Typical threats

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The auditor is tempted to gain a personal or family benefit rather than give an appropriate service

Holding Shares in a client

  • Don't! Here look for the nature of the interest and the degree of control the accountant has over it - obviously the more control the higher the risk 

    No member of the assurance team (or immediate family) should hold a financial interest in a client. 

    The interest should either be disposed of, or the team member removed from the engagement

Significant Income from client

  • Limit the amount 10% of total fees if listed

    15% of total fees if unlisted

    In larger firms an individual office may exceed these limits as long as responsibility for signing off the audit file should be passed to a different office. 

    Overdue fees should be avoided as they are practically a loan

Separate business venture with client

  • Don't! Although buying things from a client is fine if on normal commercial terms and in the normal course of business

Giving a loan to the client

This may include unpaid audit fees

  • Don't

Getting a loan from a client

  • If the client is a bank (or similar) and the loan is on normal commercial terms then there is no threat to independence. 

    All other loans or guarantees are a self- interest threat and should be avoided

Lowballing

  • Setting a very low fee either to attract new clients or ensure further work

    Safeguard
    Auditors should not set fees in this way, the fee must be based on a pre-determined level of work required

Hospitality and Benefits

  • Any such items given to the auditor by a client could be seen to be a bribe

    So do not accept

Contingent Fees

  • Where auditors fees are contingent on another event happening.

    Audit Fees are not to be determined in this way

Accounting Services

  • If an auditor prepares the accounts it is 100% sure that they will be reviewing their own work. They may be tempted to hide errors to save face.

    So the Auditor must not undertake accounting services for a client, if they are a LISTED company.

    No management decisions should be made in other companies and a different team should provide each service.

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