Ethical threat How it might be reduced

The engagement partner has been asked to attend This represents a significant threat to independence
meetings with potential investors. and it is unlikely that safeguards would be adequate
to reduce it to an acceptable level. The request
This represents an advocacy threat as this may be
should be politely declined.
interpreted as the audit firm promoting investment
in Orange Financial Co.
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Ethical threat How it might be reduced

Current & Co have been asked to produce the As the company is in the process of obtaining a
financial statements of Orange Financials Co. listing the threat to independence may be assessed
as too high if Currant & Co both prepares and
This represents a possible self-review threat as
audits the financial statements.
Currant & Co would be both preparing and auditing
the same information.
As Orange Financials Co is not a listed company the If Currant & Co does choose to prepare the financial
preparation and audit of financial statements is not statements it should ensure that there are two
prohibited by ethical standards. However the separate teams, one which prepares the financial
company is in the process of seeking a listing which statements and one which performs the audit.
increases audit risk as it is likely that potential
investors will rely on these financial statements to
make investment decisions.

The assistant finance director of Orange Financials This individual must not be involved in the audit of
Co has joined Currant & Co as a partner and it has Orange Financials Co and another partner should be
been suggested that he should be the independent appointed as the review partner.
review partner.
This represents a self-review threat as the same
individual would be responsible for reviewing the
audit of financial statements which he has been
involved in preparing.

Current & Co would like to conduct other
assignments for Orange Financials Co.
This gives rise to a potential self-interest threat as
the total fees generated from this client may form a
substantial proportion of the fees of the firm which
may have an impact on the firm's objectivity.
The other work will only be available when Orange
Financials Co obtains its listing. The company will
then be a public interest entity so Currant & Co will
need to consider whether the these additional fees
together with existing fees represent 15% of the
firm's total fees for two consecutive years. Where

Orange Financials Co has indicated that the other
work will only be awarded to Currant & Co if it
completes the audit with minimal issues.
This gives rise to an intimidation threat as the audit
team may feel under pressure not to perform a
thorough audit in order to comply with this request.
The audit team has been offered a luxury weekend
away once the stock exchange listing has been
completed.
This represents a self-interest threat as the
independence of the audit team may be affected by
their wish to go on the holiday.
this is the case disclosure must be made to those
charged with governance and a review (pre or post
issuance) must be conducted .
The audit partner should explain to the finance
director that the firm is required to perform the
audit in accordance with auditing and quality
control standards. As a result all relevant issues and
questions will have to be investigated thoroughly in
order to obtain sufficient appropriate evidence to
form the audit opinion. The length of time this will
take cannot be guaranteed.
If the finance director is unwilling to accept this and
continues to put undue pressure on Currant & Co
the firm should consider resigning from the
engagement.
As the value of the hospitality is unlikely to be
inconsequential no safeguards would be adequate
to reduce the threat to an acceptable level. The offer
of the weekend away should be declined politely.