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Good day, Madam!
Kindly explain to me the following threat:
”Willow (CLIENT) has requested the previous engagement partner, Bethan
Oak, attend audit committee meetings as a non-executive
director of Willow has recently left. This represents a self-interest threat as the audit firm may be perceived as performing the role of management by attending
these meetings and this threatens objectivity.”why ”self interest threat”?
Why is familiarity threat not mentioned? as in, bethan would be familiar with audit approach of firm?
And Self review threat? since if Bethan is in client’s board being able to influence subject matter and the same Bethan is part of firm so firm as a whole is reviewing their own work?
See page 14 of the notes regarding the role of the audit committee – it is supposed to strengthen auditor independence. Note the 4th bullet:
o Making recommendations to the board about the appointment, reappointment and removal of
the external auditors and agreeing the terms of engagement.Bethan cannot be employed by the firm and a NED on an audit client’s audit committee – it would be in the firm’s self-interest for Bethan to vote for the reapppointment of the audit firm.
It could add to familiarity threat (because the new engagement partner might be more sympathetic to the client if Bethan was on the committee) but this isn’t the main threat.
Self-review is a bit too far removed – a NED on the audit committee does not have “control” over the financial statements like a chief executive or finance director – so the audit firm would not be auditing financial statements that it has had any involvement in preparing.
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