the exam requires identifying the *specific* structural threat, which here is Self-review.
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