Tag: Intimidation Threat

  • What happens if Family or Close Relationships exist between an Auditor and the Client?

    What happens if Family or Close Relationships exist between an Auditor and the Client?

    Where family or close relationship ties between an auditor and their client, three different sorts of conflicts might arise that threaten the auditor’s independence and objectivity.

    These threats are as follows:

    • Self-Review Threat;
    • Familiarity Threat; or
    • Intimidation Threat.

    Example: Self-Review Threat

    An accountant suggested a new strategy to an organisation she prepared the accounts for.

    She has since been asked to examine the strategy to see if it has succeeded. She, therefore, faces major self-review threats to her professional ethics.

    Example: Familiarity Threat

    An accountant has been asked to work on the accounts for an organisation currently managed by his wife, exposing him to a Familiarity threat.

    Example: Intimidation Threat

    Susan is an external auditor, and she has been threatened by her client, ABC Ltd., to provide different recommendations for its financial statement. Susan faces intimidation threats that hurt her professionally.

    如果审计师和他们的客户之间有家庭或密切的关系,可能会出现三种不同的冲突,威胁到审计师的独立性和客观性。

    这些威胁如下:

    • 自我审查威胁:指自我复核的威胁,指的是如果审计师去审查自己的工作成果,那么很容易有失公允。
    • 熟悉性威胁:是指审计师对于被审计单位的情况非常熟悉,就很可能失去一些应有的职业怀疑;同时,被审计单位对于审计师审计流程的熟悉,也一定程度上给舞弊提供了条件;或
    • 恐吓性威胁:是由恐吓产生的威胁。包括形式上(光说不练型)和实质上(说了也确实以实际行动对审计师进行恐吓)

    例子: 自我审查威胁

    一位会计向她所准备账目的组织提出了一项新战略方案。

    此后,她被要求对该战略方案进行审查,看它是否成功。因此,她的职业道德面临着重大的自我审查威胁。

    例子: 熟悉性威胁

    一位会计师被要求为目前由其妻子管理的组织做账,这使他面临熟悉的威胁。

    例子: 恐吓性威胁

    苏珊是一名外部审计师,她受到了她的客户 ABC 有限公司的威胁,要求她为其财务报表提供不同的建议。苏珊面临的恐吓威胁导致她的职业受到伤害。

    When an immediate family member or a member of the audit team is:

    • A director or officer of the audit client; or
    • An employee that can exert influence over the preparation of the client’s accounting records or the financial statements on which the firm will express an opinion,

    then the individual in question must be removed from the audit team.

    If the individual in question is not removed from the audit team, no other safeguards can be established since the closeness of such a connection will not reduce the threat to an acceptable level.

    当审计小组的成员或其直系亲属是:

    • 审计客户的董事或高级职员;或
    • 能够对客户的会计记录或事务所将发表意见的财务报表的编制施加影响的雇员。

    那么该人必须被调离审计团队。

    如果有关人员没有被调离审计组,就无法建立其他保障措施,因为这种联系的密切程度是没有办法将威胁降低到可接受的水平。

    Also, a former audit team members may have accepted a job with the audit client.

    This possibility exists in addition to the possibility that a member of the audit client’s family or close circle of friends may be involved.

    Under these conditions, there is a good chance that one’s independence will be jeopardised to the point where it will be difficult, if not impossible, to bring the threat down to a level that may be considered acceptable.

    也有一种可能性是,审计小组的前成员可能已经接受了审计客户的工作。

    除了这种可能性之外,还存在审计客户的家庭成员或亲密朋友圈可能参与其中的可能性。

    在这些情况下,一个人的独立性很有可能会受到损害,以至于很难,甚至不可能将威胁降低到可以接受的水平。

    Therefore, independence would be considered to have been compromised if a former member of the audit team or the audit partner joined the audit client as a director or officer; or as an employee with the ability to exert influence over the accounting records and financial statements to which the audit firm will express an opinion.

    However, there are a few exceptions to the rules governing this threat. For instance, the individual is not eligible for any benefits or payments from the firm unless such benefits or payments are made under certain pre-determined procedures and when any sum owing to the individual is not significant to the firm.

    One such illustration would be the scenario in which the person in question does not participate in the firm’s business or professional activities.

