Question

Auditors are required to comply with the fundamental ethical principles which can be put at risk in a variety of circumstances.

Required:

1. List five threats to independence and objectivity and for EACH threat identify ONE example of a situation that may cause the threat to occur. (for each threat identified and half mark for each example.) (5 marks)

Answer 1

Anscoer Poge No O Selb - intbereyf threat Selb interest #hreat occumed if the auditor has a other înterest n dhe Company diveet or indinect financial interest in dhe Company. a close kin f auditors has or Example : or nil rade interest, A loan auditoy At lower Companys Y loan . a favoorable re port for a may be termphed to give 2 Selb - review threat Ashen the judgemert made by an auditor revaluated bame audibor ,a Self - review threat is occwred by the Example: The auditor who prepares the Kinancial sfatemenk for cannot be expectad to be onblesed eohile giving an a company financials . he Opinion on Same 3 Advocacy threat t sthe auditor s promobing opinion to the point an

Pagai no cohene ib objecbivily is signiticantly compsomised , it loads NO threat . to occorience of Advo cacy Example : pehile also a Company "The audibox is helping in sell ing being the audi tor for same Company • To incorease. the sale favourable vepat be bempted to give price, the auditor may O Familian ily threab auditor is really close with employeeA, offrcens ar dinectors f the client Company that he becomes farmilianily Sympathe bicaliy inclined tocoads the company threat o ccurs · Erample The auditor f have become to0 a company may they fanslian with hc client as part g same which makes him - lack objecbivitj. ordigfoon group

.No(3 O Intimi dation threat aching oljetindy kohen the auditor î deferned from An intimi dation threat occurs. perecived · I can be adval or Eκατle Due to the auditor have iasued an unfavowrabke report threaten it's auditor for thein vremoval. Company