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For March/June 2019 Question number 3 (case 1, Horti & Co), As per the scenario, wouldn’t it create a familiarity threat too? The correct answer as per marking scheme is option B – Self-interest and self-review.
Alan’s “familiarity” with Plant is as EQCR for only two years/audit.
If you look at page 22 of the notes you will see that familiarity threat by association means LONG association – which is put at 7 years.Thanks. Does it mean as long as familiarity with the client is less than 7 years and can accept a job such as NED from the client without raising the issue of familiarity threat? Kaplan text states, “A self-interest, familiarity or intimidation threat may arise where an
employee of the firm becomes a director or employee of an assurance client (in a position to exert significant influence over the financial statements or subject matter of another assurance engagement).’ Alan is a partner of Horti Co and he is considering accepting appointment as a non-executive director and will sit on the audit committee of Plant Co.An auditor cannot be a NED of an audit client – end of. The roles would conflict – see the roles/responsibilities of the audit committee on page 14.
What you quote from the text relates to “auditor” leaving the audit firm and moving to the employment of an audit client.
Alan Marshlow is NOT leaving the audit firm. Many NEDs remain executives in other companies – being a NED not necessarily/usually a full-time permanent role.
Of course! Welcome to my forum!
The self-interest threat is the threat that a “financial or other interest will inappropriately influence a professional accountant’s judgment or behavior”.
As a NED, Alan will have a financial interest (his fee!) and other interests that might affect his judgment, expecially as a member of the audit committee. For example, one of the main roles/rsponsibilities of the audit committee is to conducting the tender process and make recommendations about the appointment, reappointment and removal of the external auditor – I think he might be recommending Horti & Co! Another is developing and implementing policy on the engagement of the external auditor (i.e. Horti & Co) to supply non-audit services. Do you get the gist?
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