Acca aaa s21 Notes

7. Example solutions
Solution 1 – No safeguards (only five were asked for)
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An audit firm having a direct financial interest or material indirect financial interest in an audit 
client. (So if a firm had shares in Alfa Co it would have to dispose of them to accept the audit 
appointment.)
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Close business (commercial) relationships (eg the firm and client package their services or the 
client marketing the firm’s services). 
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Accepting loans and guarantees that are not the client’s business or not on normal terms.
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Contingent fees for an audit engagement.
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Assuming any management responsibility for an audit client.
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Providing valuation services to a PIE that are material to the financial statements. (Also for a non-
PIE client if the valuation involves a significant degree of subjectivity.)
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Giving tax or corporate finance advice which depends on a particular accounting treatment and 
has consequences that are material to the financial statements.
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A partner or employee of the firm serving as a director or officer of an audit client.
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Acting as an advocate for an audit client before a court (unless amount involved are immaterial).
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Promoting, dealing in or underwriting client’s shares.
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Gifts and hospitality unless trivial and inconsequential.
September 2021 to June 2022 exams
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Solution 2 – Safeguards to reduce threat to an acceptable level (only five were asked for)
Safeguard
Application
Separate engagement teams
Taxation, internal audit and other services 
(where allowed) to an audit client. Also for 
conflicts of interest.
Not including or removing a member of the 
audit team
Financial interest held by a member of the audit 
team (or immediate family member).
An immediate family holds a position of 
influence in relation to the audit client’s financial 
statements (eg director).
Actual or prospective future employment with 
the audit client.
Staff loaned to clients.
Review of audit work by a professional who was 
not a member of the audit team
Long association
Review of non-audit work by a professional who 
was not involved in the work
Other services such as bookkeeping, taxation 
and valuation (where not prohibited).
Discussion of ethical issues with TCWG/audit 
committee
Fees from a PIE client exceed 15% benchmark 
for two consecutive years. Also for conflicts of 
interest.
Disclosure of fees to TCWG/audit committee
High proportion of fees. Also low-balling.
Assigning appropriate time and qualified staff
Low-balling
Rotating senior members of the audit team
Long association
Engagement quality control review (or 
equivalent)
Fees from a PIE client exceed 15% benchmark 
for two consecutive years (and subsequent 
years).
Notify the existing auditor of the proposed work 
(with permission)
Requests for a ‘second opinion’ by a company 
that is not an existing client (typically on the 
application of a financial reporting standard).