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self-interest threat

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › self-interest threat

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Kim Smith.
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  • June 26, 2021 at 7:09 am #626349
    Jiya024
    • Topics: 168
    • Replies: 56
    • ☆☆☆

    Dear Professor,

    I wanted to know if a non-bank client gives a loan to its auditing firm, which is immaterial to both entities, then do the safeguards need to be applied?

    Many thanks Professor!

    June 27, 2021 at 8:19 am #626432
    Kim Smith
    Keymaster
    • Topics: 88
    • Replies: 6096
    • ☆☆☆☆☆

    First consider if the audit client is a bank:

    “A firm, an audit team member, or any of that individual’s immediate family shall not accept a loan, or a guarantee of a loan, from an audit client that is a bank or a similar institution unless the loan or guarantee is made under normal lending procedures, terms and conditions.”

    “materiality” doesn’t come into this – the transaction must be on NORMAL lending terms.

    For a non-bank client, “lending” is not its business and as you say, is only permitted if it is immaterial to the client AND the recipient (firm/audit team member/immediate family member). This does not require safeguards – if immaterial to the client it can have no bearing on the financial statements.

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