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Hello Mike,
An audit firm offers custodial service to all clients, and charges fee for the service based on the value of items deposited and the length of the arrangement.
This will create self-interest to independence, as the firm will be tempted to offer the service for high value item to maximize the fees to be earned, and independence being compromised?Is it correct?
What are the safeguard to reduce the threat to independence to an acceptable level in the situation?
Thank you.
Regards,
Marthew
Yes, that’s correct
Safeguards? The obvious one is “Don’t do it”!
Maybe it would be possible to establish a separate company off-shoot where all the employees are divorced from the audit side of the firm and don’t ever mix with nor communicate with the audit personnel
Separate offices – maybe even in different towns – and managed / run / overseen by a non-audit partner / manager who is responsible for reporting the results of this separate company annually to the firm’s partners
Does that help?
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