June 2010 #4 (b)

Hello sir, this was one of my threats and safeguards to the threat I identified from the scenario. I do not understand why the examiner’s answer said that the discount was a familiarity threat. Also, can you tell me if my answer below is entirely wrong and how many marks would I get for it?

Threat:
The audit team members are offered a 10% discount if they purchase a luxury mobile phone. This would create a self-interest threat as persons on the audit team may be reluctant to identify any problems in the audit as this may result in the offer being taken back or not offered at next years audit.

Safeguard:
Since the client sells ‘LUXURIOUS’ phones, this means clearly that the value of the discount is significant and should therefore be rejected.

I have another question, when giving safeguards in the exam, Can I give more than 1 safeguard. For example, for the 2nd threat about secondment (temporary staff assignment I mentioned in my answer), I said to:
– not include the audit senior on the audit team
– if this is impossible due to lack of staff, then the audit senior should not be give areas to audit which he had responsibility for at the client and
– conduct a review of work carried out by the audit senior.

Will I get this wrong/loose marks?

Finally, for the fees this was my answer. Is it wrong/loose marks?
Threat:
The audit firm receives more than 15% of its fee income from just 1 client. This is a high % of fees self interest threat as the audit firm might be fearful to issue a modified audit report because they may loose the client.

Safeguard:
The audit firm should find ways of reducing their dependency on this particular client for fees. For example, through advertising to attract new clients.

Thank you sir, all help will be appreciated.