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Question 1 of the long question. For the second ethical threat given in the answer key saying “Willow has requested the previous engagement partner, Bethan Oak, to attend audit committee meetings as a non-executive director of Willow has recently left. This represents a self-interest threat as the audit firm may be perceived as performing the role of management by attending these meetings and this threatens objectivity ”
I don’t understand why is this a self interest threat. A self interest threat means the auditor has a financial or any other interest in the client right. How does attending these audit committee meetings have got anything to do with the audit firm having any form of interest in the company? And how does it create a Self-threat ? Could you explain sir ?
Could be self interest because the audit committee has a role in recommending who should be auditor.
It is not advocacy which means representing, too enthusiastically, your client to a third party.
For the last ethical threat given in the answer key saying “The audit manager of Willow is leaving Beech & Co to become the financial controller at Willow. This represents a self-interest and familiarity threat as the audit manager is familiar with the audit plan which is to be adopted at Willow and he may also have commenced work on this year’s audit”
it is stated that the ex audit manager , who is now the financial controller of willow would be familiar with the audit plan which is to be adopted at Willow. What is the effect of this ? It threatens the independence of the audit firm right ?
My answers are slightly different form the answer key.
Can I also say,
that the audit team who is assigned to the audit of willow is likely to have friendships with the ex audit manager who is now the financial controller of willow and therefore they maybe too trusting of willow and may lose their professional sceptism.Also, can I also say,
that a self interest threat would arisen during the recruitment process of wanting to join willow as a financial controller. This is because the audit manager has a reason to believe that he may become an employee at willow, therefore he will not wish to do anything to affect his potential future employment with them.But since the audit manager has already been recruited into Willow as a financial controller, the threat will no longer be present .
Are my answers correct ?
1st point: correct – friendships with old manager. Also the old manager will know the auditing techniques that will be used and this could allow him/her to conceal misstatements.
2nd point. Self-interest not really important for this audit but it might be useful to review last period’s when the audit manager was on the look-out for a job.
The 2nd point you have stated is actually the same as my answer regarding the self interest threat right ?
Then one of the safeguards for the self interest threat could be to perform an independent review of any significant judgements made by the audit manager who left the audit firm to join the client.
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