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Hi sir,
Can u explain this
Provision of guarantee of bank loan by audit firm lead to self interest threat+ financial interest in audit client ?
Thanks
Imagine an audit client took out a loan from a bank for $50k. If the auditor (firm of member of the audit team) were to guarantee the loan that would mean that if the client were to breach the loan agreement, the bank could seek to recover it from the auditor.
The bank might call in the loan if the client’s financial statements showed any uncertainty about going concern (for example). The auditor’s objectivity would be impaired because there is self-interest in not having the loan called in – this is also a financial interest because the auditor would be liable for $50k under the guarantee.
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