    因此,如果审计小组的前成员或审计合伙人作为董事或官员加入审计客户的公司;或作为有能力对审计事务所将发表意见的会计记录和财务报表施加影响的雇员,独立性将被视为受到损害。

    然而,关于这种威胁的规则也有一些例外。例如,个人没有资格从事务所获得任何利益或付款,除非这种利益或付款是根据某些预先确定的程序进行的,而且事务所欠该个人的任何款项对事务所来说并不重要。

    其中一个例子是有关人员不参与公司的业务或专业活动的情况。

    Section 521.7 A1 of the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants set out factors that are relevant in evaluating the level of self-interest, familiarity or intimidation threat created by such a relationship, including:-

    • The nature of the relationship between the individual and the audit team member.
    • The position the individual holds with the client.
    • The role of the audit team member.

    An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the individual with whom the audit team member has a close relationship.

    马来西亚会计师公会(关于职业道德、行为和实践)守则第 521.7 A1 条规定了在评估这种关系所造成的自我利益、熟悉程度或恐吓威胁程度时的相关因素,包括:

    • 个人与审计组成员之间关系的性质。
    • 个人在客户中的地位。
    • 审计组成员的角色。

    为解决这种自身利益、熟悉情况或恐吓威胁而采取的行动的一个例子是,安排审计小组的职责,使审计小组成员不处理属于与该审计小组成员有密切关系的个人职责范围内的事项。

    Our website's articles, templates, and material are solely for reference. Although we make every effort to keep the information up to date and accurate, we make no representations or warranties of any kind, either express or implied, regarding the website or the information, articles, templates, or related graphics that are contained on the website in terms of its completeness, accuracy, reliability, suitability, or availability. Therefore, any reliance on such information is strictly at your own risk.

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  • What gives rise to a threat to an Auditor’s Independence and Objectivity, and how to deal with it?

    What gives rise to a threat to an Auditor’s Independence and Objectivity, and how to deal with it?

    Professional accountants and auditors must comply with a Code of Ethics (such as the IESBA’s Code of Ethics for Professional Accountants) (the Code).

    Many professional bodies worldwide have adopted the IESBA’s Code and made certain amendments to it to be country-specific.

    But, for the most part, the IESBA Code applies to most professional bodies and their members.

    The overarching principle of an auditor is to act independently and with objectivity.

    There are two critical aspects to independence:

    • Independence of mind; and Independence in appearance.

    Independence of Mind

    This state of mind permits the provision of an opinion without being affected by influences that compromise professional judgement, allowing an individual to act with integrity and exercise objectivity and professional scepticism.

    Independence in Appearance

    This is the avoidance of facts and circumstances that are so significant that a reasonable and informed third party, knowing all relevant information, including safeguards applied, would reasonably conclude that the integrity, objectivity or professional scepticism of a firm, or a member of the assurance team, had been compromised.

    Consequently, the audit of a set of financial statements ought to be able to provide objective assurance regarding whether or not the financial statements give a true and fair view (or present fairly in all material respects).

    This is something that the directors of a reporting entity will never be able to provide.

    It is commercially unreasonable to expect auditors to resign from every audit where there was even the slightest threat to their independence and objectivity. Yet, there are numerous instances in which there are at least some threats to an auditor’s independence and objectivity.

    Where threats to independence and objectivity exist, the key is to put adequate safeguards in place to eliminate or reduce the threats to acceptable levels.

    Where threats to independence and objectivity are concerned, there are generally five such threats:

    • Self-interest threat
    • Self-review threat
    • Advocacy threat
    • Familiarity threat
    • Intimidation threat.

    Self-Interest Threat

    A self-interest threat occurs when a financial or other interest in the entity may unduly affect the judgement or behaviour of the professional accountant.

    This could happen, for instance, if the professional accountant or auditor has interests in the company being audited (for example, where the professional accountant or auditor holds shares in the reporting entity) or if the auditing firm has an excessive dependency on the fees from the company being audited.

    Other self-interest threats can include:

    • Loans and guarantees to the client;
    • Overdue fees from the client;
    • Family and personal relationships;
    • Close business relationships;
    • Gifts and hospitality from the client; and
    • Contingent fees.

    Self-Review Threat

    When a professional accountant relies on information that was prepared by either the professional accountant or another individual working in the professional accountant’s firm, this poses a risk of self-review.

