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CHEETAH co S17/D17 (A)Kaplan kit part b)
On balance, Leopard & Co may consider that the threats, both real and perceived, are too great and it would be most prudent not to attend the meeting. If this is the case, Leopard & Co should politely decline the invitation, explaining the reasons why it is inappropriate.
ma’am what is the exact difference between real and perceived ethical threat?
Andy is an audit partner in ABC & Co – his wife is the CEO of XYZ & Co. Andy cannot be the engagement partner on the audit of XYZ & Co because there is – de facto (i.e. actual/real) familiarity threat.
Even if he is not the engagement partner – a threat to the firm’s objectivity would be perceived by the “man in the street”, the media etc … “Read all about it – audit partner gives clean report on wife’s company ….” Perception is what is inferred, concluded or believed – it doesn’t have to be true. Which is why safeguards alone cannot be enough – it would not be enough that Andy is not part of the audit team
Taking a bow!
just to be double sure, in such a scenario as above where the engagement partner has some ties with KMP then the audit firm cannot accept the audit, right? Because no safeguard would reduce the threat to an acceptable level, caused as a result of the above mentioned familiarity threat…
See page 28 of the notes for the “prohibitions”.
There is no actual prohibition on ABC & Co being the auditor of XYZ & Co – otherwise it could be very difficult for spouses of partners to be employed in senior positions of companies (!!!) I suggest it would depend on many factors including how many partners there are in ABC & Co – how many offices it has – whether Andy is a senior partner in the office that would audit XYZ & Co – or a junior partner in another office … etc … etc
It’s for the FIRM to have policies and procedures to manage PERCEPTIONS.
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