familiarity threat to auditor and related safeguards

THREATS AND SAFEGUARDS IN THE DETERMINATION OF AUDITOR INDEPENDENCE. Safeguards created by the profession, legislation or regulation; and 2. Employment by the client of former audit partners and staff. Safeguards in the work environment. Jörgen Holmquist . Further examples of existing threats are identified and additional threats emerge, in particular an urgency threat, and a loss of face threat. 42 It gives examples of safeguards that can, in some circumstances, eliminate the threat or reduce it to an acceptable level. 5.3 Forms of Threats to Auditor Independence The FEE (1998) and the ISB (2000) (now defunct) identified five categories of threats - self-interest threat, self-review threat, advocacy threat, familiarity threat, and intimidation threat. 5.3 Forms of Threats to Auditor Independence Threats to independence have evolved over time. The specific threats outlined are Self Interest, Self Review, Advocacy, Familiarity and Intimidation. Here the auditor can't act independently as she is scared due to intimidatory threats such as the threat to take away the work unless they do as the client wishes. Neither auditors nor our system of regulating their function has ever received the degree of public scrutiny and skepticism as that which followed the violent collapse of Enron, and the sorry parade of Chair . Familiarity leads to complacency wherein the auditor does not practice scepticism and is too sure that everything with the … Analysis of threats to independence and available safeguards to be adopted 2. Familiarity threats occur when auditor develops a cordial relationship with the client; Intimidation threat occurs due to actual or perceived threats from clients or other stakeholders. auditor complies with paragraph R600.8 of the proposal, any threats of the auditor assuming a management responsibility would be reduced to an acceptable level. Threats An auditor must be independent and be seen to be independent Five potential threats are identified in the ACCA’s code of ethics. — Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director. Findings also indicated that auditor independence with nonaudit services cannot be - maintained. The FEE (1998) and the ISB (2000) (now defunct) identified five categories of threats - self-interest threat, self-review threat, advocacy threat, familiarity threat, and intimidation threat. ... A familiarity threat arises from knowing someone very well, possibly through a long association in business. These include procedures firms can perform to protect auditor independence, such as review by a second partner, consultation with designated professionals in the firm or disclosure to the audit committee. threat, and a loss of face threat. IESBA . Codes of ethics typically provide examples of generic threats that affect auditors, which can be viewed as affecting both external and internal auditors. Other important examples are found of familiarity threats and self-review threats. 1. Rotation of audit partners 5. A threat to independence is anything that means that the opinion of an auditor could be doubted. Familiarity Threat (Ref: Para. Once an auditor identifies such threats and evaluates their significance, he or she should analyze potential safeguards. ... safeguards must be put in place to eliminate the threat and these safeguards must be documented in the audit report. The auditor may also be able to rely to an extent on safeguards implemented by the client, if they are relevant to the threat or threats identified. The Philippine Ethics Code discusses the familiarity threat that may be created by using the same senior personnel on an assurance engagement over a long period of time and the safeguards that might be appropriate to address such threats. WILLIAM T. ALLEN * ARTHUR SIEGEL ** INTRODUCTION. A discussion of what is meant by "professional" and different codes of ethics can be found here.. In other words, safeguards should be applied, when necessary, 5. PSA 260 (Revised and Redrafted) (a) Threats to independence, which may be categorized as: self-interest threats, self-review threats, advocacy threats, familiarity threats, and intimidation threats; and (b) Safeguards created by the profession, legislation or regulation, safeguards within the entity, and safeguards within the firm’s own systems and procedures. The existence of any self-interest or familiarity threats that may arise from performing these All employees should act ethically both at work and in their private life.. Members of professional bodies, such as qualified accountants, often have codes of ethics to guide them when ethical dilemmas arise. First is the appointment method and the characteristics which directors consider to be preferable in selecting an auditing firm. Advantages of a threats and safeguards approach 3. When safeguards are applied, the member should document the threats and the safeguards applied, according to the FAQ. Categories of Threat 1. Auditor Independence Safeguards • Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad categories: 1. The study concludes that non audit services could be extended in Masvingo, with exception of nonaudit services with proven risk to auditor independence. Page 2 • Code recognises that long- standing audit relationships can create threats to, and undermine confidence in, the independence of the auditor • Recent initiatives propose stronger safeguards: – EC Green Paper – PCAOB concept release and identified a series of safeguards to limit the threats to the auditor’ s independence. If safeguards cannot be applied to eliminate the independence threat or reduce it to an acceptable level, then independence will be impaired. safeguards are insufficient defence against the threats. ETHICAL THREATS AND SAFEGUARDS Ethical conflict An ethical conflict ... auditor has a moral obligation to earn money to feed, clothe and house his family. However the IESBA Code states that it is not possible to rely solely on such safeguards to reduce threats to an acceptable level. Threat Safeguards; Self-Review: The threat that the auditor will not appropriately evaluate the results of a previous judgment made/or service performed by him: Provision of other services to an audit client (Note: other threats due to this are self-interest because of the fee element and advocacy non-audit services)-Preparing of financial statements.-Tax consultant Advocacy threat - The threat that a professional accountant will promote a client’s position to the point that the professional accountant’s objectivity is compromised. The FEE (1998) and the ISB (2000) (now defunct) identified five categories of threats - self-interest threat, self-review threat, advocacy threat, familiarity threat, and intimidation threat. Safeguards are necessary when the auditor concludes that the identified threats are at a level at which compliance with the fundamental principles is compromised. which may create threats to the auditor’s objectivity or perceived loss of independence. ... auditor to reduce valuable audit work and therefore compromise audit quality. Non-audit services by auditors to their clients 4. Safeguards may include prohibitions, restrictions, disclosures, policies, procedures, practices, standards, rules, institutional arrangements, and •Threats due to auditing own work (i.e. Strengthening Safeguards Against Familiarity Threats . Related article: 6 MORE threats to auditor independence ... particularly including the familiarity between the people in the accounting firm and the audit firm." In other words, safeguards should be applied, when necessary, to eliminate the threats or reduce them to an acceptable level. Familiarity Threat There is familiarity threat if the auditor has a close relationship to or too familiar with staffers, officers, or directors of the client company. . 4. This article, based on a questionnaire survey of UK finance directors, investigates three aspects of the auditor/director relationship where the ‘Familiarity Threat’ may be present. 4 Safeguards to auditor impartiality 4.1 The CERTIFICATION BODY should have in place safeguards that mitigate or eliminate threats to auditor impartiality. Fee dependence by the auditor on the client 6. Threat of Complacency, Familiarity, Self-Review and Social Bonding When the auditor becomes too trusting or sympathetic of the client due to a close relationship with the management and employees, then social bonding and familiarity threat is likely to creep in. 5.3 Forms of Threats to Auditor Independence Threats to independence have evolved over time. The importance of audit independence is enhanced due to the existence of various threats as mentioned above. Management motivation is found to be a key driver of pressure on an auditor. In circumstances where this is not possible, the auditor either does not accept or withdraws from the audit engagement, as appropriate. Here the auditor and client have a too close relationship, for example due to a long association over many years in … Threats can be real or perceived. 1. 25) A12. Familiarity . Management motivation is found to be a key driver of pressure on an auditor. Safeguards are suggested in order to counter each of the threats. A13. identified threat or threats are significant, or by prioritising the threats that have been identified. Conflicts of interest and ethical threats . Strengthening Safeguards Against Familiarity Threats Objective of Agenda Item To seek input from CAG member on a proposal to review the provisions in the Code that address partner rotation. 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