Module: Audit and Assurance
Seminar 5 – Professional Ethics/Audit Independence
The seminar questions relates to audit independence.
Question 1
List the FIVE ethical threats to independence and objectivity and for each threat
identify ONE example of a circumstance that may create the threat. (10 marks)
Self-interest example: gaining personal financial gains. An auditor having shares
in a company that he or she is auditing. Therefore, you are not going to write
anything negative or be critical of the financial statements of that particular company.
Self-review where you have to criticise your own work in the audit. Example:
you’ve been asked to prepare the cash flow statement for a company which is a
component part of the financial statement.
Intimidation the intimidation can go both ways – either you’ve been threatened by
the client or you threaten the client. Example: client is unable to pay the fees for the
work done by the auditor. The auditor threatens the client that they will take them to
court.
Familiarity this is when you become sympathetic to the client. Therefore, you
won’t be able to be critical of their financial statements. Example: being very close
friends with a director.
Advocacy promoting the interests of another person. Example: communicating to
revenue and customs the interests of another person. Being asked to do non-audit
work for a third party.
Independence is the bedrock of auditing.
Question 2
You are the audit manager of Borough LLP Certified Accounts and you are planning
the audit of Good Fones PLC which has been an audit client for the last 5 years and
which manufacture luxury mobile telephones.
During the planning stage of the audit, you ascertain the following information:
Seminar 5 – Professional Ethics/Audit Independence
The seminar questions relates to audit independence.
Question 1
List the FIVE ethical threats to independence and objectivity and for each threat
identify ONE example of a circumstance that may create the threat. (10 marks)
Self-interest example: gaining personal financial gains. An auditor having shares
in a company that he or she is auditing. Therefore, you are not going to write
anything negative or be critical of the financial statements of that particular company.
Self-review where you have to criticise your own work in the audit. Example:
you’ve been asked to prepare the cash flow statement for a company which is a
component part of the financial statement.
Intimidation the intimidation can go both ways – either you’ve been threatened by
the client or you threaten the client. Example: client is unable to pay the fees for the
work done by the auditor. The auditor threatens the client that they will take them to
court.
Familiarity this is when you become sympathetic to the client. Therefore, you
won’t be able to be critical of their financial statements. Example: being very close
friends with a director.
Advocacy promoting the interests of another person. Example: communicating to
revenue and customs the interests of another person. Being asked to do non-audit
work for a third party.
Independence is the bedrock of auditing.
Question 2
You are the audit manager of Borough LLP Certified Accounts and you are planning
the audit of Good Fones PLC which has been an audit client for the last 5 years and
which manufacture luxury mobile telephones.
During the planning stage of the audit, you ascertain the following information:
