(a)  General rules
Information obtained during an audit is normally held to be confidential; that is it will not be disclosed to a third party.
However, client information may be disclosed where:

• disclosure is permitted by law and consent has been obtained from the client
• disclosure is required by law
• there is a professional right or duty to disclose, not prohibited by law
  Disclosure is permitted by law and consent obtained from the client
  An example would be when an auditor is asked to report to a bank in relation to compliance with a loan covenant. The auditor will seek the client’s authorisation before disclosing confidential information to the bank.
  Disclosure required by law
  The recognised exceptions to the general rule of confidentiality are where a member knows or suspects that his client has committed treason, or is involved in drug trafficking, terrorist offences or money laundering. In these situations, information must be disclosed to a competent authority. The actual disclosure will depend on the laws of the jurisdiction where the audit or is located. In Ghana, members of ICAG are required by law to make disclosure to the Financial Intelligence Centre (FIC) within 24 hours where an MLRO considers there to be reasonable suspicion of money laundering (Anti-Money Laundering Act 2020 (Act 1044)).
  The auditor may also be obliged to provide information where a court demands disclosure. Refusal to provide information is likely to be considered contempt of court with the auditor being liable for this offence.
  Professional right or duty to disclose, not prohibited by law
  A member may also disclose client confidential information where not prohibited by law, in a limited number of situations.
• To comply with a quality review of a professional body
• To respond to an inquiry or investigation by a professional body
• To protect the professional interests of a professional accountant in legal proceedings e.g. to allow a member to sue a client for unpaid fees or defend an action for negligence
• To comply with technical and professional standards (including ethical requirements)

(b)  Audit partner – time in office

Mr. Thompson has been the audit partner of TechTrend for eight years. His objectivity for the audit might be threatened by the ongoing close relationship with the client. In other words, he might be too friendly with the directors of TechTrend. This means he might not be willing or able to take difficult decisions such as issuing a modified auditor’s report for fear of prejudicing his friendship with the directors. Rotating the audit partner would remove this threat.

The IESBA Code states that the engagement partner of a public interest entity (which as a listed company TechTrend is) shall be rotated every seven years.

Unpaid taxation fees

TechTrend has not paid the taxation fees for work that took place nearly six months ago. The non-payment of fees can be a threat to objectivity similar to that of an unpaid loan. In effect, Apex & Co is providing TechTrend with an interest-free loan. The audit partner in Apex & Co may not wish to issue a modified auditor’s report for fear that the client leaves and the ‘loan’ is not repaid. The unpaid fee must be discussed with the directors in TechTrend and reasons for non-payment obtained. Apex & Co may wish to delay starting the audit work for this year until the fee is paid to remove the potential independence problem. If the fee is not paid at all then Apex & Co may decline to carry out the audit.

Fee income

No details are provided regarding fee income obtained from TechTrend. However, the company is growing rapidly and Apex & Co does provide other services besides audit. As TechTrend is listed it is a public interest entity, and so Apex & Co shall determine whether more than 15% of its recurring practice income (including auditing, accountancy, and other work combined) is derived from this client for two consecutive years. If so, Apex & Co must determine whether they need to engage an independent accountant to perform a pre-issuance review. Obtaining more than 15% (for two consecutive years) could indicate undue financial reliance on one client, and create a self-interest or intimidation threat to objectivity (fear of issuing a modified report and losing the fee income from the audit client).

If fees for audit and other recurring work have been greater than 15% of the revenue of Apex & Co for five years, Apex & Co cannot be auditor of TechTrend after the audit opinion for the fifth year is issued.

Apex & Co should employ safeguards against the threat to objectivity even if the total recurring fees exceed 15% of practice income for the first year. These might include limiting the provision of non-audit services, having an independent review of the audit work, increasing the client base of the firm, or increasing the extent of services provided to other clients.

Sarah Thompson

Sarah Thompson (the finance director of TechTrend) is the daughter of Mr. Thompson, the audit partner, and this might create a self-interest, intimidation, or familiarity threat to independence. Mr. Thompson may be too trusting of his daughter and not apply enough professional scepticism during the audit. He may feel pressured to issue an unqualified auditor’s report as he will not wish to upset his daughter or see her personally affected (for example, she may lose her job after a qualified auditor’s report is issued).

As the finance director of TechTrend, Sarah Thompson will be in a position to exert direct and significant influence over the financial statements. The IESBA Code states that in this case, the threats to independence can only be reduced to an acceptable level by removing Mr. Thompson from the audit team. This safeguard is being applied anyway, since Mr. Thompson needs to be rotated from the audit team as explained above.

Meal

The offer of a meal by Sarah might create a self-interest, familiarity, or intimidation threat to independence. Having received an expensive meal, the audit staff may be favourably disposed towards TechTrend and be less inclined to investigate potential misstatements (familiarity threat). The hospitality could be perceived to be inappropriate if publicly disclosed (intimidation threat).

Apex & Co are prohibited from accepting hospitality if a reasonable and informed third party would be likely to conclude this is made with the intent to improperly influence their behaviour. In addition, the IESBA Code only allows Apex & Co to accept hospitality where the value is trivial and inconsequential. The value of a meal in an expensive restaurant is unlikely to be trivial and inconsequential. To ensure no independence issues, it would appear that the invitation should be declined.