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doubt 1: Accepting the assignment may also create a self?interest threat as a result of the auditor being perceived to have an interest in the outcome of negotiations with a third party and which may motivate the auditor to behave in order to protect that interest.
ma’am I don’t understand how the auditor would have an interest in the outcome of negotiations? As in what kind of benefit would auditor try to protect, that may arise from a positive outcome like- acceptance of of loan application?
doubt 2: in he same subpart
A self?review threat may also arise because the negotiations may result in facts and amounts which will form part of the audited financial statements. As a result, the auditor will be auditing financial statements which in part at least represent work which they themselves have performed. It follows that there is a risk that the auditor will not be sufficiently objective in performing the audit and may fail to identify any shortcomings in their own work.
m’am again am unclear how exactly self review threat arises here. from my understanding it seems that some fo the prospective financial information(PFI) may as well turn out to be actual, and so when the auditor audits such information there is a chance they may not retain full professional scepticism-hence self review threat. Is my understanding correct?
doubt 1: Accepting the assignment may also create a self?interest threat as a result of the auditor being perceived to have an interest in the outcome of negotiations with a third party and which may motivate the auditor to behave in order to protect that interest.
ma’am I don’t understand how the auditor would have an interest in the outcome of negotiations? As in what kind of benefit would auditor try to protect, that may arise from a positive outcome like- acceptance of of loan application?
doubt 2: in the same subpart
A self?review threat may also arise because the negotiations may result in facts and amounts which will form part of the audited financial statements. As a result, the auditor will be auditing financial statements which in part at least represent work which they themselves have performed. It follows that there is a risk that the auditor will not be sufficiently objective in performing the audit and may fail to identify any shortcomings in their own work.
m’am again am unclear how exactly self review threat arises here. from my understanding it seems that some fo the prospective financial information(PFI) may as well turn out to be actual, and so when the auditor audits such information there is a chance they may not retain full professional scepticism-hence self review threat. Is my understanding correct?
It is only saying that there MAY be a PERCEPTION of self-interest. If the client gets the loan and the expansion (that looks to be quite significant) goes ahead, the audit fee will presumably increase.
Noah098 wrote:doubt 2: in he same subpart
For example, it could increase the risk that the auditor overlooks to obtain confirmation of the new loan in the audit work.
It would be helpful if you could think through your questions – perhaps draft in a doc and then copy and paste them into the forum?
I understood the self interest part. but I am still unclear with self review threat. can you elaborate slightly maam if possible…
You don’t have to understand every point in the model answers. It’s simply trying to say that the auditor may be “blinkered” (rather than objective) when auditing the loan as it eventually appears in the financial statements because they’ve already come across it in the other work. Knowing that $22m was the amount of the loan applied for wouldn’t be sufficient audit evidence.
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