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Hi Tutor,
I am covering the topic of Ethical risks now in BPP Study text and have some doubts on it.
Self interest threat:
(1) High percentage of fees:
The threat from the percentage of fee can be mitigated by the operating structure of the firm.Q: How can the operating structure of a firm affect this threat?
(2) Holding of client assets:
“the holding of client assets also creates a self interest threat to professional behaviour and to objectivity. A professional accountant must not assume custody of client monies or other assets unless permitted to do so by law”Q: How does holding of client assets create a self-interest threat?
Hoping you could help me on these, thank you again!
1 It’s a quote from the ACCA ethical guide. I think what they are getting at is that some firms are divisionalised so that one division handles audit, another tax etc. If the divisions were substantially independent then high fees from a consultancy division might not affect the audit divisions self-interest threat.
2 Presumably there is a threat to independence if money or other assets are held because the auditor is holding the assets and then auditing those assets. What if an asset were to go missing? Would the auditor be tempted to cover up the loss?
That could be possible. By “substantially independent divisions” do you mean that the divisions earn so much money on their own that they simply would not be bothered about the other division’s revenue?
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