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maam can we say that when an audit firm performs tax computation(along with audit) then advocacy threat arises because the audit firm is more likely to defend the tax figure/payable in front of tax authorities, as it has been calculated by itself? is it correct to say so?
Not really – “mere” tax computation is routine – and gives rise to self-review threat (because the tax liability is in the SoFP).
Advocacy threat would arise if, for example, client is already in dispute over a tax treatment and asks auditor for advice to support their position – or if the client asks the auditor to advise on an accounting treatments or tax schemes that would avoid tax.
but ma’am in this question- THOMASSON & CO Dec 18 part b) the following is stated with respect to tax computation performed for the client by the audit firm:
There is also a potential advocacy threat. An advocacy threat arises when the auditor is asked to promote or represent their client in some way. In this situation, there is a risk of the auditor being seen to promote the interests of Clean Co with a third party such as the tax authorities and therefore that the auditor will be biased in favour of the client and cannot be fully objective.
The preparation of the tax computation ALONE does not of itself create an advocacy threat – there is no “advocacy” to anyone. It is the completing the company’s tax returns (as per scenario) – suggests potential advocacy threat.
ma’am but filing tax returns should be a mechanical procedure and doesn’t include any judgements to be made, so how can that give rise to advocacy threat?
to me it seems that both computing and return filing are both mechanical in nature and should not lead to advocacy threat, but the answer suggests otherwise…
But any tax return will generally be submitted with a declaration of the factual accuracy/completeness of the return and where it is submitted by a “representative” of the tax payer, the representative will be named.
I am trying to justify the answer you quoted as it comes from the examining team. That said, having looked at the Code again to answer this post https://opentuition.com/topic/ethics-34 I am of the opinion that my first response was correct and that the answer you quote is “over egging” the advocacy risk.
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