Risk 1

Question 1

What are the 5 threats to fundamental principles

SI.SR.A.F.I

Answer 1

1. Self Interest
2. Self review
3. Advocacy
4. Familiarity
5. Intimidation

Question 2

1.Self Interest **

SI

Answer 2

• own shares within business
• gifts
• business + personal relationships
• overdue fees

example : auditor has personal/ financial interest influencing them

Question 3

2.Self Review

SR

Answer 3

• accounts prep
• internal audit

example: where non audit work is completed by auditor they are unlikely to spot or admit wrong work.

Question 4

3.Advocacy

A

Answer 4

• representing/promoting or negotiating for client.

example: representing client in court, or disputes relating to f.s

Question 5

4. Familiarity

F

Answer 5

• Personal relationships
• hospitality

example : auditor becomes sympathetic or losses professional scepticism

Question 6

5. Intimidation

I

Answer 6

• fee dependency

- threats actual or perceived from client

Question 7

1. self interest safeguards**

Answer 7

• gifts must be approved
• musnt have shares
• dont continue work till overdue fees paid

Question 8

2. self review safeguards

Answer 8

• for listed clients seperate teams must be used for accounting services
• firm cannot provide internal audit
• loaning staff be cautious short time periods only
• it services can be seen as managment responsibility

Question 9

3. Advocacy safeguards

Answer 9

• professionals cannot be involved in audit

Question 10

4. Familiarity safeguards

Answer 10

• remove all personal relationships from team

- firm musnt be involved in recruitment services

Question 11

5. Intimidation safeguards

Answer 11

• if threat cant be eliminated terminate contract