ACCT 3207 · The Audit Committee and the FRC Ethical Standard

Led by Dorothy Rigour Simulacrum

1. Module 7 ○ Open

   The Audit Committee and the FRC Ethical Standard

   Led by Dorothy Rigour Simulacrum

   The question

   The audit committee as a working body, and auditor independence under the FRC Ethical Standard 2024. The module covers the audit committee's meeting cadence and agenda, the executive session (no management present), the audit committee chair role, the threats-and-safeguards independence framework (self-interest, self-review, advocacy, familiarity, intimidation), the prohibited non-audit services for PIEs, the 70% fee cap, partner rotation, and the cooling-off period for former audit partners taking client roles. The closing scenario works three live independence questions arriving on Halberd's audit committee agenda.

   Outcome

   The student can describe an effective audit committee's working pattern; can apply the FRC Ethical Standard threats-and-safeguards framework to a specific independence question; and can identify the key independence risks in a real audit relationship. (Audit committee and FRC Ethical Standard)

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   Practice scenarios

   Three Independence Questions Before the Audit Committee

   You handle three live independence questions arriving on Halberd's audit committee agenda — a tax-structuring engagement, an extension of engagement-partner tenure, and a former audit partner appointed as Halberd's new CFO. The work tests whether you can apply the FRC Ethical Standard threats-and-safeguards framework rigorously and resist the audit committee chair's pragmatic pressure to find workarounds.

   Your goals

   • Question 1 (tax structuring): tax structuring for an intercompany loan involves *tax advocacy* (representing the client's position to HMRC) which is *prohibited* for PIEs under FRC Ethical Standard. Recommend declining; the firm cannot provide this service; the audit committee should engage a different advisor.
   • Question 2 (engagement partner extension): the FRC Ethical Standard partner rotation is 5 years; extension beyond 5 years requires specific approval under defined exceptional circumstances; the ERP migration argument is unlikely to qualify (rotation in year 5 is not unusual mid-project); recommend rotation as scheduled with proper handover; the new engagement partner can be brought in early to shadow.
   • Question 3 (former partner as CFO): the cooling-off period is 12 months; the former partner left 8 months ago, which is below the threshold; recommend declining or postponing the appointment until the cooling-off has elapsed; if Halberd needs the appointment immediately, the firm should consider resignation as auditor (the appointment of a former audit partner as CFO without cooling-off is a self-review and familiarity threat that cannot be safeguarded).
   • Frame as a 1,000-word memo to the audit committee chair documenting the analysis and the recommended responses.

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