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Audit firm provides services to listed company (not an audit client) like corporation tax, finance work and forensic investigations.
In context of matters to consider before accepting audit engagement will this give rise to management threat??
Welcome to my AAA forum!
Short answer – yes.
See on page 24 of our notes – according to IESBA “management threat” is not a separate category though it is used in other codes (e.g. in UK Code the term is used to identify a threat in connection with the provision of non-audit/additional services).
This is what the FRC code says:
“A management threat to integrity, objectivity and independence arises where the firm provides non-audit / additional services and, based on that work, management are required to make judgments and take decisions. The persons conducting the service may become closely aligned with the views and interests of management and this may erode the distinction
between the entity and the firm, in turn, impairing or calling into question the ability of the persons conducting an engagement to apply a proper degree of professional scepticism.”In short, the firm in your scenario already has a relationship with a client that may impair the firm’s independence with regard to the audit – if it were to accept the audit.
Thank you very much Kim.
Also this will give rise to self interest threat as the audit firm will be Generating additional income from non audit services this will increase the dependency on the client?Absolutely – that’s why the International Ethics Standards (and ACCA’s Code of Conduct) consider a separate category of threat to be unnecessary – because the threats can be expressed in terms of self-interest (fees), self-review (if NAS have relevance to the financial statements), familiarity, etc …..
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