    An example of a threat posed by self-review is when a professional accountant generates a set of financial statements for a reporting entity and then audits those very same financial statements.

    In addition, when a member of the audit or assurance team has joined the audit firm from the audit client, this will also give rise to a self-review threat if that person is engaged on the audit of his/her previous employer.

    Advocacy Threat

    An advocacy threat occurs when the professional accountant promotes a client’s or employer’s position to the point that the professional accountant’s objectivity is compromised.

    Such an example would be where the professional accountant represents the client in legal proceedings.

    Familiarity Threat

    A familiarity threat emerges when a professional accountant becomes unduly close or familiar with the client to the point that they may be too sympathetic to the customer’s interests.

    Intimidation Threat

    When a customer or company puts pressure on a professional accountant to the point that there is a possibility that the professional accountant would be dissuaded from behaving objectively, this is an example of an intimidation threat.

    Safeguards to Reduce Threats to an Acceptable Level

    The phrase “safeguards” refers to the steps that a professional accountant takes to either eliminate the threats to objectivity and independence in totality or reduce those threats to an acceptable level.

    There are two distinct categories into which safeguards might be placed:

    • Safeguards created by the professional, legislation or regulation; and
    • Safeguards in the actual working environment.

    Safeguards created by profession include compliance with professional standards, including those laid down by the professional body of which the accountant/auditor is a member.

    There are also additional safeguards, including:

    • Training and development;
    • Corporate governance regulations;
    • Regulatory monitoring by professional bodies; and
    • External reviews.

    Training and development include training and experience requirements for entry into the profession and maintenance of those skills by undertaking Continuing Professional Education (CPE).

    CPE requirements apply to all professionals regardless of the sector or size of the business in which they operate.

    Regulatory monitoring includes reviews of professional accountants’ work by professional bodies to ensure that professional standards, independence and objectivity are always maintained.

    External reviews can take various forms, but in terms of auditing, they are usually split into two types of review:

    1. Hot file review; and
    2. Cold file review.

    Hot File Review

    Before the auditor’s report is released, a hot file review is performed by an external file reviewer.

    These reviews look at the audit work carried out and determine whether the audit evidence acquired is enough and pertinent to back up the auditor’s suggested opinion in the report.

    Cold File Review

    An external file reviewer undertakes a cold File Review after the auditor’s report has been issued.

    Suppose various professional organisations decide, as a result of their inspections, that the audit work was inadequate. In that case, they may require such evaluations to be carried out as a condition of continuing to practise.

    Such activities may sometimes be required as part of a regulatory monitoring visit. Although this is the case, most firms nevertheless demand cold file reviews voluntarily to ensure that their quality assurance procedures are up to the very minimal requirements set out by the relevant authorities and professional bodies.

    An audit firm should make it a priority to implement company-wide safeguards. These safeguards should make it possible for the firm to comply, in every possible way, with the fundamental principles and ensure that its employees will, at all times, act in the general public’s best interests.

    There are many different approaches that firms may take to ensure that they have enough safeguards in place to cope with potential threats, such as the following:

    • Published policies to identify various threats and the procedures to be adopted to evaluate those threats’ significance. The firm should resign or decline the engagement if the threats cannot be eradicated or mitigated to an acceptable level.
    • Engaging different partners on audit and non-audit assignments.
    • Engaging different staff on audit engagements where non-audit services have been provided to an audit client.
    • Discussing difficult or contentious issues arising during the course of an audit with specially trained staff, for example, complicated taxation matters, should be referred to the firm’s tax department or tax partner.
    • Ensuring staff are kept technically up-to-date through the use of CPE.
    • Formulating a disciplinary mechanism to promote the firm’s policies and procedures.
    • Ensuring regular and independent file reviews are undertaken to ensure the firm is undertaking audit work in compliance with the ISAs.
    • Rotating senior personnel.

    The aforementioned list is not complete; nonetheless, it offers examples of the concerns that audit firms need to consider to ensure that proper safeguards are put into place.

    Our website's articles, templates, and material are solely for reference. Although we make every effort to keep the information up to date and accurate, we make no representations or warranties of any kind, either express or implied, regarding the website or the information, articles, templates, or related graphics that are contained on the website in terms of its completeness, accuracy, reliability, suitability, or availability. Therefore, any reliance on such information is strictly at your own risk.

    Keep in touch with us so that you can receive timely updates |

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