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Ethical Threats & Safeguards - Coggle Diagram
Ethical Threats & Safeguards
Self-interest threat
2.2.1 Financial interests
Remove individual from audit team / or firm dispose shares
Inform audit committee
Review by independent partner
2.2.2 Loans & guarantees
Audit client is bank
External review by professional accountant
Audit client is NOT bank
No safeguard unless loan is immaterial.
2.2.3 Fees
2.2.3.2 Overdue fees
Obtain partial payment of overdue fees
Consider resignation if overdue fees not paid
Discuss with audit committee
2.2.3.3 Contingent fees
No safeguard.
Contingent fees are not allowed for audit services.
2.2.4 Gifts and hospitality
Should not accept unless value is trivial & inconsequential.
2.3.1 Business relationships
Remove individual with interest from audit team / or firm dispose interests
Familiarity threat
2.3.2.1 Immediate / 2.3.2.2 Close family of
audit team member
has significant influence over client's F/S
Restructure the audit team's responsibilities.
The audit team member does not deal with matters within the responsibilities of the immediate / close family member.
2.3.2.3 Personal Relationships of firm's
non-audit team
partner/employees and client's director/employees with significant influence over client's F/S
Structure the partner's/employee's responsibilities.
Review of audit work by an appropriate reviewer
2.3.3.1 Firm partner/employee leaves to join audit client
Review of audit work by an appropriate reviewer
Change members of audit team
2.3.3.2 Company director/employee leaves to join audit firm
Individual should not be assigned to the audit team if work performed to be evaluated in the current period.
2.3.4 Long association
For public interest entities, compulsory cooling off period. Rotate after 7 years
Cooling-off period
Engagement partner: 5 years
Engagement quality reviewer: 3 years
Key audit partner: 2 years
Intimidation threat
2.2.3.1 Large proportion of total fees from audit client
Increase firm's client base
Discuss with audit commitee
Resign from some services
**2.2.3.1 Audit client is a public interest entity, total fees from the client > 15% for 2 consecutive years
Disclose to TCWG
Pre-issuance review on 2nd year's f/s
before
issuance of auditor's opinion
Post-issuance review on 2nd year's f/s
after
issuance of auditor's opinion
2.3.5 Actual & threatened litigation
Disclose to the audit committee
Removal of individual involved in litigation from audit team
Refuse to perform assurance engagement
2.4.4 Recruiting services
Firm must not make management decisions for client
should NOT seek candidates / reference checks for director/officer/senior management positions with significant influence over F/S
Role in recruiting services should be limited to: Review professional qualifications / Interview candidates / Advise competency for financial accounting, administrative or control positions
Advocacy threat
2.4.2.4 Assistance in resolution of tax disputes
must not be performed by audit team
Independent review of audit work
may not be provided if firm acting as an advocate before a public tribunal / court & amounts are material.
Promoting shares in a listed audit client
No safeguard. Should not be allowed to promote shares.
Self-review threat
2.4.2 Tax services
2.4.2.1 Tax return preparation
Does NOT usually create a threat.
2.4.2.2 Tax calculations for preparing accounting entries
NOT public interest entity:
Tax Calculations must not be performed by audit team
Independent review of audit work
Public interest entity:
Tax Calculations may not be performed
2.4.2.3 Tax planning & advisory services
Tax services must not be performed by audit team.
Independent review of audit work
Obtain pre-clearance from the tax authorities
May not be provided where tax advice will have material effect on f/s and has reasonable doubt on the appropriateness of a/c treatment.
2.4.1 Preparing a/c records & F/S
NOT public interest entity:
Client must provide all source data, approve all journal entries
Discuss non-audit services with audit committee
Accounting services should not be performed by audit team
Public interest entity:
Provision of a/c or bookkeeping services is NOT permitted
2.4.3 Internal audit services
NOT public interest entity:
Stipulate client's responsibility over internal controls
Independent partner review
Public interest entity:
Must
NOT
be provided if internal controls over financial reporting & material