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Loan guarantee

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Loan guarantee

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by Kim Smith.
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  • July 25, 2018 at 9:36 pm #464693
    zkaay
    Participant
    • Topics: 212
    • Replies: 98
    • ☆☆☆

    Hi sir,

    Can u explain this

    Provision of guarantee of bank loan by audit firm lead to self interest threat+ financial interest in audit client ?

    Thanks

    July 26, 2018 at 6:57 am #464709
    Kim Smith
    Keymaster
    • Topics: 133
    • Replies: 8291
    • ☆☆☆☆☆

    Imagine an audit client took out a loan from a bank for $50k. If the auditor (firm of member of the audit team) were to guarantee the loan that would mean that if the client were to breach the loan agreement, the bank could seek to recover it from the auditor.
    The bank might call in the loan if the client’s financial statements showed any uncertainty about going concern (for example). The auditor’s objectivity would be impaired because there is self-interest in not having the loan called in – this is also a financial interest because the auditor would be liable for $50k under the guarantee.

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