Independence Flashcards
Define ‘independence’.
Independence can be defined as the ability to act with integrity and objectivity and be seen to act.
Why is maintaining independence important?
- Our external regulators have set this as a requirement.
- It builds the basis of the public’s trust in PwC.
What are the consequences of impaired independence?
- Disciplinary action (the individual)
- Criminal and civil penalties (the individual)
- Litigation (the firm)
- Rejection of audit opinion
- Loss of confidence
- Loss of clients & reputation
If in doubt about meeting independent requirements, what should you do?
- Consult with your team manager and/or engagement leader.
- Reach out to the PwC Independence team and the ICAEW helpline.
What are the threats to independence?
- Self-interest
- Management
- Self-review
- Familiarity
- Intimidation
- Advocacy
What is a self-interest threat?
A self-interest threat is that of a financial or other interest (e.g your partner sitting on the client board) which will inappropriately influence the professional accountant’s judgement or behaviour.
What is a management threat?
A management threat arises when the audit firm undertakes work involving making judgements and taking decisions that management are responsible for. This can also cross over with a self-review threat.
What is a self-review threat?
A self-review threat is the threat that a professional accountant will not appropriately evaluate the results of a previous judgement made or service performed by another accountant/individual within the firm, on which the accountant will rely on when forming a judgement as part of providing a current service.
What is a familiarity threat?
A familiarity threat is where independence may be jeopardised by the audit firm and client staff becoming overly familiar, which could reduce the level of professional scepticism exercised.
What is an intimidation threat?
An intimidation threat arises when a member of the audit team has reason to be intimidated by client staff. This could include personal relationships, threatened litigation or threat of not being re-appointed as auditors.
What is an advocacy threat?
An advocacy threat is the threat that we will promote a client’s position to or beyond the point that our objectivity is compromised. The most common example is where the auditing firm has been asked to represent the company’s interest in a legal case.
What are the minimum independence requirements?
- No direct or material indirect financial interest in any audit client you provide professional services to.
- Restrictions in the case of providing professional services to non-audit clients.
- No family or personal relationships involved with audit client.
- No business relationships with any client other than on an arm’s length basis.
- No directorship or executive position in client without PwC’s permission.
What are additional matters to consider?
- Who your clients are
- What work/life events have occurred?
- What are your & your immediately family members’ financial interests?
- Who are present and future employers?
What are the financial statement assertions?
- Accuracy
- Completeness
- Cut-Off
- Existence/Occurrence
- Presentation & Disclosure
- Rights & Obligations
- Valuation
