Self-interest vs Familiarity threats

Self interest is where you are liable to gain from a decision. For example, if a company receives a qualified audit report this is often viewed with concern and can lead to a fall in share price. If the auditor owned shares in the company then the auditor could be tempted to ‘go easy’ on the company, give it a clear audit report so that the shares (and the auditor’s investment) did not lose value. Another example can be giving a clean audit report in the hope that the company would reward that with eg consultancy work.

Familiarity is essentially based on friendship and trust. If the auditor becomes over-familiar with client staff then it becomes harder to question the client about discrepancies. The client might be trusted too much or the auditor does not want to jeopardise a friendship of family connection.