Audit threats

Safeguards against self-review threat Ensuring that the accounting service is not performed by a member of the audit team.

Bias threat to independence

Concern about the possibility of losing the engagement; e. The user might be concerned that perhaps this relationship between the auditor and the manager was a bit too cozy. For example, large value gifts will not represent a more significant threat than say a client buying lunch for a member of the audit team during the audit. Acceptance of gifts or hospitality, unless the value is clearly insignificant, from the audit client, its directors, officers or employees. Guidance is provided in several areas: the identification of threats; the evaluation of the significance of those threats; and the use of safeguards that may serve to reduce threats to an acceptable level. Pressure to reduce inappropriately the extent of work performed in order to reduce fees; and c. The auditor may be put under pressure to provide a clean audit report in return for a favourable appraisal. A direct financial interest or material indirect financial interest in an audit client; b. The Ethical Standards contain broadly similar guidance to the IESBA Code, and promote the use of a conceptual framework based on the same principles as the IESBA Code for the identification and evaluation of threats, and the use of appropriate safeguards. A circumstance or relationship may create more than one threat, and a threat may affect compliance with more than one fundamental principle. But what is this independence thing all about? Conflicts of interest and ethical threats All employees should act ethically both at work and in their private life.

In a small company it might be the responsibility of individuals to perform specific tasks even though there will not be a full-time position.

Self-interest Here the auditor may have a financial or other interest in a matter. Each of these points is discussed below. A threat to independence is anything that means that the opinion of an auditor could be doubted.

This applies to the audit manager also.

factors affecting auditors independence

Policies and procedures that will enable the identification of interests or relationships between the firm or members of engagement teams and clients. The audit committee should approve the appointment and termination of appointment of the head of internal audit. For example, in an external audit context: a member of the audit team having a close family member who, as a director, officer or other employee of the audit client, is in a position to exert direct and significant influence over the subject matter of the audit engagement a former partner of the firm being a director, officer or other employee of the audit client, in a position to exert direct and significant influence over the subject matter of the audit engagement long association of a senior member of the audit team with the audit client and acceptance of gifts or hospitality, unless the value is clearly insignificant, from the audit client, its directors, officers or employees.

A lot of it goes to perception, but there are no obvious safeguards that could satisfy a reasonable third party that it is a truly independent and objective audit. The purpose of this article is to assist candidates in terms of knowledge and question technique when tackling a question on ethics.

Therefore the auditor may not act with objectivity and independence.

self review threat with examples and real life situations

Its aim is to identify existing and potential management weaknesses and recommend ways to rectify them.

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ACCA AA (F8) Notes: A4b. Threats