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Hello I have 2 questions
1) Family and personal relationships between firm and client is familiarity threat or self interest threat or intimidation threat? Or is it all three?
2) Close business relationships is self interest threat or is it intimidation threat? or is it both?1 It can be all three: you know members of your family so are less likely to doubt what they say, you don’t want to have a row, you might be used to having always followed a relative’s instructions.
2 Can be both. You want to continue the business relationship (persumably it has been profitable) and the other party could threaten to take business elsewhere or to withhold payment etc.
Sir there is a kit question as follows
1) YRT co is a firm of external auditors which has company w, company x, company y and company z among its audit clients.
Company w is currently being sued by one of its suppliers. YRT co has offered legal services and will defend them in this legal case.
Audit partner of company x has been a member of external audit team for pat 15 years and has good relationships with the senior management of company x.
Financial controller of company y is daughter of audit manager from YRT co.
company z does not have experienced financial department and so YRT co helps to prepare financial statement of company z in advance of external audit.
The following are types of conflict of interest
A familiarity threat
B advocacy threat
C self review threat
D self interest threatIn the case of each of following clients which of the above conflicts of interest exists
Solution:
Anwers are
Company W—– advocacy threat
Company X —— familiarity threat
Company Y —— self interest threat
Company Z —— self review threatSir my question is that I did not understand that why company Y suffers self interest threat.. Family and personal relationships are also classified as Intimidation threat and Familiarity threat (as in my first post you answered that family and personal relationships can be self interest , intimidation and familiarity threat)
2) My second question is that employment with audit/assurance client is familiarity threat, intimidation threat and self interest threat? all 3?
1 Company Y does no suffer the self interest threat it is the audit firm that suffers this threat to their ethics because they will, for example, potentially be reluctant to criticise the financial statements of Y because that would be implicitly criticising the daughter of the partner.
2 All three, as you asked in your previous post.
Yes I mean to ask that in case of company y , why does audit firm suffers self interest threat? As you said earlier that family and personal relationships are also classified as intimidation threat and familiarity threat , so can’t the answer be intimidation threat or familiarity threat??
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