Regarding their audit work, auditors are supposed to offer a professional and objective

assessment. For those who depend on them, their accompanying auditor report is
worthless due to their lack of independence. For example, if the auditor has a close
relationship with the CEO of ABC Company, the potential investor would be less likely
to believe the audited work(ICAEW, 2019). Information dependability and the integrity of
the financial markets are jeopardized by this. Due to the possibility of skewed audit
findings, banks would be hesitant to grant loans to businesses and investors would be
hesitant to provide cash(SEC, 2018).

Internal audit independence is the absence of circumstances that can jeopardize its
capacity to perform duties impartially. The chief audit executive needs to have direct
access to the Board and senior University staff in order to accomplish this. Additionally,
according to the SIAAB, internal audit is not allowed to oversee operations directly or be
assigned reporting duties for any program area. An impartial mindset that enables
internal auditors to carry out engagements with assurance and without sacrificing quality
is known as objectivity(ICAEW, 2019). Examining risks to auditor independence is
essential prior to performing an audit. Although self-interest, self-review, familiarity,
intimidation, and advocacy are possible challenges to independent auditors, they are
necessary for a comprehensive audit. These dangers have the potential to undermine
the auditor's objectivity and independence, which would prevent a careful and moral
audit(CPA, 2015).

The first threat to auditor’s independence is self-interest. Conflicts of interest arise when
an auditor's interests deviate from those of the client, endangering the impartiality and
independence of the auditor. Auditors may give priority to their own interests while
taking into account the interests of all parties involved in an audit. In order to minimize
self-interest, auditors may choose to reject individuals who bring up these issues with
clients or, in the event that they are unable to resolve them, may decide to end their
involvement. Auditors may have to think about ending their involvement if they are
unable to overcome these obstacles(Tothe Finance, 2018). Kristy Amen has a
personal relationship with the client and it poses a self-interest threat to her
independence and objectivity. She has accepted a loan from ABC Manufacturing INC.
Kristy even has a husband who is the finance manager at ABC Manufacturing INC. ABC
Manufacturing INC has loaned her $10,000 due to some financial issues that she is
been dealing with until she can improve her money situations. This could create a self-
interest threat to her independence and objectivity. Kristy getting the loan could help her
improve her financial hiccups so she can proceed with the audit process.

Another threat to auditors’ independence is self-review. Due of their strong relationships

with clients and their capacity to offer services beyond auditing, like accounting and tax
preparation, auditors frequently encounter self-review hazards. Because of this, there is
a chance that auditors will assess their earlier work, particularly when preparing
financial statements and conducting audits(Corporate Finance, 2023). Auditors can
minimize this risk by assigning different teams to each task and refraining from double-
checking their work. Auditors may have to end the relationship if they are unable to
handle the pressure of self-evaluation. By establishing clear expectations and precise
communication, this risk can be reduced(CCS, 2022). Kristy Amen was requesting for a
loan in order to solve her financial situations especially since the fact that her husband
is the finance manager of the ABC Manufacturing INC. The self-review that is on this
situation is based on ethical concerns related to auditor independence, objectivity, and
integrity. Kristy asking for a loan could affect the credibility of the audit process. Hashim
Nasir wanting to secure a hefty loan could raise a huge concern for the auditor’s
objectivity and independence.

The next threat I would like to discuss is advocacy threat. When an auditor pushes a
client to the extent where it compromises their neutrality, that poses an advocacy
hazard. This might happen if an auditor is helping to sell a business and gives a positive
report to raise the asking price. Auditors who act as clients' representatives run the risk
of having their independence compromised by advocacy. They run the danger of doing
so by openly endorsing their clients or serving as advocates. Another potential danger is
the client-auditor connection. Safety measures are implemented to mitigate the hazards
of familiarity and advocacy. Auditors could have to choose between continuing their
current audit contracts and assisting customers(Tothe Finance, 2018). Hashim Nasir
has been negotiating with the bank manager about the loan. This could create an
advocacy threat in terms of promoting the client’s interest. Nasir is actively promoting
the client’s interest in obtaining the additional funds. This way Nasir could prioritize in
help the client getting the loan instead of the integrity of the audit process.

Familiarity threat is another good example when it comes to threats to auditors’

independence. An auditor faces a familiarity threat if they have too much familiarity with
the staff, executives, or directors of a client company, which could compromise their
neutrality(CCS, 2022). This may also happen as a result of the intimate working
connection that exists between auditors and clients, which may lead to auditors
possessing an excessive amount of managerial information. The longer the parties have
known one another, the more likely it is that this danger will reduce participation. Auditor
relationships with long-term clients should be avoided, and team members should be
rotated often to prevent this(Yellow Book, 2023). Kristy Amen’s relationship with the
client of the ABC Manufacturing which happened for seven years could possibly lead to
a familiarity threat. This could create a lack of professional skepticism in terms of
evaluating the company’s financial statement.

