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Threats (Self interest (High percentage of fees (Safegurads (If an…

- - - - The audit firm
      -  A member of the audit team
      -  An immediate family member of a member of the audit team
    - -  Disposing of the interest
      -  Removing the individual from the team if required
      -  Keeping the client's audit committee informed of the situation
      -  Using an independent partner to review work carried out if necessary
  - - - OVERALL: the partners to judge the materiality of the interest and therefore its significance.
      - AUDIT FIRM: unless the interest is clearly insignificant, end the assurance provision or to terminate the (other) business relationship
      - MEMBER: remove individual member of an audit team has such an interest
      - immediate FAMILY member: safeguards applied when necessary
    - - purchasing goods and services from an audit client on an arm's length basis is not a threat to independence
      - the nature or size of the transactions
      - safeguards may be necessary
  - - - staff might transfer between an audit firm and a client, or that negotiations or interviews to facilitate such movement might take place.
      - there may be familiarity and intimidation threats when a member of the audit team joins an audit client
    - - Have 'significant connection (mối liên kết tương đối lớn)
        
        NO Safeguards
        
        what is it?
        
        The individual is entitled to benefits from the audit firm
        
        The individual continues to participate in the audit firm's business or professional activities
      - No significant connection
        
        Factors to threats
        
        Position in client
        
        Invovlement with the AUDIT TEAM
        
        LENGTH OF TIME in Audit team/Partner
        
        Formal POSITION in AUDIT TEAM/FIRM
        
        Safegards
        
        Modifying the audit plan
        
        Assigning individuals to the audit team who have sufficient experience in relation to the individual who has joined the client
        
        Having an independent professional accountant review the work of the former member of the audit team
      - Note
        
        Public interest entity
        
        Key audit partner joins as a director or as an employee with significant influence on the financial statements
        
        Khoảng thời gian KH phát hành BCTC và khoảng thời gian KAP nghỉ việc là cách nhau ít nhất 12 tháng
        
        AP không tham gia kiểm toán The partner was not part of the audit team which audited those financial statements
        
        senior or managing partner joins an audit client
        
        12 months must have passed since the
        individual was senior or managing partner
  - - - Staff may be loaned to an audit client, but only for a short period of time
      - Staff must not assume management responsibilities
    - - Conducting an additional review of the work performed by the loaned staff
      -  Not giving the loaned staff audit responsibility for any function or activity on the audit that they performed during the temporary staff assignment
      -  Not including the loaned staff in the audit team
  - - - A partner or employee of an audit firm should not serve on the board of an audit client.
      - NOTE: may act as company secretary for an audit client, if the
        role is essentially administrative.
  - - -  The individual's responsibilities on the audit engagement
      -  The closeness of the relationship
      -  The role of the person at the audit client
    - - Remove if
        
        an immediate family member of a member of the audit team is in AUDIT CLIENT in a position to exert direct and significant influence over the FSs
      - consider whether there is any threat to independence in other cases
      - A firm should have quality control policies and procedures under which staff should disclose if a close family member employed by the client is promoted within the client
      - inadvertently breaks the rules
        
        undertaking a quality control review of the audit
        
        discussing the matter with the audit committee of the client
  - - - If a member of the audit team is evaluated on selling non-assurance services to the client
      - Note: Ko đc apply cho A key audit partner
    - - How much
      - Role in audit team
      - Whether promotion decisions are influenced by the sale of these services
    - -  Removing the member from the audit team
      -  Having the team member's work reviewed by a professional accountant
  - - - NO THREATS if
        
        FIRM
        
        normal commercial terms
        
        : immaterial amount
        
        MEMBER: material nhưng normal terms
      - nếu material
        
        Safeguard: an independent review
    - - Không đc phép (unless immaterial to both
        parties which is unlikely)
      - No safegurads
  - - - fees due from an audit client remain unpaid for a long time, especially if a significant part is not paid before the auditor's report is issued for the following year
    - - if fees remain unpaid after the report has been issued
        
        an additional professional accountant review
      - Discuss with TCWG
      - Resign if overdue fees are not paid
  - - - Contingent fees are fees calculated on a predetermined basis relating to the outcome or result of a
        transaction or the result of the work performed
  - - - a high proportion of its fee income from just one audit client
      - the firm will be concerned about losing the clien
    - - • 'Reducing the dependency on the client
      - • External quality control reviews
      - • Consulting a third party, such as a professional regulatory body or a professional accountant, on key audit judgements.'
      - If an individual partner or office's percentage
        fees from one client is high.
        
        internal quality control
    - - The operating structure of the firm
      - • Whether the firm is established or new
      - • The significance of the client to the firm (both quantitatively and qualitatively)
    - - more than 15% of the firm's total fees for two consecutive years
        
        Disclose this to TCWG
        
        Arrange for a review either by an external professional accountant or by a regulatory body
        
        (a 'pre-issuance review
        
        a 'postissuance review'
      - If total fees significantly exceed 15%
        
        both post and pre-issuance is required
      - If total fees significantly exceed 15%
        
