Self-Interest Threat: self interest threat may occur as a result of the

financial or other interests of a chartered accountant or of an immediate or close

family member.

 A financial interest in a client or jointly holding a financial interest with a

client
 Undue dependence on total fees from a client
 Having a close business relationship with a client
 Concern about the possibility of losing a client
 Potential employment with a client
 Contingent fees relating to an assurance engagement
 A loan to or from an assurance client or any of its directors or officers
Q. IT HAS BEEN DISCOVERED THAT FATHER OF ONE OF THE
TRAINEES POSTED ON THE AUDIT OF CL, HAS A FINANCIAL
INTEREST IN CL.
Ans. In the given situation involvement of such trainees in the audit of CL may
result in a self-interest threat. The materiality and significance of the financial
interest, needs to be evaluated. If the financial interest is immaterial then the audit
trainee may be allowed to work on that client, otherwise only safeguard available
is to withdraw the trainee from this assignment.
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Q. HL, an audit client of your firm has recently advertised certain vacancies in
its accounts department. The said positions have been applied for by number of
individuals including two staff members who are posted on the audit of HL.
Ans. A self interest threat is created when a member of the assurance team
participates in the assurance engagement while knowing, or having reason to
believe, that he may join the assurance client in future. The threat created can be
reduced to an acceptable level by the application of the following safeguards:
1.Ask the individual to notify the firm when entering serious employment
negotiations with the assurance client;
2.Remove of the individual from the assurance engagement;
3.Perform an independent review of any significant judgments made by that
individual while on engagement.
Q. During the course of audit of HP Limited (HPL), the engagement partner has
informed the firm that his brother has acquired 200,000 shares in HPL.
Threats: Self interest threat is created as the shares are held by a close relative of
the engagement partner. As the engagement partner has promptly notified the firm
about the interest of his brother, hence it is likely that it would not impair the
independence of the engagement partner.
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Safeguards: Significance of threat should be evaluated and if the threat is other
than clearly insignificant, safeguards should be considered and applied as
necessary to reduce the threat to an acceptable level. Such safeguards might
include:
1.If possible the engagement partner may convince his brother to dispose of the
shares;
2.If the disposal does not occur at the earliest practical date, the engagement
partner may be changed.
3.An additional chartered accountant who did not take part in the assurance
engagement may review the work done or otherwise advise as necessary.