Auditing 1

Assignment

• Q. Explain the measures that an auditor should place to safeguard his independence when providing other services to clients

Remember !!

• Independence involves appearing independent and actually being independent.

• Monitoring the fees received from clients in comparison to the total fees to reduce the perception of dependence on the client. The auditor should diversify his clientele to reduce risk of suffering any substantial business loss should the client terminate his employment.

• Rotating senior audit staff on an engagement after a fixed period to reduce the threat of too much familiarity with the client or the perception of such familiarity.

• Not accepting gifts or hospitality from clients unless they are considered by partners to be modest.

• Not allowing individuals with family or personal ties to a client to be involved in the audit of such a client.

• Not engaging in any business or financial relationship with a client of the auditor.

• In cases where safeguards are not applicable the auditor should consider resignation.

• Using separate teams where additional services are offered to audit clients to reduce the self review threat. This occurs when the same auditor is asked to prepare and audit financial statements and fails to identify his own mistakes for fear of financial loss or losing reputation.

• Q. Outline how the auditors independence may be compromised where the auditor provides other services to clients:

Familiarity threat:- This occurs when an auditor is too sympathetic or trusting of the client due to

his close relationship with them.

• Self review threat:- this occurs when the auditor has to review work previously performed..

• Self interest threat:- When the client offers other services to the client the amount of income gained by the auditor as a result of such an engagement would substantially increase. The auditor may fail to raise some issues for fear of losing the client.

• Hospitality provided by the client while the auditor is in the clients premises may be viewed as a compromise or might also foster the growth of personal relationships that may hinder the audit staff’s objectivity.

• Q. Benefits that accrue to the auditor and benefits that accrue to the client when an auditor provides other services to his clients.

To the auditor:

• The remuneration of the auditor

• Developing a better understanding of the clients business.

• Training and experience is gained.

• Marketing and reputation.

• Diversification of its services.

To the client.

• Audit staff are drawn from a wide range of expertise

• The cost of employing permanent staff are avoided

• Specialist skills are employed in the audit.

References.

• Study anytime, ACCA paper 8, audit and assurance 2012.,Kaplan Publishing.