Auditing Week 2

Question 1

Expand on the ethical threat “familiarity”

Answer 1

An audit company working for a client more than 7 years. There is a threat of the company not maintaining previous levels of professionalism, scepticism (doubtfulness), and objectivity (fairness)

Question 2

How can you manage the risk of the ethical threat Familiarity

Answer 2

• Audit company can rotate engagement staff after long periods and monitor relationships between staff and client
• best practice recommends engagement partners rotate after 7 years for public interest companies. So should consider appointing a different audit partner

Question 3

Expand on ethical threat “conflict of interest/self interest”

Answer 3

“Family or friend has a job with the client”

• potential for opportunity in self interests for the auditor and family/friend in their objectives in the company (if involved in financial statement process)

Question 4

How can you manage the threat of conflict of interest/self interest

Answer 4

• put safeguards in place to avoid such risks, such as appointing a different audit partner (unlikely for certain positions to influence financial statements)