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Business & TechnologyEthical ThreatsIFAC PrinciplesSafeguardsSyllabus F

ACCA · Question 52 · Business & Technology

Section B — Multi-Task Question (Syllabus Area F)

Scenario: "TrustAudit" has audited "MegaCorp" for 15 years. The lead audit partner, Sarah, plays golf every weekend with MegaCorp's CEO. During a game, the CEO casually mentions a secret upcoming merger. Sarah later buys shares in the target company. MegaCorp also makes up 40% of TrustAudit's total annual fee income. To address the long tenure issue, TrustAudit decides to replace Sarah with a different lead audit partner next year.

Evaluate the scenario and complete the following 4 tasks:
Task 1: Identify the ethical threat created by Sarah's long-standing friendship with the CEO.
Task 2: Identify the IFAC principle breached when Sarah used the secret merger info to buy shares.
Task 3: Identify the ethical threat created by MegaCorp representing 40% of the firm's fee income.
Task 4: Identify the safeguard TrustAudit applied by replacing Sarah.

Which of the following combinations correctly answers Tasks 1 to 4?

Answer options:

A.

1: Intimidation threat, 2: Integrity, 3: Advocacy threat, 4: Peer review

B.

1: Familiarity threat, 2: Confidentiality, 3: Self-interest threat, 4: Partner rotation

C.

1: Self-review threat, 2: Objectivity, 3: Intimidation threat, 4: Partner rotation

D.

1: Familiarity threat, 2: Professional Competence, 3: Self-interest threat, 4: Resignation

How to approach this question

Task 1: Friendship = Familiarity. Task 2: Using secret info = Confidentiality breach. Task 3: Financial reliance = Self-interest. Task 4: Swapping leaders = Rotation.

Full Answer

B.1: Familiarity threat, 2: Confidentiality, 3: Self-interest threat, 4: Partner rotation✓ Correct
Task 1: A long, close relationship creates a Familiarity threat. Task 2: Using confidential client information for personal gain (insider trading) breaches Confidentiality. Task 3: Over-reliance on fees from one client creates a Self-interest threat. Task 4: Rotating the lead audit partner is a standard safeguard against familiarity threats.

Common mistakes

Identifying the fee reliance as an Intimidation threat. While the client *could* use it to intimidate, the structural reliance itself is a Self-interest threat.
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