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Hi
Please could you explain why “recruitment” is a self interest threat according to IAASB ethical standards?
Thanks
Hey,
I’m sure you are aware of the self interest threat. You have an interest with the client and that clouds your judgement.
When a member of an audit team is asked for recruitment within the client’s business, the member would do his best to please the client so that his recruitment is successful. This can involve following their instructions to hide fraud, not disclosing a fraud to the NEDS, among others.
Same goes with having shares in the client’s company.
It also creates a self review threat, having worked in the finance dept you are now assessing yours or your colleague’s work and that would prevent you from being objective.
It’s all about being objective with the audit.
I hope this answers your query.
Thanks Ali for your response.
However the recruitment threat refers to giving advice to an audit client about who to recruit, so how does that result in a self interest threat? and not necessarily recruiting from the audit firm!
I can understand how it might be considered a management threat but why is it a self interest threat?
Thanks
Okay, you weren’t clear about recruitment and I had seen a question where a manager was asked to work for the client
Now that you have clarified, recruitment services by an audit firm requires a separate engagement letter with separate terms and fees.
While on an audit, if the firm provides the service, they will be interested in collecting the fee for recruitment and this can affect the quality of the audit.
It depends on how big the position is. If it’s key personnel, separation of engagement is required.
It can also create intimidation threat and self review.
Hey Zacky, check out this PDF for Ethical Threats
https://accaforstudents.com/acca/Ethical+Threats+to+Independence
Recruitment
?RECRUITING SENIOR MANAGEMENT for the client
creates self-interest because firm may INDIRECTLY
make MANAGEMENT DECISIONS for the clientAccording to the little I know, I think they could be mistaken. The above quote implies merely a Management Threat not a Self interest threat!
Correct me if I’m wrong!
Thanks
Notice that they haven’t separated out ‘Management threat’ in that article. Most authors don’t.
It does imply a Management threat and what they have written doesn’t fully explain why its a self interest.
You are acting as the Management, doing their work, but still not charging them. Does it not create Self Interest? You would be interested in collecting the fee rather than doing the audit unless the work is insignificant.
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