ExpertThreats to Ethics and Safeguards
Learning outcomes
- Identify the five categories of ethical threats.
- Apply appropriate safeguards to mitigate ethical risks.
The Five Ethical Threats
- Self-Interest Threat: You have a financial or other interest in the client (e.g., you own shares in the company you are auditing).
- Self-Review Threat: You are checking your own work (e.g., you set up the IT system, and now you are auditing the IT system).
- Advocacy Threat: You promote the client's position so much that you lose objectivity (e.g., acting as a lawyer for the client in a dispute).
- Familiarity Threat: You are too sympathetic to the client because of a close relationship (e.g., auditing the same client for 10 years).
- Intimidation Threat: You are deterred from acting objectively by threats (e.g., the client threatens to fire you if you don't approve the accounts).
An auditor is offered a highly lucrative job as the Finance Director of the company they are currently auditing. What type of threat does this create?
Self-Review is about the WORK
Don't confuse Self-Review with Self-Interest. Self-Review specifically happens when an accountant provides a non-audit service (like bookkeeping) and then later audits those exact same books.
Safeguards
Safeguards are actions taken to reduce threats to an acceptable level. They fall into two categories:
- Created by the profession/legislation: CPD requirements, corporate governance codes, professional disciplinary procedures.
- Created by the work environment: Rotating audit partners every 5 years (fixes Familiarity), using separate teams for consulting and auditing (fixes Self-Review).
To combat the 'Familiarity threat', audit firms often implement which of the following safeguards?
Exam Focus
If a threat is so significant that NO safeguard can reduce it to an acceptable level, the ONLY option is to resign from the engagement.
An accounting firm helps a client negotiate a bank loan by aggressively pitching the client's business plan to the bank. Which threat does this create for the accounting firm?
Which of the following is an example of a 'Self-review threat'?
If an ethical threat cannot be eliminated or reduced to an acceptable level by any safeguard, what must the accountant do?
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ACCA BT — Business & Technology Practice Exam 2
Premium mock exam replication for ACCA BT (Business & Technology). This exam mirrors live computer-based testing parameters, featuring 46 Section A objective test questions and 6 Section B multi-task scenario questions. Covers organizational structures, technology integrations, management mechanics, and professional ethics.