Integrity, Independence and Objectivity
Objectivity: Requires members not allow bias,
conflict of interest, or undue influence of others to
override professional or business judgements
Threats
Self Interest
This occurs as a result of your own or your close
family’s interests-financial or otherwise
These threats often result in what is commonly called
a ‘conflict of interest’ situation.
In business self-interest threat could result from
concern over job security, or from incentive
remuneration arrangements.
For auditor it might be the possibility of losing a client
or holding a financial interest in a client.
Threats
Self review threat
This occurs when an auditor has to review work that
they previously performed. For example: if the
external auditor prepared the financial statements
and then audited them.
There is a risk that the auditor would not identify any
shortcomings in their own work for fear of penalty
(either financial or reputational).
Threats
Advocacy threat
This can occur when the auditor is asked to promote or
represent their client in some way.
In this situation the auditor would have to be biased in
favour of the client and therefore cannot be objective.
This could happen if the client asked the auditor to
promote their shares for a stock exchange listing or if the
client asked the auditor to represent them in court
It could include acting as an advocate on behalf of an
assurance client in litigation or dispute with third parties.
Threats
Familiarity threat
This occurs when the auditor is too sympathetic or
trusting of the client because of a close relationship
with them.
This may be because a close friend or relative of the
auditor works in a key role for the client.
The auditor may trust their friend or relative to not
make mistakes and therefore not review their work as
thoroughly as they should and as a result allow material
errors to go undetected in the financial statements.
This can also arise after a long association with a client.
Threats
Intimidation threat
Clients may try to harass or bully auditors into giving
preferential audit reports.
They may use the fee as leverage. The auditor should
not give in to such pressure and, in the
circumstances, may choose to resign from such a
client
Safeguards
Safeguards seek to reduce or eliminate threats. They
fall into three categories created by the:
Profession, these include:
education and training including CPD requirements
setting of corporate governance regulations and
professional standards
monitoring of professional work including disciplinary
proceeding
Safeguards
Work environment; There are many examples
which include:
internal control systems
review procedures
disciplinary procedures
organizational codes of ethics
separate review and reporting for key engagements.
Safeguards
Individual ; these include:
complying with professional standards
maintaining records of contentious issues
mentoring
contacting professional bodies with queries.
