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Test-3 Obtaining An Engagement Ethics Solution
Test-3 Obtaining An Engagement Ethics Solution
(b)
Threats
Close friendship of the audit manager with the managing director would cause a familiarity
threat, because the audit manager would be biased towards the managing director and would
sympathetic to his interest or too accepting of his work.
Safeguard
• Structure the audit manager’s responsibilities to reduce any potential influence over the
assurance engagement; or
• Review the assurance work from a chartered accountant; or
• Remove the audit manager from the engagement.
Threats
• Offering of membership at reduced rate could cause a self-interest threat to the audit,
because the recipients may not want to lose their benefit, and therefore be biased in their
audit work or not seek adjustments where there are material issues in the financial
statements.
• An intimidation threat may also arise because the audit client may threaten to make such
offers public to degrade the firm’s reputation.
Safeguards
Auditors are not allowed to accept such benefits unless their value is trivial and inconsequential.
In this case, the value of a reduced membership of a high-end gym is unlikely to be trivial and
inconsequential to audit staff members and therefore the firm should reject this discounted offer
of MD.