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Which of the following statements correctly explains the possible threats to Horti & Co’s
independence and recommends an appropriate safeguard in relation to the audit of Tree
Co?
1 An intimidation threat exists due to the overdue fee and Tree Co should be advised that
all fees must be paid prior to the auditor’s report being signed2 A self-review threat exists due to the nature of the non-audit work which has been
performed and an engagement quality control review should be carried out3 A self-interest threat exists due to the relationship between Charlie and Percy and
Charlie should be removed as audit partner1, 2 and 3
1 and 2 only
2 only
3 onlyDoesn’t the relationship between Charlie and Percy create a Familiarity threat and the overdue fees could create an intimidation or self interest threat, depending on the situation.
Please let me know, thanks in advance!!Welcome to my AA forum! You haven’t actually said, the correct answer is 3 only. If you are querying why 1 is not correct it’s because it says “all fees must be paid prior to the auditor’s report being signed” – this is not a true statement.
For any students reading this, you haven’t said what is the relationship between Charlie and Percy (prospective fathers-in-law). As it states in the Code “Family or personal relationships with client personnel might create a self-interest, familiarity or intimidation threat.”
The prime example of familiarity threat is “A professional accountant being responsible for the financial reporting of the employing organization when an immediate or close family member employed by the organization …” prospective fathers-in-law are neither immediate not close family members.
Whereas self-interest threat is defined as “the threat that a financial or other interest will inappropriately influence a professional accountant’s judgment or behavior.”
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