14: THREAT SCENARIOS AND SAFEGUARDS Flashcards
- Financial interest
The audit firm
Any partner
Any member of audit team
Or immediate family member
Must not hold a financial interest in company
- Business relationship
No business relationship
- Employment
Dual employment is prohibited
- Audit partner leaves to SLT in client
Firm should resign as auditor
Cannot take on audit again for two years
- Employee of audit firm applying for job at client
Employee informs audit client
Firm to remove employee from engagement and review their recent client work
- Close personal relationships
Staff with these should not work on the engagements
- Gifts and hospitality
Do not accept these unless value is trivial
- Loans and contingent fees
Prohibited
- Overdue fees
Consider resignation
- Fees dependence
If fee exceeds 10% (non-listed) and 5% (listed) of overall income:
- disclose to ethics partner
- disclose to those charged with governance at the client
- regular quality management of audit
If fee exceeds 15% (non-listed) and 10% (listed) of overall income:
- cannot act as auditor
- Lowballing
Firm may charge any audit fee
Needs to be documented that adequate resources have been allocated in order to comply with standards
- Fee cap for listed clients
Total fees from non-audit services must be no more than 70% of the average audit fee of the last 3 years
- Client employee joins audit firm
No involvement in audit for two years
- Audit staffed ‘loaned’ to client
Prohibited
- Accounting services offered to client
Listed: prohibited
Non-listed: allowed with safeguards
- separate teams
- mechanical/technical work
- quality management review of audit
- Valuation services offered
Listed: not allowed if material
Non-listed: not allowed if material and subjective
If immaterial, allowed with safeguards
- Preparing tax calculations
Listed: n/a
Non-listed: allowed with safeguards
- Internal audit
All prohibited
- IT services offered
Prohibited
Where they relate to the accounting or financial system, or where they involve taking on role of management
- Recruitment services provided to audit, and close relationships
All prohibited
- Long association scenarios: non-listed engagement partner
Review independence after 10 years.
Either rotate and continue with safeguards:
- document reasons
- disclosure to client
- consider other safeguards
- Long-association scenarios: listed engagement partner
Rotate off after 5 years (can extend to 7 with Audit Committee approval)
No return for 5 years
- Long association scenarios: listed quality management review partner
Rotate off after 7 years
No return for 5 years
- Long association scenarios: non-listed client become listed: engagement partner
If already served for 4 years, can only serve 2 more
No return for 5 years
