Mwayi & Co: fee dependence and interim finance role
Mwayi & Co has audited Sunbird Mills Ltd, a Malawi-listed food manufacturer, for seven years. The audit fee is MWK 45m. Mwayi & Co total fee income is MWK 300m. The firm also earns MWK 60m from tax compliance and tax advisory services to Sunbird. In October 2025, Sunbird's finance manager resigned and the firm seconded its tax partner to act as interim finance manager for four months. The tax partner supervised the preparation of the tax return and made journal entries in the accounting system. The audit engagement partner has been on the engagement since 2019. Sunbird has offered that partner the CFO role from April 2026. The partner has not accepted but has discussed the offer with the audit committee. The firm is finalising the 31 December 2025 audit. The audit committee asks whether the firm can continue as auditor and what safeguards are needed.
1. Identify the independence threats and evaluate their significance under the IESBA Code.
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There are several threats.
Fee dependence: audit fee 45m and total fees 45m + 60m = 105m, which is 35% of firm income of 300m. The audit fee alone is 15%. This creates a self-interest threat, especially because the client is listed and the fees are recurring.
Tax services: preparing the tax return and advising on tax can create a self-review threat if the tax balances are material or the advice affects the financial statements. Tax compliance services are not automatically prohibited, but the firm must not assume management responsibility.
Interim finance manager: the tax partner made journal entries and supervised the tax return. This is management participation. It creates self-review, advocacy and familiarity threats. The threat cannot be reduced to an acceptable level merely by review because the partner acted as management.
Long association: seven years on a listed audit creates familiarity and self-interest threats. Partner rotation requirements for listed entities must be considered.
CFO offer: discussing a CFO role with the audit client creates a self-interest threat and may impair objectivity. The partner should be removed from the engagement immediately.
2. Recommend the actions the firm should take before signing the 2025 audit report, including communication with those charged with governance.
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The firm should first determine whether the tax partner made management decisions or only provided support. If the partner had authority to make journal entries, supervise staff or commit the company, the firm must withdraw the individual from the audit team and consider whether the audit can continue at all.
Actions before signing:
- Remove the tax partner and the engagement partner from the audit engagement.
- Appoint an independent engagement quality reviewer.
- Review all journal entries and tax balances affected by the tax partner's work.
- Reassess whether the tax services create a self-review threat and whether an independent tax adviser should be used.
- Discuss the matter fully with the audit committee and document the safeguards.
- Assess fee dependence and whether the firm can objectively resist management pressure.
- Confirm the CFO offer discussions have ceased and that the partner has no influence over the audit.
If the management participation cannot be eliminated, safeguards are unlikely to be effective. The firm should resign rather than issue an audit report that appears independent when it is not.
3. If Sunbird refuses to replace the interim finance manager or reduce tax services, what should the firm do?
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The firm should not continue as auditor. Management participation by a firm partner is a fundamental threat to independence, and no safeguard can make it acceptable if the partner remains in a management role. Fee dependence of 35% reinforces the problem.
The firm should resign from the audit engagement, communicate the reasons to the audit committee and, where required, to the regulator. It should cooperate with the incoming auditor and provide access to working papers in accordance with ethical and professional requirements. The firm should also review whether it can continue providing tax services to Sunbird after resignation; those services must not create a self-review threat for the new auditor or involve management functions.
The key judgement is that independence is not a box-ticking exercise. A firm cannot audit its own management decisions, and a significant fee dependence makes the threat harder to manage. Resignation protects the public interest and the firm's reputation.