        Disclose and discuss with TCWG
        
        a pre-issuance or post-issuance review must be carried out each year
  - - - When a firm quotes a significantly lower fee level for an audit service than would have been charged by the predecessor firm
    - - Maintaining records so that the firm can demonstrate that appropriate staff and time are allocated to the engagement
      -  Complying with all applicable auditing standards, guidelines and quality control procedures
  - - - Recruiting senior management for an audit client, particularly those able to affect the financial statements
    - - OVERALL : not make management decisions for the client
      - Nếu laf PIE
        
        not allowed to provide the following services in respect of respect of a director, officer or senior management in a position to exert significant influence over FS
      - Ko phải PIE
        
        Chỉ đc review a shortlist of candidates
- - - - director or officer of the audit client, or an employee in a position to exert direct and significant influence should not be part of audit team
      - If an individual had been closely involved with the client before the period covered by the auditor's
        report
        
        Obtaining a quality control review of the individual's work on the assignment
         Discussing the issue with the audit committee
  - - - Management responsibilities
        
         Setting policies and strategic direction
        
         Hiring and dismissing employees
        
         Directing and taking responsibility for the actions of the entity's employees
        
         Authorising transactions
        
         Controlling or managing of bank accounts or investments
        
         Deciding which recommendations of the firm or other third parties to implement
        
         Reporting to those charged with governance on behalf of management
        
         Taking responsibility for the preparation and fair presentation of the financial statements
        
         Taking responsibility for designing, implementing and maintaining internal control
  - - -  Using staff members other than audit team members to carry out work
      -  If non-audit services are performed by a member of the audit team, using an independent partner or senior staff member (not part of the audit team) to review the work performed
      -  Obtaining client approval for work undertaken
    - - Not allowed
  - - - PIE
        
        Not allowed if the valuations would have a material effect, separately or in the aggregate
      - Other
        
        Audit firms should not carry out valuations on matters which will be material to the financial statements which involve a significant degree of subjectivity
    - - Safeguards
        
        Second partner review
        
         Confirming that the client understands the valuation and the assumptions used
        
         Ensuring that the client acknowledges responsibility for the valuation
        
         Using separate personnel for the valuation and the audit
  - - - Tax return preparation
        
        NO THREATS as long as
        management takes responsibility for the returns.
      - (ii) Tax calculations for the purpose of preparing the accounting entries
        
        PIE: not allowed
        
        Other:allowed
      - (iii) Tax planning and other tax advisory services
        
        acceptable: s, eg where the advice is clearly
        supported by tax authority or other precedent.
        
        Not acceptable:
        
        the audit team has reasonable doubt about the accounting treatment
        
        Material
      - (iv) Assistance in the resolution of tax disputes
        
        Not permitted
        
        acting as an advocate of the client and the effect of the matter is material to the FS
        
        Permitted with safeguards:
        
        using professionals who are not members of the audit team
        to perform the service
        
        obtaining advice on the service from an external tax
        professional
  - - - '(i) Setting internal audit policies or the strategic direction of the internal audit department
      - (ii) Directing and taking responsibility for the actions of the entity's internal audit employees
      - (iii) Deciding which recommendations resulting from internal audit activities are implemented
      - (iv) Reporting the results of the internal audit activities to those charged with governance on behalf of management
      - (v) Performing procedures that form part of the internal control
      - (vi) Taking responsibility for designing, implementing and maintaining internal control
      - (vii) Performing outsourced internal audit services, comprising all or a substantial portion of the internal audit function, where the firm is responsible for determining the scope of the
      - internal audit work and may have management responsibilities'
    - - A significant part of the internal controls over financial reporting;
      - Financial accounting systems generating information which is significant to the financial statements
      - Amounts or disclosures which are material to the FSs
    - - using personnel not involved in the audit
      - ensuring that an employee of the client is designated
        responsible for internal audit activities
      - ensuring that the client approves all the work that
        internal audit does
  - - - Tc động tới một accounting treatment/trình bày mà có reasonable doubt + material effect on FSs
    - - Safeguards
        
        using different teams of staff
        
        ensuring
        that no management decisions are taken on behalf of the client.
  - - - Off-the-shlef: implementation + recommendation
      - design/implementation of IT systems
        
        the client acknowledges its
        responsibility for internal controls and management maintains responsibility for the system.
    - - PIE
        
        design/implementation of IT systems
        
        Form a significant part of the internal control over financial reporting
        
        Generate information that is significant to the client's accounting records or FS
- - - - how long the individual has been on the audit team
      - how
        senior the person is
      - the client's management has changed
      - whether the client's accounting
        issues have changed in nature or complexity
  - - -  Having a professional accountant who was not a member of the audit team review the work of the senior personnel
      -  Regular independent internal or external quality reviews of the engagement'
      - 'Rotating the senior personnel off the audit team
      - 7 years & flexibility
        
        key audit partner for six or more years, client => PIT => Partner tiếp tục làm max 2 năm
    - - key audit partner for seven years,
        they must be rotated off the audit for two years; During this time, they cannot be on the audit team and
        cannot consult with the audit team or the client on any issues that may affect the engagement
      - Flexibility:
        
        If key partner continuity is particularly beneficial to audit ; there is some unforeseen circumstance
        
        remain on the audit for an additional year
        
        the firm has only a few people capable of being a key audit partner for a public interest client => InDefinite
- - - - mất khách hàng
      - danh tiếng xấu
    - - The materiality of the litigation
      -  The nature of the audit engagement
      -  Whether the litigation relates to a prior audit engagement