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Bog'liq
lecture 6

Threats


Threats
Self review
Familarity
Advocacy
Intimidation
Self interest

Self-interest threats

  • Fee dependency - Over-dependence on an audit client could lead the auditor to ignore adjustments required in the financial statements for fear of losing the client.
  • Gifts and hospitality - Acceptance of goods, services or hospitality from an audit client can create self-interest and familiarity threats as the auditor may feel indebted to the client. The offer of gifts and hospitality must be documented in the audit file even if refused.
  • Owning shares/financial interests - The auditor will want to maximize return from the investment and overlook audit adjustments which would affect the value of their investment.
  • Loans and guarantees - A loan or guarantee from (or deposit with) an assurance client will not create a threat to independence provided that: i) it is on commercial terms, and ii) made in the normal course of business.
  • Business relationships – JV, partnership
  • Potential employment with an audit client, and etc.

Familiarity threats

  • Long association of senior personnel
  • Family and other personal relationships
  • Recruitment services - Familiarity, self-interest and intimidation threats may occur if the firm is involved in recruiting senior personnel for the client.
  • Audit staff leave the firm to join the client - A self-interest, familiarity or intimidation threat may arise where an employee of the firm becomes a director or employee of an assurance client.

Self-review threats

  • Accounting and bookkeeping services
  • Internal audit services
  • Taxation services
  • Tax advice
  • IT services
  • Valuation services
  • Temporary staff assignments
  • Corporate finance services
  • Client staff joins audit firm

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