ethical threats and mitigating factors…

Threat: Client has asked the audit partner to attend meetings (stock exchange listing)
Effect: Advocacy threat. Audit firm may be perceived as promoting shares.
Mitigate: The partner shall politely decline this request.

Threat: Client request audit firm to produce FS.
Effect: Self review threat. Producing and auditing the FS at the same time.
Mitigate: Should not undertake the preparation of the FS. If firm choose to prepare then separation of teams is necessary. Audit team should not be part of accounts preparation process.

Threat: The assistant Finance Director or Finance Director has joined as a partner of firm or as a review partner of firm.
Effect: Self review threat. Reviewing his own work.
Mitigate: This partner must not be involved in the audit of the client for a period of atleast two years. An alternate partner shall be appointed.

Threat: Client has asked the firm to perform the work quickly.
Effect: Intimidation threat. The team may feel pressure and so may not raise issues. This could compromise the objectivity of the audit team.
Mitigate: The engagement partner should POLITELY inform that finance director that the team will undertake the audit in accordance with all relevant ISAs and audit will take as long as is necessary to obtain sufficient appropriate audit evidence. If still threat continues, consider resigning.

Threat: The client has offered a team member a loan at discounted terms.
Effect: Self interest threat. Preferential terms are not allowed.
Mitigate: Loans shall not be accepted, if terms are changed to normal then it is acceptable.

Threat: After audit, huge gifts, dinners etc.
Effect: Self interest threat. Significant value of goods and services are not accepted. Insignificant value items are acceptable.
Mitigate: Politely decline the offer.
   
Threat: Partner & client are friends.
Effect: Familiarity or Self interest threat. Independence may be perceived to have been threatened.
Mitigate: Consideration should be given for rotating the partner off this engagement and replacing with an alternate partner.

Threat: Fees remains outstanding/due from client.
Effect: Self interest threat. The firm may feel pressure in asking for adjustments necessary in FS as client has retained their fees.
Mitigate: Firm shall chase the outstanding fees. Discuss with those charged with governance the reasons for non-payments. Agree a payment schedule. Fees to be settled before the completion of current year audit.
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