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Hi, could someone please help in explaining to me why (as according to Q4 in June 2010 paper):
(1) a staff discount offered to the audit team would count as a familiarity threat? wouldn’t it be a self-interest threat since now the audit team wouldn’t want to modify the report at the risk of losing the client, and hence their discount?(2) the fact that the audit partner and the finance director of the client company are friends is a self interest threat? wouldn’t it be a familiarity threat since their association will likely make the audit more trusting of the finance director’s work?
Please help explain why my view differs from that in the examiner’s report!
Thanks
Discount = self-interest threat
Friendship = familiarity threat
I think they had a misprint.
(1) the discount offered can give rise to familiarity threat if the auditors have accepted the discount, auditors are more likely to overlook the misstatement by client’s staff as a favour for receiving the discount. for self-interest threat, the auditors are unlikely to pressure client to correct misstatement so that the auditors can continue receiving those discount in the future.
(2) can be self-interest threat if the audit partner wants to protect the friendship with the finance director/ does not want to lose finance director this friend.
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