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Medium2 marksMultiple Choice
Audit and AssuranceSection ASyllabus Area AEthicsPartner Rotation

ACCA · Question 01 · 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:
Regarding the tenure of the audit engagement partner, Sarah Jenkins, which of the following statements correctly identifies the ethical threat and the required action according to the ACCA Code of Ethics and Conduct?

Answer options:

A.

A self-interest threat exists. Sarah Jenkins can continue indefinitely as long as an independent review partner is appointed.

B.

A familiarity threat exists. As AquaPure is a listed entity, the engagement partner must be rotated after a maximum of seven years.

C.

An intimidation threat exists. Sarah Jenkins must be rotated immediately as she has exceeded the five-year maximum tenure.

D.

A familiarity threat exists. Sarah Jenkins can continue for another 4 years before rotation is mandatory.

How to approach this question

Identify the type of entity (listed) and the specific ethical rule regarding partner rotation for listed entities (7 years). Match this with the correct threat (familiarity).

Full Answer

B.A familiarity threat exists. As AquaPure is a listed entity, the engagement partner must be rotated after a maximum of seven years.✓ Correct
Long association with an audit client creates a familiarity threat. The ACCA Code of Ethics stipulates that for listed entities, the key audit partner should not act for a period exceeding seven cumulative years.

Common mistakes

Confusing the 7-year rule for listed entities with the general rules for non-listed entities, or misidentifying the threat as self-interest.
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