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if an auditor assists with selection of new Non executive director, why is this a self interest threat ? could you please explain in a bit of detail..
Welcome back to my forum!
Because NEDs sit on board committees, and one of those committees is the audit committee, whose roles and responsibilities include recommending on the external audit appointment (4th bullet on page 16 of the notes).
So the auditor has a self-interest in the appointment of a NED who, in turn, will recommend their appointment.
so basically it is a self interest threat because auditors would choose such NED who would recommend their name so ultimately they would get high fees again so there is a monetary benefit which is compromising thier independence right?
i have one more question that it can also be familiarity threat right? like if external auditors appoint NEDs who are their relatives or friends , if you could confirm?
Not necessarily “high fees” – any fee is a financial interest, and therefore self interest.
There could be a familiarity threat if an audit partner/manager has a close family or other personal or business relationship with a NED (or indeed any senior member of client management). However, an exam Q would have to indicate that this was the case, otherwise it would be a matter of pure speculation (so not an objective test).
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