1. Gift and hospitality
1.1. Threats
1.1.1. Valuable gifts/hospitality that affect the decisions in the audit team
1.2. Safeguards
1.2.1. Do not accept these gifts/hospitality
2. Loans and guarantees
2.1. Threats
2.1.1. A loan made by an audit client (a bank) and not msde under normal lending procedures.
2.1.2. A loan made by a client (NOT BANK) to firm or member of audit team
2.2. Safeguards
2.2.1. Normal lending procedures (Immaterial): Firm should have the work reviewed by a professional accountant that is not involved in
2.2.2. Other cases: Resign
3. Overdue fees
3.1. Threats
3.1.1. Overdue fees build up and become significant
3.2. Safeguards
3.2.1. Payment of overdue fees should be required before the assurance report
3.2.2. Audit firm should discuss the issues with those charged with governance (audit committee).
3.2.3. If possible: Resign
4. Percentage of contingent fees
4.1. Threats
4.1.1. Audit fee calculated on a predetermined basis
4.1.1.1. Relates to the outcome of a transaction
4.1.1.2. Or the result of the services performed by the audit firm
4.2. Safeguards
4.2.1. Firm should not enter any fee arrangement
5. High percentage fees
5.1. Threats
5.1.1. Total fees generate by assurance client is >15% of a firm’s total fees (assurance service)
5.1.2. Fees generate by assurance client present a large proportion of the revenue
5.2. Safeguards
5.2.1. Discuss the issue with the audit committee
5.2.2. Reduce dependency on the client
5.2.3. Obtain external/internal quality control reviews
5.2.4. Consult 3rd party (ICAEW)
5.2.5. Resign
6. Low balling
6.1. Threats
6.1.1. A firm quotes a significantly lower fee for assurance service than the previous firm
6.2. Safeguards
6.2.1. Maintain records that the firm is able to demonstrate that appropriate staff & time are spent on the engagement
6.2.2. Comply with all applicable assurance standards, guildelines & quality control procedures
7. Financial interests
7.1. Threats
7.1.1. An interest in equity or other security, debenture, loan or other debt instrument of an entity, etc.
7.1.1.1. Include
7.1.1.1.1. Direct financial interest
7.1.1.1.2. Indirect financial interest
7.2. Who are not allowed to own financial interest?
7.2.1. The assurance firm
7.2.2. A partner in the assurance firm
7.2.3. Auditor in audit team
7.2.4. Immediate family member(s) of that auditor in audit team
7.3. Safeguards
7.3.1. Disposing the interest
7.3.2. Removing the individual from the team if required
7.3.3. Keeping the client’s audit committee informed of the situation
7.3.4. Using an engagement quality control reviewer to review work carried out if necessary
8. Close business relationship
8.1. Threats
8.1.1. Operating a joint venture between the firm & the client (or senior manager of client)
8.1.2. Arrangement to combine products/services of audit firm & audit client
8.1.3. Distribution or marketing arrangements under which the firm acts as distributor or marketer of the assurance client’s products/services
8.2. Safeguards
8.2.1. Assurance firm should resign/end/terminate business relationships.
8.2.2. If an individual in the audit team has such interest => Remove this person from the assurance team
9. Employment with assurance client
9.1. Threats
9.1.1. Dual employment (being the employee of both assurance firm and the client at the same time)
9.1.2. Staff might transfer between an assurance firm and a client, or that negotiations or interviews
9.2. Safeguards
9.2.1. Remove the individual from the audit team
9.2.2. Assign another auditor that has proper knowledge/skill to perform the audit engagement
9.2.3. Involving an additional accountant not involved with the engagement
9.2.4. Carry out quality control review
9.2.5. Audit partner in 2 previous years leaves the audit firm and be the key position of audit client => Audit firm should resign
10. Partner on client board
10.1. Threats
10.1.1. A partner or employee of an assurance firm serve on the board of an assurance client.
10.2. Safeguards
10.2.1. Audit firm should resign as auditor
10.2.2. Remove the individual from the audit team
10.2.3. Carry out quality control review
11. Family and personal relationships
11.1. Threats
11.1.1. Immediate family member of a member in the assurance team is a director/officer/employee of the audit client that can influence over the assurance engagement
11.1.2. Employee who is not a member of the assurance team, but has close family/personal relationship with director/officer/employee of assursance client
11.2. Safeguards
11.2.1. Remove the individual from the assurance team
11.2.2. Firm should ensure that staff should disclose if a family member employed by the client is promoted within the client
11.2.3. Review assurance engagement