Lastly, there is intimidation threat to discuss. When management or directors intimidate

auditors and prevent them from functioning impartially, this is known as an intimidation
threat. Risks can also arise from direct client threats, in which clients exert influence
against auditors. The objectivity and independence of auditors may be jeopardized by
these threats(Tothe Finance, 2022). Threats of intimidation can have disastrous
results; thus, auditors need to be ready to leave such circumstances. On the other
hand, auditors can sometimes avoid intimidation by keeping clients from acquiring
power. This methodology aids in preserving their impartiality and independence in their
work. The intimidation threat regarding this situation is based on the relationship
between the auditor and the client(Corporate Finance, 2023). Kristy Amen who is the
member of the audit team has a husband who happens to be the finance manager of
the ABC Manufacturing INC. Hashim Nasir who is the engagement partner is eager to
securing a hefty loan for ABC Manufacturing INC. Kristy getting the loan could create
with a relaxed payback plan and it could not only create a conflict interest but it could
also influence her objectivity and independence as an auditor. Overall, Kristy requesting
the loan would certainly affect the auditor’s objectivity and independence over the
client’s personal. Personal links, monetary reliance, and large financial stakes for the
audit company and the customer all contribute to the intimidation danger, which could
make it more difficult for the audit team to carry out its tasks impartially and
independently(NEIU, 2014).

In order to limit or eliminate threats to independence, the PA should set up safeguards,

such as client, firm, legislative, and regulatory protections, and make sure they are
either completely eliminated or lowered to manageable levels. The PA should identify
safeguards to eliminate or reduce threats to independence, including professional,
legislative, or regulatory safeguards, client safeguards, and firm safeguards(Easy
Accounting, 2013). These safeguards must either eliminate threats or reduce them to
an acceptable level. Protections such partner rotation, remuneration, client income
limitations, and forbidden services are provided by the profession and the law(Safety,
2021).

In order to ensure a balanced approach to business operations, provincial practice and

CPAB inspectors perform independence reviews, looking at quality control procedures
and engagement level independence. Policies banning particular services and
promoting moral behavior are examples of client safeguards. To prevent auditors from
dictating accounting policies, having competent accounting staff is essential. The
management-free audit committee is in charge of both internal and external auditors. An
active committee that is accessible to both internal and external auditors is a sign of a
sound corporate governance framework. Generally speaking, incorporation acts
mandate that the committee consist of independent outside directors.

Several safeguards should be implemented in order to ensure the integrity and

independence of the audit process. In order to guard against familiarity threats and
preserve objectivity, the audit team members must rotate on a regular basis(Easy
Accounting, 2013). After working for the customer for seven years, Kristy Amen
deserves to be rotated off the contract. Auditors need to disclose relationships with
clients or financial arrangements to identify such risks and put the appropriate measures
in place. Auditors need to assess potential threats and necessary safeguards.

Auditors employ audit procedures as a means of gathering trustworthy information and

evaluating the financial health of a business. They support the assessment of a
company's financial statements' veracity and accuracy. Consistent application of these
protocols fortifies an organization's fiscal standing, augmenting its credibility with clients,
the marketplace, and possible financiers(Wall Street, 2018). Audit procedures known
as substantive methods rely on concrete proof, including financial statements, books of
accounts, and transaction records, to offer a high degree of accuracy and a definitive
understanding of the situation. Important papers like building rent deeds and land
registry are also a part of these techniques(Methodology, 2022).

Tests and investigations of financial data are conducted as part of analytical audit
procedures, which examine connections between financial and non-financial data.
Auditors review financial statements and base their conclusions on data from prior
years. Depending on the audit area, several procedures might be used, such as
comparing the financial data of two distinct entities or two sets of financial statements to
gather audit evidence(Wall Street, 2018). The auditor tests the design, procedure, and
efficacy of the company's internal control system, looks for discrepancies between goals
and accomplishments, and determines how beneficial the control systems are for the
organization as a whole(Reciprocity, 2018).

An inquiry is a fundamental audit process where auditors interview staff members to

obtain oral testimony. This evidence is insufficient, and more proof or supporting
documentation is needed. In order to obtain information and dispel any questions,
auditors may speak with personnel from the finance department or outside sources. But
this evidence is insufficient to support itself on its own(Methodology, 2022). Just like
inquiry, confirmation calls for justifications regarding an organization's transactions;
however, confirmation is verified through direct interaction with external sources or third
parties, such banks, suppliers, or consumers, which are connections within the
company(Reciprocity, 2018).

By verifying that an organization is following current business practices or measures,

the audit process offers insight into internal operations and how they affect the
corporation as a whole(Wall Street, 2018). Usually, auditors observe other people
carrying out a certain task, like comparing acquired goods with GRN, in order to get
insight into internal procedures and their possible effects(Methodology, 2022).
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and-ethics/ethics/auditor-independence

Auditor independence matters. SEC Emblem. (2018, July 12).

https://www.sec.gov/page/oca-auditor-independence-matters

CPA professional conduct: Auditor independence - harmonized rule of professional

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ACCA, M. D. K. (2018, April 1). Five threats to Auditor Independence. Accounting and
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Independence and objectivity. NEIU. (2014, July).

https://www.neiu.edu/about/university-leadership/president/administrative-offices/
internal-audit/independence-and-objectivity

Auditor independence - what is it, rules, importance, examples. (2018, January).

https://www.wallstreetmojo.com/auditor-independence/

Leita. (2023, November 17). Independence is required of a CPA performing Yellow

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of-a-cpa-performing.html

Delgado, E. (2013, November 23). Safeguards in auditing. Safeguards in Auditing.

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Audit procedures   // . Audit procedures. (2022, October).

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Threats to auditor independence. Corporate Finance Institute. (2023, October 4).

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Ccs. (2022, December 12). What gives rise to a threat to an Auditor’s independence
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independence-and-objectivity-and-how-to-deal-with-it

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